Wednesday Morning Reads

Wednesday Morning Reads

Morning Reads









S&P takes the trophy

A rally that propelled markets over the past few days took a breather on Tuesday, but with only three sessions left in 2021, stocks are still poised to close out a strong year. The S&P 500 (SP500) is up 27.4% YTD, and if an outsized rally ensues, it could possibly top 2019's advance of 28.9% for its best year since 2013 (when it gained 32.4%). At the current rate, S&P's return would also come out ahead of the tech-heavy Nasdaq Composite (COMP.IND), which is up 23.1% for the year.

Quote: "All the stay-at-home, play-at-home, work-from-home stocks were DOA in 2021, like the pandemic didn't exist anymore," said Jake Dollarhide, CEO of Longbow Asset Management. "The last five years, every time it looked like there would be a rotation out of tech, everybody bought the dip - 2021 will go down as the year that investors did not buy the dip in tech."

Inflation scares also saw investors rotate away from high-multiple tech stocks and into sectors that hold up better in a rising rate environment. Those include financials, energy and consumer goods, as well as industrials and real estate. While smaller-cap tech stocks got hammered - along with small-caps in general - big growth players found their footing and kept the S&P 500 and Nasdaq powering higher (the Dow Jones Industrial Average (DJI) is also up 20.4% in 2021). In fact, mega-cap companies like Amazon (AMZN), Alphabet (GOOGGOOGL), Apple (AAPL), Meta (FB), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) make up 27% of the S&P 500 and are also the largest members of the Nasdaq.

No day off: Traders might be surprised they won't be getting vacation time for New Year's this year due to an obscure regulation called NYSE Rule 7.2. The law stipulates that the exchange will be closed either Friday, or the following Monday, if a holiday falls on a weekend, unless "unusual business conditions exist, such as the ending of a monthly or yearly accounting period." It's a pretty rare occurrence, with Rule 7.2 making its last appearance a decade ago, when New Year's Day fell on a Saturday in 2011.


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Musk unloads

In the first week of November, Elon Musk polled 68M of his followers on Twitter, asking if he should sell 10% of his stake in Tesla (NASDAQ:TSLA). While they voted yes, a major portion of the sales that followed were part of a "rule 10b5-1" trading plan that Musk adopted the previous month. Under 10b5-1 rules, corporate brass can trade their own equity as part of a pre-announced portfolio management plan, but must release details of when and how to protect themselves from accusations of insider trading.

Market movement: Tesla shares lost about a quarter of their value following the Twitter poll. The stock has since rebounded from a brief fall under $900 on Dec. 20, but is still below the record closing high of $1,229.91 seen last month. In premarket trade, TSLA is up 0.5% to $1,093.50, with a market cap of just over $1T.

"This rule 10b5-1 trading plan was completed on December 28, 2021," Tesla (TSLA) said in SEC filings late on Tuesday. The latest option exercise on 1.55M shares brings the total of all exercised options to 22.8M shares, which were due to expire in August 2022. Musk also sold 934,090 shares for $1.02B to pay for associated taxes, with combined share sales of 15.8M over the past few weeks that were worth more than $16B.

Musk highlights from 2021: Tesla is on track to increase deliveries by 80% over the previous year and has now made roughly two-thirds of all the electric cars in the U.S. It also kicked off 2021 with its first full year of profit, thanks in part to Chinese sales, and by Q3 it achieved an annual run rate of 1M EVs per year. Meanwhile, SpaceX (SPACE) conducted more launches than its nearest competitors, blasting the first all-civilian flight to orbit and taking NASA astronauts to the International Space Station. Starship - a rocket intended to take humans to the moon and Mars - also scored its first landing at Starbase in Boca Chica, Texas, while satellite broadband internet service Starlink (STRLK) launched over 1,800 satellites and began Beta testing. Don't forget that Elon Musk topped Jeff Bezos as the richest man in the world, another reason to exercise options and stock sales to cover his growing tax bill.

Tough year

While U.S. stocks are coming to the end of 2021 on a high note, Cathie Wood is missing out on the rally. Her flagship ARK Innovation ETF (ARKK) is down 22% this year and is set for its worst annual performance since its inception in October 2014. It comes in stark contrast to last year's rally of almost 150% as she continues to reshuffle her ETFs (almost daily) to combat the latest market headwinds.

