Daily Market Update – August 11, 2015 (8:30 AM)
Yesterday’s big news, which people are still scratching their heads over, was the news that Google is going to become a subsidiary of a new holding company to be named “Alphabet.”
It was in the name of earnings transparency that sent Google shares soaring in the after hours. As far as investors are concerned the re-organization will split out Google earnings and then lump everything else together. Now, everything is lumped together so investors may not really have a good way of measuring how Google’s core business, the only one that really makes money, is doing.
The re-organization is a good example of why company founders might want to consider having dual class stocks. It makes it much easier to make decisions when your shareholders have no vote or say in matters.
The big story of the day before the Google news was that the market was up more than 200 points and never faltered on its way there.
It seems that the real impetus for the rise was the announcement that Greece was going to get access to capital by having agreed to a third bail out That seemed to be much more important than the earlier overnight news that the Chinese stock markets had climbed 5%. The moment that news was announced the market really took off, seemingly oblivious to the history of this sort of thing, but that’s going to be a recurring problem for some other day.
This morning the early news is again related to China, but this time it’s not so good for us. The Chinese government announced an unexpected devaluation of their currency, which isn’t a very good thing for US companies doing significant business in China, as the strong USD is already problematic.
Making US goods even more expensive in local markets isn’t going to help sell more Teslas or even KFC drumsticks. You can already picture the amended guidance that is likely to come from many companies prior to the next quarter’s earnings reports.
The reaction of the futures this morning to that news is to take the market down by as many points as it had been higher yesterday morning prior to the Greek news.
If the market gives up some of those nice gains from tomorrow, it shouldn’t be too surprising, even if there was no adverse news from China. It hasn’t exactly been easy stringing together two or more nicely positive market days, so why should today have been any different?
With no new purchases yesterday to begin the week and the closing of the Texas Instruments position, there may be some opportunity to add a new position today in the event that there is some broad weakness or even just in a particular sector. I was happy yo have had the opportunity to get a rollover trade down so early in the week and for a position expiring next week, to boot. Additionally, it was nice getting the week started with the sale of some calls on an uncovered position, but there’s still much more needed in that regard.
It will be interesting to see whether the market can shake off this early morning sell-off in the futures that has been growing as more people are apparently waking up to the news and doing something about it.
The good news, however, may start coming from national retailers this week as they begin to report their earnings. Perhaps not so much related to their performance in the past quarter, but rather looking ahead to the next quarter when their cheaper imports from China may help to increase their profit margins and could conceivably lead to lower consumer prices, or at least a slow down in the rate of increase.
From the FOMC’s perspective that might not be a good thing if they’re hell bent on raising rates, but there’s plenty of time for hypotheticals to play themselves out before the September FOMC meeting.
It’s all about the give and take.