Traders work in the Volatility Index Options (VIX) pit on the floor of the Chicago Board Options Exchange in Chicago, Illinois, U.S. (Photographer: Tim Boyle/Bloomberg)  

Someone Somewhere Is Pushing a Big `Buy' Button: Taking Stock

(Bloomberg) -- Stock futures are seeing follow-through from yesterday’s rally, when the benchmark indices soared around three percent. The VIX is pulling back to ~20 after hitting 26 on Friday, while Facebook shares are up another ~1% after yesterday’s impressive recovery (more on this below).

The consensus is that the bounce over the past 24 hours is being fueled by a more sanguine view of the China trade-war outcome, with President Trump firing off this tweet last night: "Trade talks going on with numerous countries that, for many years, have not treated the United States fairly. In the end, all will be happy!"

This follows the reports from over the weekend of ongoing negotiations between the U.S. and China, some posturing from Mnuchin about "very productive" talks, and Bridgewater’s Ray Dalio chiming in on LinkedIn, where he said the most likely scenario is one where some trade pacts will be put in place and "the markets will like it."

As for yesterday’s action, the S&P 500 erased all of Friday’s losses on a complete reversal in last week’s rotation -- tech, financials, discretionary and industrials buoyed the tape while the more defensive sectors, like utilities, REITs and staples, underperformed. It was an impressive rally, no doubt, but important to note that we are still down more than 50 handles from Wednesday’s close and a little less than 100 handles from retracing all losses from last week.

Did We Just Witness the Bottom in Facebook?

Facebook traded like it was in capitulation mode yesterday. The stock kept tumbling in the morning session, eventually dropping as much as 6.5% versus an opposite move in the broader market. But a monumental recovery in the afternoon on extremely heavy volume (more than every day last week besides one) may make some opine that the stock may have put in a bottom for the near term.

One thing that is interesting is how much sentiment has soured on Facebook, at least in the public eye. The same can’t be said for the sell-side, as not one analyst has downgraded the stock since the Cambridge Analytica data breach scandal broke -- 44 out of 48 analysts still rate this stock a buy.

For example, BofAML has a cautious note out this morning talking about how the FTC investigation increases regulatory risk for Facebook and how negative news flow will likely continue into the second quarter. The analyst follows this up by reiterating the buy rating and shaving the price target by a mere $20 to $210, which implies more than 30% upside to the stock’s last close.

While some may conclude that Facebook has bottomed given the action, the same can’t be said for GE. That stock floundered all day to close at its lowest since July 2009 and was the sole member of the Dow that ended in negative territory.

What Some Strategists Are Saying:

  • Canaccord Genuity: Tony Dwyer said on CNBC last night that the pullback is "normal human nature," as stocks rallied too much and people became too optimistic, and that using "trade wars" to explain the slide is just an excuse. He added that his S&P 500 target of 3,100 for 2018 may be too low. Recall Dwyer is the bull on the Street who has called for a re-test of the February "shock drop" low before a double bottom back to the record highs from late January.
  • JPMorgan: Dubravko Lakos-Bujas, in a note, sees a buying opportunity in stocks as the S&P 500 is trading at pre-tax reform levels despite stronger fundamentals and favorable flows; argues that most of the selling seen over this period has been largely technical ie trend-following strategies and option hedging in an illiquid market environmetn
  • Citigroup: Tobias Levkovich, on BTV’s "What’d You Miss?", says tech stocks will underperform over the next 12 months given valuation trends and relative performance vs financials in an environment when bond yields are rising.

Tick-by Tick Guide to Today’s Actionable Events

  • Today -- ROKU IPO lockup expiry, INOV investor day and day two of Scotia Howard Weil Energy Conference with APC, EOG, HAL, HES, PXD, RDS/A
  • 7:30am -- FRAN earnings
  • 8:30am -- NRG analyst day
  • 10:00am -- Richmond Fed
  • 11:00am -- Fed’s Bostic speaks at Hope Global Forums
  • 11:00am -- AAPL education-focused announcement
  • 12:00pm -- ADBE keynote at Adobe Summit (day one)
  • 12:00pm -- SPLK analyst and investor day
  • 3:00pm -- NVDA investor day
  • 4:05pm -- LULU, RH, SCVL, SONC earnings
  • 4:30pm -- API oil inventories
  • Tonight -- Bilibili (BILI) IPO expected to price

©2018 Bloomberg L.P.