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Happy Friday, everyone. Well, it’s not such a happy day for those of you had to unwind your Tesla or Apple call options over the past 24 hours. Today, some calm has returned to the markets ahead of the big payrolls report, with U.S. futures and European stocks rebounding.
Let’s check in on the action.
Markets update
Asia
- The major indexes are in the red with Hong Kong’s Hang Seng leading the way, down 1.3%.
- Chinese tech stocks were falling this morning following news that President Trump is looking to ban even more Chinese apps. That’s as a potential sale of the TikTok U.S. arm remains in limbo.
- Malaysia on Friday dropped its criminal case against Goldman Sachs and 17 current and former Goldman directors, a key piece to the earlier $3.9 billion settlement agreement stemming from the 1MDB scandal.
Europe
- The European bourses bounced higher after a rough start. Spain’s IBEX was the stand-out as investors cheer a potential $17 billion tie-up between CaixaBank and Bankia.
- The European Commission on Thursday unveiled a new plan to diversify its raw materials supply chain, so vital for its green-new-deal-like ambitions. A big plank is to mine the rare-earth minerals that go into electric car and wind turbine components locally, in the EU.
- The European Central Bank’s seemingly boundless bond-buying program, which includes acquiring debt issued by Europe’s energy giants Royal Dutch Shell and Total, is “feeding a natural gas frenzy,” activists warn.
U.S.
- S&P and Dow futures are in the green, but tech futures are still in negative territory, at one point off 2%. All eyes are on today’s big jobs report, due out before the opening bell.
- Yesterday’s sell-off, the worst since June, saw Apple fall 8% on Thursday. Tesla plunged 9%. They’re both lower in pre-market trading as well.
- Will the payrolls report deliver good news? Economists forecast that the U.S. economy added 1.32 million new jobs in August and that the unemployment rate fell to 9.8%. But the estimates are all over the place as economists debate the economic impact of the late-July expiration of the $600 weekly unemployment supplement.
Elsewhere
- Gold is flat, trading near $1,940/ounce.
- The dollar is losing its gains as equities rebound.
- Crude is up with Brent trading above $44/barrel.
By the Numbers
10%. With 60 days to go before Election Day, the Trump Administration needs a big jobs number today to show voters the labor market is bouncing back. The consensus forecast shows the unemployment rate will have dropped below 10%, but there is great uncertainty over how much of an improvement we may see. According to UBS’s Paul Donavan, the range between low end and high is a staggering 2.5 million jobs. The whisper number, for example, calls for just 670,000 new jobs, about half of what economists expect. Others say the gains will be even less than that. Anything on the low end would be really bad news for the president. Why such a discrepancy between worst-case and consensus estimates? Washington’s inability to strike a deal on a new stimulus spending plan, market observers agree, has blunted the economic recovery. It’s only a matter of time before that shows up in the jobs reports.
5%. The Nasdaq fell 5% on Thursday, its worst one-day rout since March. That’s the bad news. The good news: the tech-heavy index is up 27.7% year-to-date. But, as Bull Sheet noted yesterday, there’s increasing concern over tech stock valuations, particularly after the August rally. As tech stocks were in meltdown yesterday, I got an investor note worth sharing. In it, Peter Essele, Head of Portfolio Management for Commonwealth Financial Network, writes: “The tech-heavy Nasdaq experienced its largest decline since March, after a run-up over the last few months that seemed to be fed more by emotion than fundamentals. Some of the darlings as of late, including AAPL and TSLA, were down almost 10 percent. It’s possible that today’s market is an indication of things to come, where fundamentals play a larger part in valuations, as opposed to the irrational exuberance that has persisted in recent months within tech. The lack of a broad selloff across all sectors shows that there’s a good deal of “hot money” chasing the large tech names, which can exit as quickly as it entered. Today’s rout was a rush to the exit for many of the momentum buyers.”
>-20%. Tesla Bulls got a huge scare yesterday when shares dipped by more than 20%. Plenty of commentators were quick to point out: that’s bear market territory!
Yes, a 20% drop in a trading session is a huge deal, but the stock is still up 386% in 2020. That’s probably of little comfort though to the retail army that poured into the stock ahead of its five-for-one stock split, and now sees its call-options coming due. As Bloomberg noted yesterday, “a bullish wager for Tesla Inc. to reach $500 by Friday’s expiry lost 90% as the stock dropped 9% to $407.”
That’s a rough lesson about how puts and calls work.
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Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
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Have a nice weekend, everyone. I’ll see you here on Tuesday. Bull Sheet is off on Sept. 7 for the Labor Day holiday.
Today's reads
Putting yesterday's sell-off in perspective. The Nasdaq rout was "not that remarkable when compared with what has been happening in other market segments," writes Mohamed A. El-Erian in Bloomberg. "The recent stock records contrast with the more cautious, if not contradictory, traditional signals sent by declining government debt yields, steady high-yield risk spreads and a rising VIX." In other words, we should've seen this coming. Still, don't dwell too much on yesterday. Prepare for the coming days, he advises.
Strap-hanging. When I lived in Manhattan, my first-floor apartment sat right above the B and C subway lines. I could feel the trains rumbling in and out of the station whenever I spent time in that awful tiny kitchen. I mention that in light of yesterday's news that Metropolitan Transit Authority officials are warning they're in a $12 billion COVID-sized hole. Without a federal bailout, MTA CEO Patrick Foye warns, the entire U.S. economy will take a hit.
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Market candy
$44 billion
That's how much the ten wealthiest tech titans lost in yesterday's stock market plunge, leading with Amazon founder Jeff Bezos who saw his net worth shrink by $9 billion. Don't feel too bad for them. "Even after Thursday’s rout, the 500 richest people have together added $830 billion in wealth this year," Bloomberg reports, citing the Bloomberg Billionaires Index.
