What'd You Miss in Markets? Here's Your Recap (10/26/16)

TL;DR

Markets react to tech earnings, political developments, and IPO news.

Transcript

We're 30 minutes from the close of trading here in the US. Live from Bloomberg's world headquarters in New York, I'm Scarlett Fu. I'm Matt Miller. And I'm Oliver Renick. Equities recovering from an early sell-off spurred by Apple, energy producers erasing a dropped after data showed crude stock piles unexpectedly dropped. But the question is, what'... Read More

Key Insights

• The stock market showed mixed results with the Dow rising and S&P and NASDAQ declining, influenced by tech earnings and political news.
• Tesla reported a surprising profit, significantly beating analysts' expectations, which led to a notable rise in its stock price.
• Snapchat plans to raise up to $4 billion in its IPO, reflecting high investor interest despite revenue being under $1 billion.
• Apple's stock faced pressure due to investor disappointment with its latest earnings report, despite results meeting expectations.
• Oil prices declined, influenced by concerns over inventory levels and future supply dynamics, indicating a potential contango situation.
• Volatility across asset classes remains low, attributed to a lack of yield, with investors selling volatility as a strategy to generate returns.
• Recycling profitability has improved for Waste Management due to rising commodity prices, allowing for better contract renegotiations with municipalities.
• Donald Trump's campaign activities included a hotel opening, highlighting his business achievements and drawing parallels to his political promises.

Questions & Answers

Q: Why did Tesla's stock price increase after its earnings report?

Tesla's stock price increased significantly after the company reported a surprising quarterly profit of 71 cents per share, far exceeding analysts' expectations of a loss. The positive earnings report, along with better-than-expected revenue figures, renewed investor confidence in Tesla's financial health and growth prospects, contributing to the stock's rise.

Q: What challenges does Snapchat face with its upcoming IPO?

Snapchat, now Snap Inc., faces challenges with its upcoming IPO due to its revenue being less than $1 billion, which complicates valuation and pricing. Despite planning to raise up to $4 billion, the company must address investor concerns about its long-term profitability and growth potential, especially in a competitive social media landscape dominated by giants like Facebook.

Q: How has Waste Management improved its recycling business?

Waste Management has improved its recycling business by restructuring contracts to better align costs with commodity prices. With rising prices for fiber and metals, the company has been able to turn recycling into a profitable segment, allowing it to negotiate more favorable terms with municipalities and ensure continued operations even in challenging market conditions.

Q: What factors contributed to the decline in oil prices?

Oil prices declined due to concerns over inventory levels and future supply dynamics, suggesting a potential contango situation where future prices are higher than current prices. This encourages storing oil for future sale rather than immediate consumption, impacting current price levels. Additionally, ongoing geopolitical and economic uncertainties contribute to volatility in oil markets.

Q: Why is volatility low across asset classes?

Volatility is low across asset classes primarily due to the lack of yield in traditional investments, driving investors to sell volatility as a way to generate returns. This strategy has led to suppressed volatility levels, creating an environment where markets appear stable, despite underlying economic and geopolitical uncertainties that could trigger sudden changes.

Q: What was the market reaction to Apple's earnings report?

The market reacted negatively to Apple's earnings report despite the company meeting expectations for the September quarter and providing guidance in line with forecasts. Investors were disappointed as the stock had experienced a significant run-up, leading to high expectations that were not sufficiently exceeded, resulting in a reset of investor sentiment and a decline in Apple's stock price.

Q: What are the implications of Snapchat's IPO for the tech sector?

Snapchat's IPO, aiming to raise up to $4 billion, signals a potential revival in tech sector IPOs, which have been slower in recent years. A successful offering could boost investor confidence in tech startups, encouraging more companies to go public and potentially leading to increased activity and valuations in the tech IPO market.

Q: How is Donald Trump's hotel opening related to his campaign?

Donald Trump's hotel opening in Washington, D.C., was positioned as a demonstration of his business acumen, emphasizing his ability to complete projects under budget and ahead of schedule. This event was used to draw parallels to his campaign promises of bringing similar efficiency and management skills to the federal government, reinforcing his message of economic competence.

Summary & Key Takeaways

• The stock market experienced mixed movements with the Dow gaining while S&P and NASDAQ faced declines, driven by tech earnings and political developments. Tesla's surprising quarterly profit led to a stock surge, while Apple's stock declined due to investor expectations.

• Snapchat's IPO plans to raise up to $4 billion reflect strong investor interest, despite challenges in revenue generation. Waste Management's improved recycling profitability has allowed for effective contract renegotiations amid rising commodity prices.

• Volatility across asset classes remains low as investors seek yield, selling volatility as a strategy. Oil prices declined due to inventory concerns, and the political arena saw Donald Trump highlighting his business achievements in the context of his campaign.