Option trading exploded in the US… New York Stock Market Observation Deck by Cho Jae-gil

This is the’New York Stock Market Observation Deck’ that examines the variables of the New York stock market in the last week of January and thinks about the direction of the stock market.

Options trading volume has exploded recently. According to Goldman Sachs, trading volume of options, especially call options (right to buy), surged this month. It is said that on the 8th of this month, the total transaction amount exceeded 5 trillion dollars. It is the largest ever. That said, there are so many investors who are betting big on the outlook of the stock market.

Tesla, Amazon, Apple and Nvidia are among the most popular options. Options trading has been mainly used by institutional investors for risk aversion, but the Wall Street Journal reports that there are many individual investors these days. The proportion of single option contracts, estimated to be 100% individual investors, was only 2% of the total three years ago, but has recently soared to 10%.

Among experts, opinions are divided over the future stock market outlook.

There are many observations that a recession is inevitable at least in the first quarter, given that the real economy is not good and the implementation of large-scale stimulus measures must be observed. However, there is an opinion that the outlook for the stock price ahead of the economy is also bright as the vaccine vaccination rate for the novel coronavirus infection (Corona 19) is accelerating and the stock market-led companies are performing well.

Both sides agree that the Biden government has been inaugurated within a few days and that volatility may increase in the short term.

Here are some events to watch out for this week.

-Details of additional executive orders from the Biden administration
-Parliamentary comments over new stimulus measures
-The spread of mutant corona and whether the vaccine is additionally approved
-Remarks by FOMC and Fed Chair Jerome Powell (27th)
-US economic growth rate in the fourth quarter of last year (28th)
-Apple, Tesla, MS, Facebook, Starbucks, etc.
-New unemployment benefit (28 days) and personal consumption (29 days) indicators

▶First, please tell us how the New York Stock Market closed on Friday.

The three indexes of the New York Stock Market were mixed. The Dow index fell 0.57%, the S&P 500 fell 0.3%, and the Nasdaq alone rose very slightly (0.09%). The NASDAQ continued its all-time high.

IHS Markit’s January manufacturing and services index exceeded market expectations, and the mood at the beginning of the opening was good. The index is based on 50 to evaluate the expansion and contraction of the economy, both with results close to 60.

However, IBM, a leading technology company, was bad. Shares plunged 9.91% overnight as sales fell below market expectations. Intel’s stock price, which had a loss of earnings just before the close of the market the previous day, fell 9.29%, putting a burden on the market as a whole.

The worsening situation in other countries affecting New York was also adversely affected. On the same day, major economic indicators such as the Purchasing Managers Index (PMI) of the eurozone (19 countries using euros) were sluggish. The eurozone PMI was below 50 and did not meet market expectations.

News that the number of corona19 patients has increased again in China, a G2 (two major powers) economy, has also been a bad news. Pharmaceutical company AstraZeneca says there will be fewer vaccines initially available to Europe than expected.

▶If you organize the whole mood for the week.

Overall, the atmosphere of the bull market was clear. The biggest event was the official launch of the Joe Biden administration last Wednesday. The Dow jumped 0.6% over five business days, the S&P 500 jumped 1.9%, and the Nasdaq jumped 4.2%.

With the launch of a new government, expectations for COVID-19 control have increased. President Biden signed a corona-related executive order five hours after the inauguration ceremony. It is mandatory to wear masks at all public buildings for the next 100 days. The next day, it said that all travelers entering the United States by plane must submit negative coronavirus confirmations, and that they must be quarantined for a period of time after arrival.

In the market, expectations for new stimulus measures amounting to $1.9 trillion were also spreading, and we need to take a close look at the progress in the future.

The founder of Tom Essay at Seven’s Report, a market analyst firm, commented, “The interest in the New York stock market is focused on whether the stimulus package can be realized.”

▶If you would like to pick the biggest issue scheduled this week.

As it is in the early days of the new government, we need to pay attention to political events. President Biden plans to sign more than 50 executive orders by the end of this week. So far, nearly 30 administrative actions have been signed, and 20-30 administrative orders are expected to be issued in the future. These are all measures that have a major impact on the US economy.

The stock market is also likely to show a cautious look at policy changes over the next four years.

It is known that President Biden is planning to sign an executive order containing a specific vision related to climate change response around the 27th. We are starting an experiment that changes the paradigm of American industry.

Another important political timeline is consultations on additional stimulus measures. The administrative measures that President Biden is pouring out are difficult to implement without a $1.9 trillion stimulus law.

The ruling Democratic Party is taking over the House of Representatives, but the problem is the Senate. Of the 100 seats, the Democratic Party has only 50 seats and the seat of the Senate chairman with the vice president. The Senate chairman only has casting boat rights. The persuasion of the opposition party is key, and the Republican Party believes the scale of stimulus is too large. I think it will put too much pressure on the national finances.

