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Thursday, February 25, 2021
The VIX, according to JPMorgan
As an infinite loop timeline currently includes news on the financial markets, GameStop (GME) shares have doubled in the last hour of trading on Wednesday.
Actions like this are a worrying sign for many investors: the random doubling of stocks that have already seen steep rises and falls does not necessarily suggest that everything is okay.
And thus, we discover that there is one word on the tip of everyone’s tongue these days – bubble.
Of course, it seems that any time the stock goes up, it seems to be quick to report or at least warn of potential bubbles.
The whole concept of a “bubble” has really just become a rallying point for referring to something someone doesn’t like or an alleged mispricing in the market, however modest that wrong price may be.
And so it is with this second frame in mind that JPMorgan quantitative and derivatives strategist Marko Kolanovic writes on Wednesday, “If we want to be thorough in our search for bubbles, there is another asset currently in a bubble – the VIX.”
“The VIX is now decoupled from the underlying short-term realizable volatility of the S&P 500,” added Kolanovic, “indicating a bubble of fear and demand from investors seeking to hedge or take advantage of a hypothetical sell-off in the market. . “
On Wednesday, stocks rebounded after a few choppy sessions to start the week when the Dow closed at a record high. The VIX also came under heavy pressure on Wednesday, closing out on the day at 21.44 and nearly 2 points lower.
“Given that the VIX has a near-record premium to actual equity volatility (~ 400-500% above ‘fair value’), we think selling the ‘VIX bubble’ is a good market opportunity,” writes Kolanovic.
In addition, Kolanovic thinks investors are confusing enthusiasm in some areas of the market with enthusiasm in all areas of the market.
“While there is a lot of talk of bubbles, it is difficult to see one in the broad stock market, where a dominant group (FANGs) has practically not moved for six months despite the massive amount of stimulus and an expected economic recovery, Financials holding the losses of 2020, and Energy which, despite a bull market for commodities, is still 25% lower than last year, ”writes Kolanovic.
Add: “We see some relatively limited market segments that seem to be in a bubble regarding electric vehicle (EV), renewable energy and innovation stocks. These sectors make up only a small portion of the market (for example, electric vehicles make up only 2% of the S&P 500), but we do see segments that remain cheap, such as energy, where the positioning remains heavily underweight. We think this is only the first collection of the market rally and that the rotation to cyclical the following year.
And while it is difficult to declare a game over when we are only in the first inning, the GameStop situation suggests that this game could be a lot of fun.
And who doesn’t like fun?
By Myles Abroad, a reporter and anchor for Yahoo Finance LiveFollow him up @MylesUdland
What you need to know today
Economy
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8:30 a.m. ET: Durable goods orders, January preliminary (1.1% expected, 0.5% in December)
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8:30 a.m. ET: Durable goods excluding transport, January preliminary (0.7% expected, 1.1% in December)
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8:30 a.m. ET: Orders for non-defensive capital goods other than aircraft, January preliminary (0.8% expected, 0.7% in December)
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8:30 a.m. ET: Shipments of non-defense capital, excluding aircraft, January preliminary (0.6% expected, 0.7% in December)
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8:30 a.m. ET: First unemployment claims, week ended February 20 (825,000 expected, 861,000 during the previous week)
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8:30 a.m. ET: Ongoing Claims, week ending February 13 (4.460 million expected, 4.494 million in the previous week)
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8:30 a.m. ET: GDP on an annual basis quarter-on-quarter, 4Q second estimate (4.2% expected, 4.0% in earlier edition)
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8:30 a.m. ET: GDP price index, 4Q second estimate (2.0% expected, 2.0% in earlier edition)
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8:30 a.m. ET: Core expenses for personal consumption, 4Q second estimate (1.4% expected, 1.4% in earlier edition)
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10:00 a.m.ET: Awaiting home sale, month-on-month, January (0.0% expected, -0.3% in December)
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11:00 a.m.ET: Kansas City Fed Manufacturing Activity, February (expected 15, January 17)
Income
Pre-market
