| Friday, September 04, 2020 Headlines 1. US markets recover from steep losses, but end lower 2. 1.38 million jobs added in August as the unemployment level drops 3. Inside the household survey of the August jobs report 4. What the options market was signaling about tech stocks 5. What to expect next week Markets Closed
Year-to-Date
 Image courtesy GettyImages/cristianl
[Programming note: We will be off for the Labor Day holiday on Monday, but we will be back in business on Tuesday. Have a safe and enjoyable weekend. - Caleb]
Markets Today Friday brought its fair share of drama to U.S. markets as they swung wildly from deep losses to slight gains, and back to losses. By day's end, the DJIA ranged 875 points, but it finished 0.56% lower. The S&P 500 and Nasdaq also recovered from deep declines in the morning, but they could not manage gains, ending their first negative week in five. The Nasdaq fell 3.7% this week, its worst weekly performance since March. The VIX, or Volatility Index, hit its highest level since mid-June as fear has crawled back into the market. Oil prices fell for the first week in four.
The U.S. and Canadian job markets showed more signs of improvement in August (breakdowns below). The U.S. unemployment rate fell to 8.4%, its lowest reading and first time below double-digits since March. Many temporarily laid off workers were brought back to work, and the government added 344,000 jobs to help with the census.
Investors have been on a wild swing from extreme fear to extreme greed in the past six months, which has been reflected in the options market. It's been a reliable contrarian indicator for stocks, and it's telling us to expect more volatility in the coming months.
Here is the VIX against the U.S. markets this week. We are listening.  Image courtesy YCharts Headlines:
 Inside the August Jobs Report There was plenty of good news in the August employment report, including the addition of around 1.4 million jobs and a steep decline in the unemployment rate—from 10.1% to 8.4%. This was the fourth consecutive month of job gains, and 10.6 million have been added over this time frame. But in March and April, more than 22 million jobs were lost, so less than half have been added back.
Harder Gains Ahead Most of these gains reflect the reopening of businesses as restrictions have been lifted, but with few states still locked down, those gains are going to be smaller in the coming months. As that tailwind wanes, the headwind of permanent business closures and layoffs is growing. People who had permanently lost their job rose to 3.4 million last month, already half way to the peak reached in the 2007–09 recession.  chart courtesy LPL Financial What Did the Household Survey Tell Us? The household survey, which measures unemployment by demographics and the Labor Dept. is now including in its payrolls report, showed that there are 13.6 million people unemployed, of which 6.2 million were considered on temporary layoff. That's down from the high of 18.1 million in April. Many of these workers have been able to find employment, but some have transitioned to permanent unemployed, which came in at 3.4 million, an increase of 2.1 million from February. Of the total unemployed, 45% are considered on temp leave, 25.2% permanent, 15.5% are reentrants, and the rest is split between job leavers, new entrants, and those who completed a temporary job.
Unemployment By Race Unemployment by race has been very uneven since the pandemic began in March. While there were signs of progress in the August nonfarm payrolls report, joblessness has impacted races very differently in the past six months. Here is the unemployment rate by race as of Aug. 2020:
 Chart courtesy YCharts What the Options Market Was Telling Us Options traders may have seen the tech sell-off coming over the last few weeks. The so-called equity put-to-call ratio, a ratio of bearish options bets to bullish options bets, had never been lower leading into this week. Put another way, traders were making many times more bets that the market would keep rising in the coming months, which is a signal of extreme greed. Any time the put-to-call ratio goes to extremes in either direction, markets usually head the other way. The opposite happened in late March, when puts overwhelmed calls and fear was rampant. The market took off from there.
Option market watchers say retail investors were among the herd piling into calls (bets that market will rise) over the past month as stocks ripped higher. They were betting on individual company options like AAPL and TSLA but also on tech stocks in general.
Softbank Flagged as Big Call Buyer The WSJ reported today that Softbank, the Japanese holding company that infamously backed WeWork, had made regulatory filings showing it bought nearly $4 billion in shares of Amazon, Microsoft, and Netflix, plus a stake in Tesla. The WSJ quoted a source saying that SoftBank spent roughly $4 billion buying call options tied to its stock holdings, but also in other names. It then could profit from the run up in stocks and subsequently unload its position to other parties.
We are not about to blame a 6% drop in the Nasdaq on Softbank, but if big investors start unloading their options and the herd follows, that could signal a big change in sentiment and send stocks tumbling. What to Expect Next Week After the first weekly losses for U.S. markets in five, investors will get an extra day next week to gather themselves. U.S., Canadian, and Brazilian markets and financial institutions are closed Monday for Labor Day and Brazil's Independence Day, but most global markets are open.
Here's how key asset classes have performed year-to-date:  Events This Week Sunday, Sept. 6:
Monday, Sept. 7:
Tuesday, Sept. 8:
Wednesday, Sept. 9:
Thursday, Sept. 10:
Friday, Sept. 11:
ECB Meeting Rate Announcement and Press Conference Last week, the preliminary estimate for the EU's inflation numbers came in shockingly low, with core Harmonized Index of Consumer Prices (HICP) inflation dropping from 1.2% year-over-year in July to 0.4% in August, the lowest value since records started in 2001. The headline inflation, which doesn't exclude things like energy costs, fell into a deflationary -0.2%. All this will likely weigh heavily on the European Central Bank as it announces monetary policy this upcoming Thursday. Inflation this low, substantially below the ECB's target of 2%, may push the ECB to increase stimulus measures.
China Trade Balance
JOLTs
 SPONSORED BY FIDELITY INVESTMENTS
(charts courtesy YCharts)  Shares of the Cooper Companies are up by nearly 5.5% amid Q3 EPS and sales results that beat analyst estimates. Carnival's stock price rose by over 5% as the cruise line announced that two of its Europe-based subsidiaries plan to resume operations this weekend, embarking on their first voyages since the start of the pandemic.  Technology companies once again comprised the majority of stocks that fell furthest today, with PayPal taking the biggest hit of over 6.5%. Semiconductor stocks fell particularly hard, continuing their declines from Thursday. Word of the Day Gamma HedgingGamma hedging is an options hedging strategy used to reduce the risk created when the underlying security makes strong up or down moves, particularly during the last day or so before expiration. Gamma hedging consists of adding additional option contracts to an investors portfolio, usually in contrast to the current position. For example, if a large number of calls were being held in a position, then a trader might add a small put-option position to offset an unexpected drop in price during the next 24–48 hours or sell a carefully chosen number of call options at a different strike price. Gamma hedging is a sophisticated activity that requires careful calculation to be done correctly.  Photo credit ethw.org Today in History Sept. 4, 1882: Thomas Alva Edison opened the Pearl Street Station, the first central generating system, making electric lighting and power possible in New York City—and the world. At 3 p.m., he flipped a switch at 23 Wall Street, turning on 106 electric lamps in the offices of his financial backer J.P. Morgan's investment bank Drexel, Morgan & Co. Jean Strouse, Morgan: American Financier (Random House, New York, 1999), p. 233.
How can we improve the Market Sum? Tell us at marketsum@investopedia.com Enjoy the Market Sum? Copy and share the link below to invite friends to sign up
CONNECT WITH INVESTOPEDIA
Email sent to: mondemand.forex@blogger.com To update your newsletter preferences or unsubscribe, click here.
114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC. All Rights Reserved | Privacy Policy
|
Friday, September 4, 2020
The Unwinding
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment