I don't mind you comin' here
And talking in your sleep
It doesn't matter where you've been
As long as it was deep, yeah
-- "Just What I Needed" Ric Ocasek (The Cars) 1978
There Are Times
There are times that athletes just know. The same thing happens to financial professionals, and my guess would professionals of all types. Sometimes you know you have it, sometimes you know you don't, and sometimes you know that the playing field or the arena is just not going to play your game.
Wednesday was one of those days that probably, for many, it took just a few minutes to realize that the ice was thin -- that all that was needed was a reason to take some flesh out of the markets. It makes sense. In addition, our community was offered not one, not two, but three good reasons to at least not be so aggressive on the bid side of the market.
What the pros know, and what perhaps the new kids might not know, is that hot new issues (IPOs or initial public offerings) tend to draw increased funds away from profitable positions as managers become pressured to be more involved.
Jim Cramer explains this process, in his Real Money column here, through the use of the block-building "Jenga" game as a model. Pretty clever method of education if you ask me.
The dollars spent on something new (and hot) must come from somewhere. A down tape begs profit-taking. This is a temporary phenomenon. Usually. On Tuesday that money chased DoorDash (DASH) and C3.ai (AI) .
Readers need to be fully cognizant that Airbnb (ABNB) priced at $68 per share last night, well above the revised range of $56 to $60, and will open at the Nasdaq Market Site at some point on Thursday. This price values the company at $47 billion, and we can only hope that the bankers who priced this merchandise are somewhat more accurate in gauging market demand than were those involved in Wednesday's new issues. That was truly a job poorly done. I know. I've been there. Just an FYI, Morgan Stanley and Goldman Sachs are running the book for the Airbnb deal.
Exchange-traded funds linked to U.S. equities took in record monthly inflows for November of $62.5 billion. That's more than half of the $121 billion taken in globally by ETFs according to ETFGI. Inflows, globally, are up 15.4% over the first 11 months of 2020 versus the first 11 months of 1019.
Seems like it would be a positive, right?
Not if it means that there could be considerably less cash on the sidelines than previously thought. If this were the case, then the rally that has broadened now for almost two months would no longer be able to do so freely. We point back to Jim's "Jenga" model. To add somewhere would require subtraction somewhere else.
Do I think this is the case? Maybe in spots, but probably not yet market-wide.
All professionals are well aware that historically, December can be a positive month into early January. This year, there are a number of headline-level issues facing investors, such as rising Covid-19 new infections, hospitalizations, and deaths. Then, one has to factor in potential for optimism as vaccines hopefully tame this beast over the next few months and a nation, a planet begins what will be the hard work of rebuilding not only economies, but society.
Long-term investors also need to understand that an over-reliance upon tracking funds will ultimately (my opinion) exacerbate volatility, and once everyone is standing on the same side of the ship, so to speak, destabilize financial systems. (This concept is not today's headline, but it is out there, and it is hunting us all.)
When looking to cast blame for a selloff, one never really has to look past our policy makers and in doing so, will rarely be disappointed. On Wednesday's episode of "As The Swamp Turns," current Treasury Secretary Steven Mnuchin proposed a slightly refined $916 billion fiscal support package to Speaker Nancy Pelosi that did include $600 direct payments to individuals, and $1,200 direct payments to households, but no federal stipend would be added on to state-level jobless benefits. The focus of the bill would be on preserving what is left of employment at the small business level.
Of course, Pelosi, and Senate Minority leader Chuck Schumer rejected the proposal, while Senate Majority leader Mitch McConnell seemed vague in his "still looking for a way forward" comment. Hence, this was when the sell programs really hit equity markets on Wednesday, and that selling only would pick up steam throughout the afternoon.
I remember it well. I read it early, as I was working for the New York Daily News in those days. August 1, 1978. Pete Rose went hitless against the Atlanta Braves. His hitting streak was halted at 44 games. He would not catch New York Yankee great Joe DiMaggio, who had hit in 56 consecutive games back in 1941, or even catch Willie Keeler who hit in 45 consecutive games for the National League's Baltimore Orioles over the 1896 and 1897 seasons.
December 9, 2020. The Nasdaq 100 sells off and sells off hard, down 2.15%. Jenga. The winning streak was over at 10 days, but the one-day loss took back the aggregate gains of the past six. Ouch.
The truth is that while there is no way to disguise the professional distribution on Wednesday, that selling was indeed rather narrow, coming primarily from the Tech sector, evenly spread across the semiconductors, software, and hardware industries, as well as internet names. That last group was beaten down not only in the name of profit-taking, but in response to the Facebook (FB) news. The Dow Transports actually gained on the day, as did the Energy, Industrials, and Materials sectors. In addition, winners actually outnumbered losers (by just a hair) at the NYSE. Market breadth overall was negative, but there was no broad based beating. There was no panic.
You read the news. Both the FTC (Federal Trade Commission) and a coalition of 48 jurisdictions launched lawsuits alleging anti-competitive practices at the social media giant. The FTC, you'll recall, has been investigating Facebook over antitrust issues since June of 2019. The FTC suit seems to highlight the acquisitions of Instagram and WhatsApp in 2012 and in 2014 as examples of the firm using its dominance to neutralize competition.
What exactly do they want from Facebook this many years after the facts?
There are two roads. One would be a break-up of the firm, which I think would be excellent for shareholders, but quite unlikely. The other could include fines that could be quite large, as well as some kind of requirement of increased regulatory approval above and beyond what is already in place ahead of any future acquisition. This, in my unprofessional opinion, is the more likely of the two options, and a possible negative for the stock moving forward.
Tonight's the Night!!
What night? Tonight. Thursday night. The Walt Disney Company (DIS) holds the firm's "investor event," kicking off the festivities about a half hour after the closing bell this afternoon. We all know darned well what has worked, and what has not for Disney throughout the pandemic. Nearly every single high-profile legacy business that has made Disney the king of family entertainment is either on the shelf or operating at limited capacities.
What has been working has been Disney's streaming "direct to consumer" entertainment services. While theaters, theme parks, cruise ships and massed fun have all slowed or stopped entirely, Disney+, Hulu, and ESPN+ have all been outperforming expectations, as the firm chases Netflix (NFLX) and competes with nearly everyone else.
Expect to hear something on shifting strategies in regards to content rollouts, and pricing of these three services, as well as the "Star" service internationally. These are big holes to fill by just one business still working on becoming profitable on its own, but the only business operating normally across the Disney portfolio.
Disney will be forced to maximize margins and growth where there is potential for both until there is some resumption of societal norms, and even then, there will have been some behavioral changes that may last far longer than the actual danger presented through human interaction.
Tonight will not only be the night. This is going to be interesting. I have not yet decided if I will go into this with a position. The charts show DIS much closer to a sell than a buy at this level, but technicals do not factor in news events. Rather, it would be news events that create technicals in hindsight. Hence, my caution.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 712K.
08:30 - Continuing Jobless Claims (Weekly): Last 5.52M.
08:30 - CPI (Nov): Expecting 1.5% y/y, Last 1.6% y/y.
08:30 - Core CPI (Nov): Expecting 1.1% y/y, Last 1.2% y/y.
10:30 - Natural Gas Inventories (Weekly): Last -1B cf.
13:00 - Thirty Year Bond Auction: $24B.
14:00 - Federal Budget Statement (Nov): Last $-284B.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (CIEN) (0.63)