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Aug 7, 2018

Markets I The Wall Street Journal

The Wall Street Journal.
Markets Bull logo.
Good morning. I'm Ben Eisen, your guide to the markets this Tuesday.
Global stock markets advanced after the S&P 500 closed at its highest level since January on Monday. The index is 0.8% off its Jan. 26 all-time high. 
Plus, stock market reporter Danielle Chemtob takes a look at how mutual funds are positioned in popular tech names.

Markets in a Minute

Markets Data

Overnight Developments


Silver Lining for FANGs

By Danielle Chemtob, stock market reporter
There’s a silver lining when the stock market’s most popular technology stocks stumble: many large-cap mutual funds outperform.
Those funds have fared better than the S&P 500 on most days when one or more of the FANG stocks—the collective name for Facebook Inc., Inc., Netflix Inc. and Google parent Alphabet Inc.—has declined by 5% or more, according to a Goldman Sachs analysis.
That’s because the average large-cap mutual fund is underweight three of the four FANG stocks, Goldman says. Those stocks have propelled much of the U.S. stock market’s gains this year, but the bank’s research suggests mutual funds are growing more skeptical of the crowded trade.
The average large-cap mutual fund holds 1.3% of its portfolio in Facebook, 0.2 percentage point less than its benchmark; 2% in Amazon, compared with the benchmark’s 2.4%; and 0.3% in Netflix, versus the benchmark’s 0.5%. The funds are overweight only in Alphabet, by 0.19 percentage point.
Those slim allocations helped shield the funds from the recent losses suffered by Facebook and Netflix that bled over into the S&P 500. Large-cap growth funds have outperformed the broad index over the past month and year to date, rising 3.9% and 11% over those periods, according to Morningstar. That’s versus gains of 3.3% and 6.6%, respectively, for the S&P 500.
Facebook shares slumped 19% on July 26, losing $119.1 billion in market value, after the social-media giant warned of slowing growth on its earnings call. That followed a 5.2% decline in Netflix shares on July 17, the day after the streaming video company reported weaker-than-expected subscriber growth.
Mutual funds, particularly growth-oriented funds, have reduced their exposure to the FANG stocks in recent years, according to Goldman. They first dramatically cut their positions in the fourth quarter of 2016 after Facebook shares lost more than 10% of their value in the wake of scrutiny following the 2016 election, a period when the S&P 500 surged. And the funds have generally continued trimming their holdings since then.
Mark Stoeckle, senior portfolio manager of Adams Diversified Equity Fund, said his fund cut its holdings in Facebook this spring shortly before Chief Executive Mark Zuckerburg’s testimony before Congress and the European Union’s privacy law went into effect.
“For us, it was managing risk relative to an unknown,” he said.

Market Facts

  • The Cboe Volatility Index, or VIX, fell to its lowest level since January on Monday. Wall Street's "fear gauge" has declined with stocks creeping back toward record highs. 
  • Front-month silver futures dropped 0.7% Monday to their lowest level since April 2016 as a selloff in metals continues. 
  • On this day in 1990: The Journal publishes market guru Joe Granville’s forecast that the Dow Jones Industrial Average will fall below 2200 by the end of August and below 1750 by the spring of 1992. The index finished the month at 2614 and soared past 3200 by the spring of 1992.
  • Key Events

    The Job Openings and Labor Turnover Survey for June is out at 10 a.m. ET.

    Must Reads

    Facebook is trying to deepen user engagement after it said last month its growth is slowing, stunning investors. One tactic it is exploring is to get banks to work closely with Facebook Messenger./PHOTO: Marcio Jose Sanchez/Associated Press
    Facebook wants your financial data. As part of an effort to offer new services to users, the social-media giant wants U.S. banks to share detailed financial information about their customers, including card transactions and checking-account balances.
    Earnings are on tap for numerous companies, including:
    • Disney, whose shareholders approved its $71 billion deal for 21st Century Fox assets. Fox shareholders also approved the tie-up.
    • Wendy’s and Papa John’s. The pizza chain’s ousted chairman and founder, John Schnatter, held merger talks to discuss a tie-up with Wendy’s, but talks cooled after Mr. Schnatter’s departure over the use of a racial slur. Mr. Schnatter has since taken legal action against the chain, but his relations with the company had long been deteriorating.
    • Snap, which laid off about 10% of its engineers earlier this year and has contended with user outcry about changes in its disappearing-message app.
    Carl Icahn plans to go public with his campaign to scuttle the Cigna-Express Scripts deal. The activist investor plans to send an open letter today urging fellow Cigna shareholders to vote against the $54 billion purchase.
    The DOJ says a judge ignored ‘‘common sense’’ by allowing the AT&T-Time Warner deal. The Justice Department made the argument in a brief filed in federal appeals court, where the government continues to challenge the deal, worth more than $80 billion.
    U.S. gasoline makers are posting big profits. American fuel makers are buying crude on the cheap thanks to soaring domestic oil production and regional pipeline bottlenecks.

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