Friday Morning Reads
- Lending Government More Money
- How to Reset the Relationship
- Reopening Rally?
- Hijacking the Fed to Bail Out States
- Bitcoin Is In A ‘Massive Bubble’
- Help Santa With Curbside Pickup
- Google’s Legal Peril Grows
- Misleading Customers
- Success Keeps EV Mania Alive
- Thieves & Asset Bubbles
Index funds tracking the S&P 500 have a small window today to buy nearly $80B worth of Tesla (NASDAQ:TSLA) stock as the EV maker gears up to join the widely tracked stock index. It's going to be a wild scene for investors in the minutes before Friday's close, and traders are also watching how the giant addition will ripple through the derivatives market, with big swings influencing options pricing. Adding to the volatility: Tesla is easily the most traded stock on Wall Street, and has surged 50% since November (when its S&P debut was announced) and almost 700% year to date. Helping to smooth out the addition: Quadruple witching, which refers to the day that options and futures on both indexes and stocks expire simultaneously, and generally produces heavy volumes that can boost liquidity. At over $600B, Tesla will become the most valuable company ever admitted to Wall Street's main benchmark, accounting for over 1% of the S&P 500 index.
Bulls view Tesla (TSLA) CEO Elon Musk as a visionary that can push the company's disruptive technology ahead of its competitors. They also see Tesla posting above-average gains due to increasing adoption rates in the global electric vehicle market and its solar energy business. Bears meanwhile focus on Musk's track record of missed production targets and corporate governance risk after he was forced to step down as chairman to settle fraud charges in 2018. They also cite an inflated P/E ratio, as well as a meteoric rise that has made Tesla the most valuable auto company in the world despite production that is a fraction of rivals. Is it too late to join the Tesla party? EV = extreme valuation? Catch up on the latest analysis by SA Authors.
U.S. stock index futures are holding their breath after coming off a record-setting session on Thursday, which saw all three of the major averages close at new highs. Leaders on Capitol Hill said they are close to an agreement that would provide $900B in coronavirus aid, including direct payments to individuals, enhanced unemployment benefits and help for small businesses. The negotiations, which have stretched on for months, are up against the wire, with federal funding lapsing on Saturday - meaning another stopgap spending measure may be needed. Other big news... FDA advisors overwhelmingly backed Moderna's (NASDAQ:MRNA) COVID-19 vaccine on Thursday evening, marking a key step towards emergency authorization by the agency (the latest stimulus package also provides funds for vaccine distribution).
The Federal Reserve comes out with its latest round of bank stress tests today, which look out how well U.S. lenders can handle fallout from the coronavirus crisis. Previous results released in the summer found that banks could weather heavy capital losses, though the Fed is running another set of tests this year given the severity of the economic slump. Among those analyzing the scorecard are bank investors, given the constraints imposed on buybacks and dividends since June to preserve cash for lending during the pandemic. The new assessment will determine if the Fed will keep the restrictions in place, though many analysts expect them to remain until the second half of 2021. Differentiation is also a possibility. Healthier banks are likely to argue they should have more discretion in what they pay out, especially given the detailed "stress capital buffer" approach vs. the old pass/fail ratings.
Goldman Sachs is the latest to weigh into the gold vs. Bitcoin (BTC-USD) debate after JPMorgan argued that the rise of cryptocurrencies in mainstream finance is coming at the expense of bullion. "Gold's recent underperformance versus real rates and the dollar has left some investors concerned that Bitcoin is replacing gold as the inflation hedge of choice," the bank said in a research note. While there has been some substitution, "we do not see Bitcoin’s rising popularity as an existential threat to gold's status as the currency of last resort." Bitcoin has had a wild month, challenging $24,000 yesterday after passing the $20,000 milestone for the first time on Wednesday. Gold's up 24% YTD, but has since drifted after setting a record above $2,075/ounce in August.
Microsoft (NASDAQ:MSFT) was hacked as part of a suspected Russian campaign that has hit multiple U.S. government agencies by taking advantage of the widespread use of software from SolarWinds (NYSE:SWI). "We can confirm that we detected malicious SolarWinds binaries in our environment, which we isolated and removed," Microsoft spokesman Frank Shaw said on Twitter. "We have not found evidence of access to production services or customer data. Our investigations, which are ongoing, have found absolutely no indications that our systems were used to attack others." So far the hackers are known to have monitored email or data across business networks within the U.S. Departments of Defense, State, Treasury, Energy, Homeland Security and Commerce, as well as the National Nuclear Security Administration, though the malware didn't affect national security functions. "As much as anything, this attack provides a moment of reckoning. It requires that we look with clear eyes at the growing threats we face and commit to more effective and collaborative leadership by the government and the tech sector in the United States to spearhead a strong and coordinated global cybersecurity response," Microsoft President Brad Smith added in a blog post.
A bipartisan group of more than three dozen state attorneys general yesterday filed an antitrust challenge to Google's (GOOG, GOOGL) core search engine, marking the latest in a flurry of lawsuits against the tech giant. Another case on Wednesday came from a group of ten Republican attorneys general and there's another from the U.S. Department of Justice filed in October. Legal strategy? Throw everything against the wall and see what sticks. The suits cover everything from monopolistic practices in Google's ad business to exclusive deals on phones and browsers.
Shares of Semiconductor Manufacturing International (OTCQX:SMICY) slumped 5.2% in Hong Kong after Reuters reported that China's biggest chipmaker, along with 80 other companies, will be added to the U.S. Commerce Department's Entity List. The designation will deny SMIC access to U.S. technology from software to circuitry, on top of less severe curbs imposed in September, when the U.S. placed it on an export restrictions list for supplying the military. Bigger picture: SMIC, which is a supplier to Qualcomm (NASDAQ:QCOM) and Broadcom (NASDAQ:AVGO), lies at the heart of China's ambition to build a high caliber chipmaking industry and wean itself off of American technology. Beijing is also planning to provide broad support for so-called third-generation semiconductors in its next five-year plan to boost domestic self-sufficiency.
What else is happening...
Bitcoin exchange Coinbase files confidentially for IPO.
Robinhood Financial fined $65M by SEC for misleading users.
Thursday's Key Earnings
Accenture (NYSE:ACN) +6.9% on FQ1 beat, raising FY2021 outlook.
BlackBerry (NYSE:BB) -4.2% AH posting a Q3 revenue decline.
FedEx (NYSE:FDX) -3.6% AH holding back on 2021 guidance.
General Mills (NYSE:GIS) +1.3% leaning on pet business for strong quarter.
Rite Aid (NYSE:RAD) +17.4% soaring after a big profit beat.
In Asia, Japan -0.2%. Hong Kong -0.7%. China -0.3%. India +0.2%.
In Europe, at midday, London +0.2%. Paris +0.2%. Frankfurt +0.2%.
Futures at 6:20, Dow flat. S&P +0.1%. Nasdaq flat. Crude -0.1% to $48.49. Gold -0.2% at $1886.20. Bitcoin +1.2% to $23109.
Ten-year Treasury Yield +1 bps to 0.94%
Today's Economic Calendar