Shares outstanding in long-volatility ETPs are at record highs
Sheer size of VIX short contracts still shy of 2019 peak
Bearish bets on stock volatility are close to a record high, raising investor concern that the market is ripe for turmoil. There’s a more benign explanation.
Futures linked to the measure of S&P 500’s implied volatility, known as the “fear gauge”, tend to move inversely to equities. The net non-commercial position — long contracts outstanding less short positions — sank to minus 187,948 last week, its lowest level ever.
That valuation still seems bubblicious; a 1% yield on a bond is analogous to a stock with a price/earnings multiple of 100. With a high P/E stock, you’re betting on big growth down the road. A bond returns only face value at maturity, assuming it’s paid off as promised.
The drop in Austria’s century bond’s price to 168 from 210 still qualifies as a bona fide bear-market decline of 20%. Brigden’s price target is for a further fall, to 143.50. Such price swings typically are associated with tech stocks, not stodgy government bonds.
None of the negative bond yields (still totaling $12.8 trillion) would be possible without European Central Bank policies, Brigden points out. “The ECB brought European yields down by two policies; quantitative easing (a pseudo fiscal policy) and negative rates (punishing thrift to boost asset prices).” Those policies may be reaching their limits, however.
Not only is the ECB close to running out of bonds to buy, in the case of German and Dutch debt, he writes, but other European monetary authorities are beginning to question the usefulness of negative policy rates, notably Sweden’s Riksbank. An article published earlier this year by the Federal Reserve Bank of San Francisco also questioned the effectiveness of the Bank of Japan’s negative interest rates.
As earnings continue to roll in this earnings season, one interesting dynamic has been the contrast between the beat rates of companies based upon the share of revenues that come from abroad versus the US. Using data from our International Revenues Database to gauge international exposure and our Earnings Explorerto get third-quarter earnings results, so far this earnings season, the beat rates for companies with more than half of their revenues generated within US borders have held up much better than those with a majority of revenues coming from abroad. Heading into this week, 74.3% of companies with a greater domestic focus have reported EPS above analyst forecasts while only two-thirds of those with a more international focus have beaten estimates. That is a shift from what has typically happened so far in 2019 and illustrates the impact that the strong dollar has had on results.
As shown in the chart below, the current picture is nearly the exact opposite of where things stood a year ago when more than 74% of internationals were reporting EPS above analyst estimates. In regards to sales, although companies with domestic heavy revenues have generally seen higher beat rates, the spread between domestics and internationals has widened to more than 5 percentage points this quarter.
While this could be a result of multiple factors ranging from analysts potentially overestimating global demand to trade, the dollar is also likely a key factor. For large-cap US companies which often have multi-national exposure, movements in the currency markets often have large impacts on corporate results. For that reason, it’s extremely important for investors to know where the companies they own have the greatest exposure. One great tool to track revenue exposure is our International Revenues Database. If you don’t already have access, start a two-week free trial to Bespoke Institutional to unlock access to all of our interactive tools today!
BIG SPLASH– Earnings are making their biggest splash in the stock market in years – Investors are sharply bidding up the shares of companies that beat expectations—and appear more willing to overlook some of the misses—helping to pull the stock market out of its recent lull. More than three-quarters of the 358 companies in the index that reported through Friday have beaten estimates. And 66% have risen in subsequent trading sessions, a five-year high.
Shares of companies that topped forecasts rose an average of 2% in the two days after reporting results, beating the five-year average of 1%, according to data compiled by FactSet. Those that fell short have averaged a 2.1% pullback, below the half-decade average of 2.6%, WSJ reports
1.Venture Capital Raised for Firms That Are Not Profitable Second Highest Ever.
• Venture capital and private equity funds have been selling. Of the $42 billion raised via offerings, $29 billion of it was for firms that were not profitable. This is the second-highest in at least 25 years. The only year that showed a greater percentage was 86% in 2000. If they are unloading losing companies, that tells us that they do not want to hold such companies during tough times. Cycles Research Early Warning Serviceby Cycles Research