Stocks have put worries about inflation behind them as the major indexes continue to rise this afternoon.
The S&P 500 has gained 0.7%, to 2681.60, while the Dow Jones Industrial Average has risen 63.53 points, or 0.3%, to 24,703.98. The Nasdaq Composite has climbed 1.2%, to 7,097.32.
It’s not hard to see where the performance differences are coming from. Facebook (FB), Amazon.com (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOGL), the so-called Faangs—are flying today, helping to lift the tech-heavy Nasdaq. Those stocks, save for Apple, are absent from the price-weighted Dow, which has seen its gains limited by drops in stocks like McDonald’s (MCD), Johnson & Johnson (JNJ), and United Technologies (UTX).
The outperformance of the Faangs today suggests that investors are reverting to the trades that worked before last week’s correction. If the paradigm really has shifted, that might not be the right move.
Nektar: The Next Best Thing?
Biotech firm Nektar Therapeutics (NKTR) is showing that there are ways to goose its stock, short of being taken over in an industry swirling with M&A activity.
Shares of $13.3 billion market-cap Nektar were up nearly 12% in midday trading on news that the company has entered into a revenue-sharing partnership with Bristol-Myers Squibb (BMY) tied to the commercialization of Nektar’s early-stage immuno-oncology treatment, NKTR-214.
According to Endpoints News, a biopharma news website, Bristol-Myers is paying Nektar $1.85 billion in cash—including $850 million for an equity stake—in exchange for a 35% revenue split on NKTR-214. Bristol-Myers’ shares were up a little more than 1% in midday trading. Nektar’s website has a press release confirming the partnership.
There have been reports in recent days that Nektar, a leader in the fight to use the body’s immune system to fight various cancers, was considering such strategic partnerships and even the prospect of being acquired by a larger firm.
In a Q&A that first appeared Tuesday morning on the Barron’s website, fund managers with the Janus Henderson Global Life Sciences Fund (JAGLX) cited Nektar as one of three smaller companies that will attract the attention of larger companies because of their innovative approach to fighting diseases.
Good call. —John Kimelman
All’s Fair in Love and VIX
Investors are blowing hot and cold on stocks, putting the jitters back in the market, but the Cboe Volatility Index, or VIX, is spiking down. The so-called fear gauge, one measure of implied volatility, has fallen 20% to 20 so far this afternoon. It had spiked 115%, to 38, on Feb. 5, the largest single-day percentage move in the VIX’s history.
That means shorting volatility—a strategy that blew up in investors’ faces last week—looks attractive again. The ProShares Short VIX Short-Term Futures exchange-traded fund (SVXY) and the VelocityShares Daily Inverse VIX Short-Term exchange-traded note (XIV), which both suffered huge losses Feb. 5, are both up more than 5% so far today. (After that day’s carnage, Credit Suisse said it planned to close the VelocityShares ETN on Feb. 20.)
“When you have a surge in the VIX or the Volatility Index such as we had recently, you tend to have a tradable bottom that is good for weeks on the upside,” wrote Stephen Todd of the Todd Market Forecast. Just remember that these exchange-traded products aren’t meant for buying and holding over long periods of time.
However, investors may not fear a VIX blowup on the level of last week’s. Short-volatility investors clearly aren’t scared—last week some $500 million in fresh money flowed into the two above-mentioned exchange-traded products. “Asset values in the inverse ETPs have decreased greatly, and the VIX complex is no longer a major feedback loop that will exacerbate volatility spikes,” said Deutsche Bank strategist Karthik Nagalingam in a report published this morning.
That said, investors may want to consider multiple possible scenarios. “Cleaner” positioning suggests that normalization is on the way, but the speed in which that happens will determine what comes next, says Barclays equity analyst Maneesh Deshpande. History suggests that the VIX will hit the low-teens level in the next two months. “However, if the reversion was to be rapid, we could transition to a phase characterized by ‘market up, volatility up’ dynamics similar to what was experienced in the late 1990s,” he wrote.
Basically, volatility investors long and short stand to get their hearts broken if they get the timing wrong—and that’s all too easy to do. —Crystal Kim
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