foxex: Amazon Spits out the Big Apple

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Thursday's Headlines

1. Amazon ditches plans for NYC Headquarters

Markets Close

Dow
25,439.39 -0.41%

S&P
2,745.73 -0.27%

Nasdaq
7,426.95 +0.09%

VIX
16.22 +3.64%

INV Anxiety Index
102.41 Neutral

US 10-Yr Yield
2.657 -1.88%

Stocks Recover after Retail Sales Disappointment

U.S. stocks recovered from steep losses at the open as retail sales figures for December came in far below forecasts and seemingly flew in the face of every other piece of data we have been seeing for the past two months. Specifically, the U.S. Dept. of Commerce reported a 1.5% decline for retail sales, which was way off of economists' estimates for a gain of 0.2%. These may seem like small percentages to quibble over, but any decline in retail sales, especially during a big shopping month like December, is a surprise. Keep in mind, there was a government shutdown in the U.S. for 35 days, and the Commerce Dept. was impacted by that. It's very possible that there was an issue with the data collection and the retail sales survey during and after the shutdown. This number may be revised over the next few weeks.

Either way, making investment decisions based on a monthly number like retail sales or jobs is never a good idea. If we spot a trend, like 2-3 consecutive months of declining sales or a succession of underwhelming employment reports, it's time to pay attention.

This is not a trend.

Amazon Ditches NYC

This is a local story, but it has an outsized impact given the players involved. As you probably know by now, Amazon has decided to abandon its plans to build a headquarters in New York's Long Island City. From the jump, this was a highly controversial plan. Activists decried the disruption that would have come along with Amazon building a massive headquarters (which would've brought 25,000 jobs to the region.)

New York City bent over backwards for the Seattle based company, promising $3 billion in tax incentives, as well as a potential subway line extension into the part of Queens where the headquarters was to be built. Local politicians and activists rallied hard against the company, the Mayor of New York City and the Governor of New York, claiming that the jobs created would not benefit Queens residents (and would in fact potentially displace them), and arguing that Amazon, of all companies, did not need social welfare in the form of tax breaks. Amazon officially backed out and says it has no plans to look for an alternative location at this time.

Here's the key part of Amazon's statement:

"...For Amazon, the commitment to build a new headquarters requires positive, collaborative relationships with state and local elected officials who will be supportive over the long-term. While polls show that 70% of New Yorkers support our plans and investment, a number of state and local politicians have made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward with the project..."

Read the full statement here

Why it Matters

To be sure, this is not an issue that impacts Amazon's value or its shareholders. Shares of AMZN barely budged today, falling about 1%. This is a story about the power of one of the biggest companies in the world and the divisions it can sometimes create. We've seen this play out elsewhere. In San Francisco, residents have protested against Google and the skyrocketing cost of living in the city.

Bezos and Co., could spot a similar narrative rearing its head in New York with Amazon, and opted to avoid the pain. Cities all over the country are begging for Amazon to build a headquarters in their districts for very simple reasons: an Amazon HQ brings tax revenue and jobs, both inside and outside of the company. On the other hand, the backlash against big tech is very real (see Facebook). It is starting to eat into the public perception of the FAANG companies (Facebook, Apple, Amazon, Netflix and Google) and that might ultimately hurt their value. We are not there yet, but, as Phil Collins sings, "I can feel it in the air tonight..."

Put to Call Ratios

One of our loyal readers asked us to include more information on volatility and the Put to Call Ratio. We'd like to oblige, but for those of you not familiar with that ratio, it is a measure of the ratio and volume of Put options versus Call options.

The basics:

A Put Option is a trade where the trader is betting that a security will fall over a certain period of time.

A Call Option is a trade where the trader is betting that a security will rise over a certain period of time.

When the the Put to Call ratio is high, there are more bets that a security or index will fall, and that is considered 'bearish'.

Read more here if you want to go deeper. If you really want to go deep, check out our Options course on the Investopedia Academy. If you write us, I'll give you a promo code for 50% off the course. (For real.)

As we know, the market has been on the rise since Christmas Eve. Still, there is a fair amount of volatility in the market given the trade talks, the recent correction, Brexit and a host of other issues. That volatility has quieted down since the beginning of February, but it can come back in a heartbeat, as we have seen.

Take a look at the chart below. As you can see, the Put to Call ratio was sky high at beginning of the year. More traders were betting on a market decline than those betting the market would recover. It has since smoothed out a bit, likely due to the Federal Reserve promising patience in raising rates again. Fed Chair Jay Powell started using the word 'patient', right around January 10th. The Put to Call ratio smoothed out, and has been in a pretty tight range since then.

That's as technical as I get. This is James Chen's domain, and you should check out his Chart of the Day below to see what happened to CocaCola.

Chart of the Day: Coca-Cola Dives 8% on Earnings, Worst Day Since 2008

Shares of Dow component The Coca-Cola Company (KO) took a massive 8.4% dive on Thursday after its pre-market earnings release. This plunge represented the worst single-loss for the company since the 2008 financial crisis. From Wednesday's close at $49.79 per share, shares of Coca-Cola stock gapped down sharply on Thursday morning and closed the trading day at $45.59.

The fourth-quarter release on Thursday morning met profit and revenue estimates but lowered guidance for fiscal 2019 earnings per share (EPS). Coca-Cola's CEO James Quincey said that several factors contributed to the weaker guidance, including changes in tax rates, currency values, and interest rates.

Quincey also said, "we are being prudent in our outlook for 2019 given the multiple reductions in global economic growth outlook for 2018 and our own experiences in some of the emerging and developing markets."

Investors were heavily disappointed by the lowered outlook and pressured the stock down to more than a three-month low. In the process, the stock also dipped below: the late December low, the key 200-day moving average, and a major rising trend line extending back to the May 2018 low.

Will Coca-Cola's stock continue to tank, or was this plunge way overdone? While Thursday's sharp dive may well have been an over-reaction, KO's historical price action shows that when the stock gaps down and drops severely, it typically continues to fall in subsequent trading sessions before eventually resuming in the direction of the long-term bullish trend.