Some Democratic senators, including Joe Manchin, have also expressed negative views on massive stimulus packages. If the Republican Party fails to persuade inside, it will be more difficult to realize the stimulus package. The stock market has soared due to liquidity expectations, but if controversy over stimulus measures grows, it can be a burden.

▶ The worsening of the corona crisis has not been a big variable.

It is true that after a year after the coronavirus outbreak in Wuhan, China and spread around the world, the situation unfolding was not a big variable in the stock market. Because it is so’old news’.

But if the epidemic spreads again in China, where it originated, the story is different. This is because China held the largest political event in Beijing in May last year, declaring a’corona victory’, and has been known to have overcome it in fact. It proves that Corona 19 is that persistent and difficult to eradicate.

China, with a population of 1.4 billion, has been controlling new coronavirus patients to less than 10 a day, but recently, close to 100 confirmed cases are coming out again. There are more infections among nationals than among foreigners. On the 12th of next month, on the 12th of next month, a large-scale population movement is expected to meet the Chinese New Year, the largest holiday, and an emergency has been put in place.

If the corona situation in China worsens, it is likely to put a strain on the New York Stock Market.

The same is true of the situation in the United States. Recently, a mutant virus with strong transmission power has been on the rise, which is straining the quarantine authorities.

Dr. Caitlin Rivers of Johns Hopkins University warned that “if the mutant virus spreads, the corona crisis could be worse than it is in February and March.” The number of confirmed cases in the United States is over 25 million on a cumulative basis, accounting for 25% of the world’s total.

▶Many point out that the speed of vaccination will be the key.

Although slower than initially expected, the vaccination rate is steadily increasing in the United States. The current fight depends on who is faster between the corona spread and vaccination.

U.S. health officials have approved an increase in the amount of Pfizer vaccination per bottle from the previous five to six to boost immunity. Originally, one bottle was supposed to contain a little more than enough vaccine, but I’m trying to use all this as much as possible. It is calculated that this will increase the number of initial vaccinations by 20%.

According to the Centers for Disease Control and Prevention (CDC), so far, about 18 million people have been vaccinated with Pfizer and Modena in the United States. Just over 5% of the total population. However, only 3 million to 4 million people have developed antibodies after completing the 2nd vaccination.

In the near future, a vaccine from another pharmaceutical company Janssen (Johnson & Johnson) will also be approved for emergency use. Anthony Pouch, director of the National Institute of Infectious Diseases and Allergies (NIAD) said on the 22nd that “the Janssen vaccine analysis will be finished in the next two weeks.” This means that the approval for use will decline.

Unlike Pfizer and Modena, Janssen vaccine can be distributed and stored at normal refrigerated temperatures. You can build corona immunity with just one vaccination. For this reason, it was a product that was expected to become a’game changer’.

The AstraZeneca vaccine is also likely to be approved in the United States in the near future. News about Janssen and AstraZeneca is expected to be a minor boon for the stock market.

▶If there are any important economic indicators that the US government is planning to release?

The key indicator is the breaking rate of economic growth in the fourth quarter of last year, scheduled for the 28th.

The Wall Street Journal’s statistics show that the growth rate of gross domestic product (GDP) on an annual basis was estimated to have increased by 4.6% compared to the previous year and 4.7% from the Moody’s survey.

The US growth rate plummeted to -31.4% in the second quarter of last year, then recovered to 33.4% in the third quarter, and it is expected that it will increase slightly in the last quarter. How far apart from these forecasts can determine the market direction for the day.

The US growth rate is expected to have reversed 3-4% last year as a whole.

Kevin Cummins, chief economist in charge of the US at Netwest Market Securities, said, “Manufacturing activities are good, but the job market is still weak and consumption expenditures are also disappointing.” “The US economy may be weak throughout the first quarter of this year.”

RBC’s Rory Calvassina, US strategist, advised, “There is a possibility that stocks will be pushed back as stock market volatility increases,” but advised that a bearish market could be used as a buying opportunity.

▶ The US Central Bank (Fed) event was also scheduled.

The Fed, which didn’t have much of a schedule last week, is planning an important event this week.

On the 7th, the Federal Open Markets Committee (FOMC) makes a statement after a two-day regular meeting. Fed chairman Jerome Powell said, “It’s not time to discuss exit,” when the stock market cooled after concerns about early taper (reduced asset purchases) emerged earlier this month, so I am interested in what message to bring.

Chairman Powell also holds a briefing on the day and tries to communicate with the mayor. However, as soon as the new government was launched, observations dominate that there will be no hawkish (preferably tightening) remarks from Powell’s mouth.

The rise in US Treasury yields, which had been steep since the beginning of the year, has weighed on the stock market, but the bond market is also expected to watch Powell’s remarks. However, we cannot rule out the possibility that Treasury bond yields will rise again if there is a hint as to when the base rate will increase.

▶ Which companies are releasing 4Q results this week?

One of the biggest variables that will drive stock market movement this week is the performance of large tech companies. This is because big tech companies have been leading the stock market since last year.

This week alone, a total of 440 companies release their report cards. The main companies are:

-26th (Tue): Microsoft, Johnson & Johnson, Starbucks, AMD, 3M, GE, Lockheed Martin, Raytheon, Verizon, Capital One, Xilinx, TI (Texas Instruments)

-27th (Wed): Apple, Tesla, Facebook, Boeing, AT&T, Corning, Blackstone, Whirlpool, Progressive

-28th (Thu): American Airlines, Southwest Airlines, JetBlue, McDonald’s, Comcast, DuPont, Mastercard, Visa

-29th (Fri) Chevron, Honeywell, Caterpillar, Eli Lilly, KKR

After all,’Big Day’ is the 27th. This is because the performance disclosures of iconic companies such as Apple, Tesla, and Facebook are concentrated. There is a possibility that the Biden government will tighten regulations on big tech, but there are many observations that most of them would have performed well as the non-face-to-face economy continued to expand after the corona crisis.

A better-than-expected performance can boost stock market confidence. Up to last week, about 90% of companies that reported their results recorded an’earning surprise’.

Among Korean investors, Tesla is most likely to be interested in Tesla, but we need to keep an eye on this year’s production forecast rather than the performance itself. This is because the stock price-to-earnings ratio (PER) is 1677 times, and it makes no sense to measure profitability at this stage. For reference, the overall market average is about 30 times.

Tesla kept its promise to deliver about 500,000 units last year, but this year, it is highly likely to increase its target by about 300,000 units as it is starting to deliver Model Y made in Shanghai, China.

▶If you would like to introduce Wall Street’s perspective on the direction of the stock market.

The New York stock market has been on the uptrend since the beginning of the year and has been slowing for a while. Overall, a number of observations are positive about the stock market this year. However, it seems that the likelihood of a sharp rise as last year is low.

“We will be able to control the epidemic from the end of this summer,” said a world-renowned scholar Pinelopi Goldberg, Yale University professor, who served as the World Bank’s chief economist until March last year. The stock market is also likely to show booming.” However, even if the coronavirus outbreak ends, it is predicted that the polarization between information technology (IT), e-commerce and other service sectors will intensify.

There is also a prospect that foreign markets such as China, Korea, Indonesia and Japan are more promising this year than the US stock market. Jeremy Schwartz, head of global research at Wisdom Tree, a Wall Street asset management company, said in an interview with CNBC, “The US stock market has outperformed other countries for the past 10 years, but it is showing signs of a transition.” Emerging markets and the like will be able to propagate.”

“As a result of a survey of thousands of advisors, we received an answer saying that markets outside the US will be strong this year,” said Tom Lydon, CEO of the ETF database. “It is worth paying attention to the Chinese market in particular.” Advised.

▶ Although Bitcoin’s volatility is high, is there a correlation with the stock price?

As the price of bitcoin, a cryptocurrency leader, has plummeted, it is having a small impact on the stock price.

“If bitcoin prices plummet, it could trigger a bear market in the stock market,” said Matt Malley, senior market strategist at Miller Tabak, an asset manager. There are differences in degree, but both are considered risky assets.

Bitcoin price started to fluctuate after last year’s pandemic declaration (March 11), and then it has risen sharply from the end of last year. On the 12th of this month, it also set a record high of 42,000 dollars each. Last week, it plunged again and fell below $30,000. The current price is around $32,000.

Bitcoin is likely to face a watershed this year as to whether it will be recognized as an asset. Coinbase, the largest cryptocurrency exchange in the United States, has applied for an IPO, and S&P Dow Jones is planning to develop a cryptocurrency index. Facebook and the People’s Bank of China are considering launching their own digital currency.

In addition, the strong dollar and rising 10-year U.S. Treasury yields are considered external variables that can burden the stock market.

▶Finally, please introduce me if other indicators are scheduled to be released this week.

On the 25th, the Dallas Federal Reserve Manufacturing Index for January comes out. On the 26th, the S&P/Case Sealer home price index for November last year and the consumer confidence index for January this year will be released. On the 27th, statistics on orders received for durable goods in December last year will be released.

On the 28th, there are indicators that are worth watching with more interest. This is the number of new unemployment benefits claims issued by the US Department of Labor each week because the number of unemployed people has been on the rise again recently. It remains to be seen whether this trend has strengthened or has broken again. The leading economic index and new home sales for December of last year were also released on the same day.

Lastly, on the 29th, the employment cost index for the fourth quarter of last year, personal consumption expenditure and personal income for December last year, and the Chicago Purchasing Managers Index (PMI) for January this year will be released. Of these, consumption expenditure and personal income are important, and the previous month, they were -0.4% and -1.1%, respectively.

These economic indicators are released just before or after the opening of the stock market, so they can influence the mood of the early market.

New York = Correspondent Jae-gil Cho [email protected]