Yesterday in this space we discussed the illusion of massive equity market gains since the Nov 8th election (Alternative Tracks). The reality is that the S&P 500 (SPX) is up a mere 3.5% from the prior all time highs made in August 2016, and up 6% from the election. We’ve now seen a nearly month and a half consolidation of the SPX, within a 2% range. From the outside it looks like the rally has simply stalled and everyone’s taking a breather. But a look under the hood shows alot more has been going on than appears, with massive sector rotations happening while the broader indices go sideways. Immediately following the election, we saw bank stocks, energy, materials and healthcare stocks rip as it was assumed they’d be the beneficiaries of a lower tax, lower regulation and higher interest rate environment. At the same time, mega-cap tech stocks lagged in Nov and Dec as money moved from them to the first group, as well as worries that the tough talk towards the likes of Apple, Amazon and others on the campaign trail might would carry over after inauguration.
But with the turn of the calendar into 2017 came another sentiment turn. The money flow into some of “Trump Trades” has stalled a bit, with the S&P Financial etf (XLF) down 1% ytd, and the S&P Energy Select etf (XLE) down 2% ytd. But we’ve seen money move back towards some of the end of 2016 laggards, with the S&P Technology Select etf (XLK) and the S&P Consumer Discretionary etf (XLY) both up more than 3% on the year. Driving much of this performance is the latest move higher of FAANG stocks, with Facebook (FB) up 12% ytd, Amazon (AMZN) up 9%, Apple (AAPL) up 3.5%, Netflix (NFLX) up 11% and Alphabet (GOOGL) up 6.5%. These 5 companies make up about $2 trillion in market cap, or 35% of the Nasdaq 100’s market capitalization, gaining a combined $145 billion in market cap so far this year in just three weeks.
Of that group we’ve seen earnings so far in only one, Netflix. But the rest of the group reports in the next week or so. Given the recent gains in these stocks into their earnings events, it makes sense to start looking at what type of moves the options market is expecting:
GOOGL reports Q4 on Jan 26th. The implied move in the options market is 4.4%. That’s more than the 4 qtr avg post earnings move of ~ 2.7%.
AAPL reports Q4 on Jan 31st. The implied move in the options market is 4%. That’s less than the 4 qtr avg post earnings of ~5.5%.
FB reports Q4 on Feb 1st. The implied move in the options market is 5%. That’s less than the 4 qtr avg post earnings of ~7.5%.
AMZN reports Q4 on Feb 2nd. The implied move in the options market 6%. That’s slightly more than the 4 qtr avg post earnings of ~5.7%
We’ll follow up with detailed previews and trade ideas for the entire group.