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7:00 p.m. ET: Wayfair (W. is expected to report adjusted earnings of 83 cents per share on revenues of $ 3.77 billion
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7:00 p.m. ET: Best Buy (BBY is expected to report adjusted earnings of $ 3.47 per share on revenues of $ 17.24 billion
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7:00 p.m. ET: Modern (MRNA is expected to report an adjusted loss of 38 cents per share on revenue of $ 287.62 million
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7:00 p.m. ET: Plug-in power supply (PLUG is expected to report an adjusted loss of 12 cents per share on revenues of $ 88.57 million
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7:00 p.m. ET: Norwegian Cruise Line Holdings (NCLH is expected to report an adjusted loss of $ 1.67 per share on sales of $ 9.38 million
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7:30 a.m. ET: Domino’s Pizza (DPZ is expected to report adjusted earnings of $ 3.90 per share on revenues of $ 1.39 billion
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8:20 a.m.ET: PG&E (PCG is expected to report adjusted earnings of 21 cents per share on revenues of $ 4.78 billion
Post-market
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After the market closes: Airbnb (ABNB is expected to report an adjusted loss of $ 9.67 per share on sales of $ 747.04 million
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After the market closes: DoorDash (Dash is expected to report an adjusted loss of 80 cents per share on revenue of $ 926.71 million
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4:00 p.m. ET: Business day (WDAY is expected to report adjusted earnings of 56 cents a share on revenues of $ 1.12 billion
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4:00 p.m. ET: Autodesk (ADSK is expected to report adjusted earnings of $ 1.07 per share on revenues of $ 1.01 billion
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4:00 p.m. ET: WW International (WW is expected to report adjusted earnings of 35 cents per share on revenues of $ 316.25 million
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4:00 p.m. ET: Live Nation Entertainment (LYV is expected to report an adjusted loss of $ 2.24 per share on revenue of $ 208.25 million
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4:05 p.m. ET: Nikola (NKLA is expected to report an adjusted loss of 24 cents per share with no significant income
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4:05 p.m. ET: Etsy (ETSY is expected to report adjusted earnings of 66 cents per share on revenues of $ 515.64 million
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4:05 p.m. ET: Virgin Galactic Holdings (SPCE is expected to report an adjusted loss of 31 cents per share on revenue of $ 633,625
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4:05 p.m. ET: Rocket Cos. (RKT is expected to report adjusted earnings of 88 cents per share on revenues of $ 3.96 billion
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4:05 p.m. ET: Zscaler (ZS is expected to report adjusted earnings of 8 cents per share on revenues of $ 147.44 million
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4:05 p.m. ET: HP Inc (HPQ is expected to report adjusted earnings of 66 cents per share on revenues of $ 14.97 billion
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4:05 p.m. ET: Salesforce.com (CRM is expected to report adjusted earnings of 75 cents per share on revenues of $ 5.68 billion
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4:10 p.m. ET: Shake Shack (SHAKE is expected to report an adjusted loss of 12 cents per share on revenue of $ 157.32 million
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4:15 p.m. ET: VMWare (VMW is expected to report adjusted earnings of $ 2.05 per share on revenues of $ 3.23 billion
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4:25 p.m. ET: Dell Technologies (DELL is expected to report adjusted earnings of $ 2.14 per share on revenues of $ 24.52 billion
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4:25 p.m. ET: Beyond Meat (BYND is expected to report an adjusted loss of 14 cents per share on revenue of $ 103.57 million
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4:30 p.m. ET: Caesars Entertainment (CZR is expected to report an adjusted loss of $ 1.95 per share on sales of $ 1.71 billion
Top News
GameStop Stocks Close 104% Higher During Afternoon Rally; increased another 100% after hours [Yahoo Finance]
Europe opens higher after rallying on Wall Street and in Asia [Yahoo Finance UK]
Tesla is temporarily halting production on the Model 3 line in California: Bloomberg News [Reuters]
Highlights from Charlie Munger at the Daily Journal Annual Meeting [Yahoo Finance]
Highlights from Yahoo Finance
The unemployment rate for the bottom quartile of Americans is 23%
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