Wall Street Breakfast: Heavy Losses For Tech

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Heavy losses for tech

The tech carnage looks set to continue this morning after Nasdaq 100 futures reversed to trade more than 2% lower amid escalating doubts over positioning (the index plunged 6% over Thursday and Friday). Valuations have been stretched given the benchmark’s sharp 75% gain from a bottom hit in March, while the “Nasdaq Whale Theory” continues to make waves (see details below). Contracts tied to the Dow are flat and S&P 500 futures are off 0.6% as traders return to their screens following the extended holiday weekend.

‘Nasdaq Whale Theory’

Recent reports suggest Japanese investing conglomerate SoftBank (OTCPK:SFTBY) had been loading up on options in tech stocks over the past several months and is now sitting on $4B in gains. With the positions “now known,” SoftBank shares fell 7% in Tokyo on Monday, shedding about $9B in market cap. Others, like Benn Eifert, chief investment officer of hedge fund QVR Advisors, estimate the strategies pursued by institutions like SoftBank would have a minimal effect on market volatility. He said the real power is being exercised by day traders buying enormous amounts of call options on tech stocks, which have created a virtuous hedging and buying cycle pushing stocks upwards.

‘Decoupling’ from China

President Trump is thinking about “decoupling” the U.S. from China, he said during a Labor Day press conference at the White House, adding that companies that outsource to China won’t get federal contracts. China meanwhile unveiled its new “Global Initiative on Data Security,” a month after the U.S. announced the Clean Network program, which would exclude Chinese tech providers from internet infrastructure used by America and other nations. In August, the U.S. also amended a rule that looked to effectively cut Huawei off from key semiconductor supplies, while President Trump signed an executive order banning transactions with TikTok owner ByteDance (BDNCE) and WeChat owner Tencent (OTCPK:TCEHY).

S&P 500 rebalance skips Tesla

In a fairly heavy shuffle, several companies are moving among the S&P 500 Index, the S&P MidCap 400 and SmallCap 600 as part of September’s quarterly rebalance. Not added to the S&P 500 in the rebalance: Tesla (NASDAQ:TSLA), which is down another 10% premarket to $377/share. At its current level, Tesla is over 25% below its all-time high recorded just weeks ago, but still about 30% above where it was when speculation of its S&P 500 inclusion began.

America dusts off its box office

Tenet – the Warner Bros. (NYSE:T) thriller that may be the biggest film release of this pandemic year, in terms of stakes – debuted in the U.S. with $20.2M, in the first of three days of the long Labor Day weekend. That figure is hard to judge against any historical comparisons – with a subset of U.S. theaters open, and those that are open enforcing capacity restrictions, but it marked a triumph of sorts in even making it to theaters after multiple delays. Internationally, Tenet has $150M so far, and in China, where theaters were able to reopen more quickly, it grossed $30M over the weekend, trailing only Chinese war epic The Eight Hundred.

Brexit tensions weigh on the pound

Brexit trade talks plunged into crisis on Monday after the U.K. warned the EU that it could effectively override key parts of the divorce deal it signed last year unless the bloc agrees to a free trade deal by Oct. 15. In response, the EU chief warned that Britain has a legal obligation to respect the Brexit withdrawal agreement. “We are not going to accept level playing field provisions that lock us in to the way the EU do things,” added British chief negotiator David Frost, ahead of fresh talks today with EU counterpart Michel Barnier. Sterling -1% to $1.3039.

Second-highest coronavirus case count

India has surpassed Brazil as the country with the world’s second-highest number of coronavirus cases, reaching more than 4.2M confirmed infections as the epidemic surges across the South Asian nation. India added the largest number of cases in a day with 90,802 recorded on Sunday. More than 71,000 people have died from COVID-19, making India the third-largest by number of deaths. Prime Minister Narendra Modi’s government initiated the world’s biggest virus lockdown in the country of 1.3B people in late March, leading to a GDP contraction of 23.9% in Q2, but the economic and social costs have forced a gradual reopening.

Oil demand remains weak

Saudi Aramco (ARMCO) has cut the October official selling price for Arab Light crude it sells to Asia by the most since May, while the world’s top oil exporter also lowered prices to the U.S. for the first time in six months. The move compounded losses in the WTI crude benchmark, which fell 4.5% to $37.98/bbl on the news, after tumbling 7.5% last week as the coronavirus crisis appeared to stage a comeback in parts of Europe, while cases in India surged. U.S. energy firms also added oil and natural gas rigs for the second time in the past three weeks, according to a weekly report by Baker Hughes, while shale producers are stockpiling federal drilling permits in the Permian Basin.

Germany threatens Russia with Nord Stream 2

Tensions are building over the case of Russian opposition politician Alexey Navalny, who was hospitalized on August 20 after being poisoned with military-grade nerve agent Novichok. “If in the coming days Russia does not help clarify what happened, we will be compelled to discuss a response with our allies,” Germany’s Foreign Minister Heiko Maas declared. “I hope that the Russians do not force us to change our position on Nord Stream,” which is set to carry gas directly from Russia to Germany under the Baltic Sea. The Gazprom-led (OTCPK:OGZPY) €9.5B project is backed by Royal Dutch Shell (RDS.A, RDS.B), Germany’s Uniper (OTC:UNPPY) and BASF (OTCQX:BASFY), Austria’s OMV (OTCPK:OMVJF) and France’s Engie (OTCPK:ENGIY).

Originally published on MarketWatch

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