There has been a lot of media coverage lately about how to protect one’s portfolio from the trade war. We came across an unusually clever idea recently, however, that has nothing to do with trying to forecasting the impact of tariffs on different sectors. Here is the strategy: buy exchange stocks (meaning the stock of stock exchanges, like the Nasdaq). The argument is that panicked buying and selling alongside a trade war will boost trading volumes, which in turn boosts revenue.
FINSUM: We think this is a brilliant strategy. If volatility rises, exchange stocks will likely do well. If volatility is down, meaning less trading volume, the rest of your portfolio is likely to be doing well.
This Barron’s article points out a new trend that it says is very bullish for stocks. The piece says two indicators of a healthy market are breadth and leadership, and it says these are improving. A high percentage of NYSE stocks are now seeing gains, and leadership is now broadening out as a number of lagging sectors are now seeing gains. Both basic materials, including industrial metal miners, and energy stocks, are doing well, with the latter now outperforming the S&P 500. Such sectors are now joining up with consumer discretionary and staples stocks, which have faded.
FINSUM: This seems like good news for the market as the recovery is growing more broad based, which appears to reflect improving sentiment.
Fiat Chrysler’s dealmaking and scheming continues. The company now plans to spin-off legendary sports car brand Ferrari via an IPO on the New York Stock Exchange. The company will float 10% of its total shares, while 80% will be distributed to existing Fiat Chrysler shareholders, with 10% remaining in the founding Ferrari family. Fiat argues that the company is worth at least $10 bn, which more than half the market capitalization of all of Fiat Chrysler at the moment. The listing was supposed to have happened earlier but legal details concerning tax charges have held up the process.
FINSUM: So Ferrari is IPOing. One wonders if it will have a strong following by enthusiasts. As the piece says, the low share float may keep the valuation high.
Source: Financial Times
As we covered yesterday, US markets have been experiencing a strong shortage of liquidity in the middle of the trading day, as over the last several years trading has increasingly gravitated towards the opening and closing bells. However, the New York Stock Exchange has just announced a new plan, which has received the SEC’s blessing, to host a midday stock auction for thinly traded shares in an effort to boost liquidity and lower costs to investors. The auction will allow buyers and sellers to meet in another high point of liquidity during the day, thus allowing them to trade without creating huge share price moves as happens in periods of low liquidity. The NYSE plan would apply to shares that trade less than 1 million shares a day on average, which would mean about 73% of all stocks will be included. On the S&P 500, 1 out of 6 stock trades occurs in the last half hour of the day, that figure was just 1 in 8 in 2007.
FINSUM: This seems like a good plan from the NYSE, and if it becomes well used, it should lower transactions costs and boost tradability for everyone.
Source: Wall Street Journal
Led by Mary Jo White, the US’ SEC is coming down like a hammer on major equity exchanges such as the Nasdaq and NYSE. New rules are being put in place which will make the exchanges more accountable for the increasingly frequent “flash crashes” that have been happening across major markets. The SEC says investors deserve better than to see billions wiped off equity markets in a matter of minutes, such as has happened in numerous stocks and many exchanges over the past four years. Last year, Nasdaq was hit with a $10m fine for its failure in Facebook’s IPO. The exchange’s system became overwhelmed with the volume of orders, causing investors to lose millions in a matter of minutes. The new rules arrive just a day after Home Depot became the most recent company to suffer a flash crash, with the company’s shares dropping in value by $12 bn before the NYSE suspended trading. Many are calling for the SEC to extend the regulation to brokers in addition to exchanges.
FINSUM: This seems a step in the right direction. Some of the errors that exchanges have made in recent years are simply unacceptable and have led to serious erosions of value, which in turn have worked to undermine some of the confidence in American securities markets.