Commentary: "Everyone is talking about the Santa rally powering markets, but meanwhile ARKK is still going lower," said Mark Taylor, sales trader at Mirabaud. "Cathie Wood remains firmly in the Grinch camp, and the outflows are starting to show."

At the start of the year, Wood forecast a five-year compounded annual growth rate of 20%, but things didn't quite turn out that way. With gains slowly sliding away, the aggressive active stock picker is doubling down on her "disruptive innovation" strategies, predicting that ARKK could now deliver a five-year compounded annual growth rate of up to 40%. The kicker came on Monday, when her team sold a large portion of their holdings - like Palantir (PLTR) and Robinhood (HOOD) - for "purposes of raising cash for the 2021 annual ETF distribution."

Go big or go home? While it could be a one-off year, her methods could prove risky if she doesn't diversify to other areas and sectors. Wood usually starts by figuring out the total addressable market of a "disruptive" technology, such as artificial intelligence, crypto, DNA sequencing, energy storage and robotics, and then looks for companies that can benefit from the fast-growing area. However, when prices begin frothing for companies that are making little or no profit (i.e. Spotify (SPOT), Teladoc (TDOC) and Twilio (TWLO)), or P/E ratios are off the charts (i.e. Block (SQ), Roku (ROKU) and Tesla (TSLA)), the market may begin questioning their valuations.

Talent wars

Apple (NASDAQ:AAPL) is issuing unusual and significant stock bonuses worth $50,000 to $180,000 in an effort to stave off defections to rivals like Meta Platforms (NASDAQ:FB). That's according to a report from Bloomberg, which said the perk was given to engineers in silicon design, hardware, and the select software and operations group. Apple's out-of-cycle bonuses consist of restricted stock units that vest over four years, providing an incentive to stay on at the iPhone maker.

Snapshot: The tech giant is involved in a battle for talent, particularly in augmented and virtual reality. Meta has hired 100 Apple engineers in recent months, while the latter has taken some of Meta's employees as well. Both companies are poised to compete with each other, especially in AR and VR, as Apple gets set to launch its headset sometime in 2022. Shares of Meta already surged Monday as its Oculus virtual reality was a top gift over the holidays.

Talent drains were previously reported in other areas of Apple's operations like its secretive self-driving car team. The Apple Car project was said to lose top-tier executives and employees earlier this year, while it also needs to secure enough engineers for next-generation devices and future versions of the iPhone. Another area that has generated a lot of controversy is bringing back employees to campus, and flexible work policies could go the extra mile in having workers jump ship.

Milestone watch: While it has proved elusive in recent days, Apple's $3T market cap record is within reach and could happen before the year's end.

Today's Markets

In Asia, Japan -0.6%. Hong Kong -0.8%. China -0.9%. India -0.2%.
In Europe, at midday, London +1%. Paris flat. Frankfurt -0.4%.
Futures at 6:20, Dow +0.1%. S&P +0.2%. Nasdaq +0.3%. Crude -0.1% at $75.92. Gold -0.8% at $1796.60. Bitcoin -2.6% at $47696.
Ten-year Treasury Yield +1 bps to 1.49%

Today's Economic Calendar

8:30 International Trade in Goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
10:00 Pending Home Sales
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
11:30 Results of $24B, 2-Year FRN Auction
1:00 PM Results of $56B, 7-Year Note Auction

Companies reporting earnings today »

What else is happening...

NYC schools to ramp up testing to limit classroom closures - NYT.

Moderna (NASDAQ:MRNA) sheds half of its market cap in less than five months.

Quidel's (NASDAQ:QDEL) COVID-19 antigen tests detect Omicron variant.

Bad weather and COVID... Delta (NYSE:DAL), Alaska (NYSE:ALKcancel more flights.

Bitcoin (BTC-USD) selloff weighs on shares of Coinbase (NASDAQ:COIN).

Marathon Digital (NASDAQ:MARA) to buy additional 78,000 Bitcoin miners.

China crackdown: Ant Group (NYSE:BABA) exits mutual aid platform Xianghubao.

Ford (NYSE:F) market cap tops GM (NYSE:GM) for first time in more than five years.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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