Some notable action from various markets:
- The VIX got hammered -6.66% as investors raced to get back into the beta trade.
- American Express reported better than expected numbers after the bell. The most important part of the earnings release might not be the numbers at all, but what AmEx’s CEO is saying about the economy:
“At the start of the year the economy appeared to be in a freefall, the drop in cardmember spending was accelerating and loan loss rates were rising rapidly. Today, while there is still reason to be cautious about high unemployment levels, we are seeing broad-based improvements in credit quality, the trends in cardmember spending are encouraging and there are signs that the recession may be approaching an end.”
- Goldman boosted their price target on Freeport McMoran to $95 which is about 15% higher than the current price. The stock is a conviction buy list name. Deutsche Bank also upgraded the stock to a buy from neutral with a price target of $100.
- Some big options trading in Werner rhymes with the weakness we saw in UPS earnings and the rail data.
WERN – Werner Enterprises, Inc. – The truckload freight services firm edged onto our ‘hot by options volume’ market scanner due to bearish trading in the June contract. Shares of WERN slipped 0.5% lower this afternoon to $20.22. One investor initiated a ratio put spread by purchasing 6,000 put options at the June 20 strike for 2.25 apiece, and by simultaneously selling 12,000 puts at the lower June 17.5 strike for 1.10 each. The net cost of the trade is reduced to just one nickel per contract. The trader is probably aiming to protect the value of a long position in shares of WERN through expiration. Downside protection will kick in if shares decline more than 27 cents from the current price given the effective breakeven point on the trade at $19.95.
- S&P’s restaurant analyst Mark Basham said he expects McDonald‘s to keep beating competitors maintained his “strong buy” rating on shares.
- Goldman notes that Gilead Sciences could see positive reaction in 2010 to their 4 in 1 HIV pill.
Spreads were tighter in the US as all the indices improved (moving credit back just wider than Tuesday’s close while stocks are just higher than Tuesday’s close). Today’s prices action in credit saw narrow range inside days in both IG and HY suggesting short-term underperformance (reversals from the tightening trend), and while over the last two days equity and credit are close to unch, TSYs are notably higher/steeper in yield, the dollar a lot lower and gold and oil up as the vol term structure continues to steepen up with short-dated buy-writers seemingly ruling stock risk.
The names having the largest impact on IG are Reynolds American Inc. (-16bps) pushing IG 0.12bps tighter, and Metlife, Inc. (+5bps) adding 0.04bps to IG. HVOL is more sensitive with Reynolds American Inc. pushing it 0.53bps tighter, and Metlife, Inc. contributing 0.18bps to HVOL’s change today. The less volatile ExHVOL’s move today is driven by both Valero Energy Corp. (-12.5bps) pushing the index 0.12bps tighter, and Hartford Financial Services Group (+5bps) adding 0.05bps to ExHVOL.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.