Before the bell: Asian markets open higher

Dear students,

My apologies once again for not being able to teach today. I suspect I’ve caught a nasty cold or the flu — and my voice is completely gone. I’ll see the doctor later today, and I look forward to seeing you all again next Monday.

In the meantime, enjoy this morning commentary!

President Donald Trump’s visit to Asia, the Federal Reserve’s upcoming rate decision, and a busy earnings calendar are giving investors more than one reason to buy.

Wall Street closed higher on Friday, with the S&P 500 up 0.8% and the Nasdaq gaining 1.2%, finishing the week 1.9% and 2.3% higher respectively. Ford (+12.2%) was rewarded for strong quarterly results, while IBM (+7.9%) also rallied after announcing a major breakthrough in quantum computing. Goldman Sachs (+4.4%) and Alphabet (+2.7%) gained ground as well, while Tesla (-3.4%) and Deckers Outdoor (-15.2%) fell sharply. European trading was more subdued: the Euro Stoxx 50 edged up just 0.1%, and the Bel20 slipped 0.2%. London was the standout, with the FTSE 100 up 0.7%, and London Stock Exchange Group climbing 4.8%.

In Asia, indices opened the week firmly higher: Tokyo gained 1.5% on average, and Hong Kong’s Hang Seng rose 0.9%. SoftBank jumped 5.9% in Tokyo, while in Hong Kong, Baidu (+5.5%), Alibaba (+2.9%), and JD.com (+2.4%) stood out. It’s shaping up to be a busy trading week. The earnings season shifts into higher gear with results today from Keurig Dr Pepper, Whirlpool, and Waste Management. On Wednesday, the Federal Reserve is expected to cut interest rates from 4.00–4.25% to 3.75–4.00%, and on Thursday, President Trump will meet China’s Xi Jinping.

Time to sell a few shares

Members of Spaarvarkens know me well enough to realize that I don’t sell shares often — so when I do, there’s usually a good reason. I’ve said before that I’m not a big fan of healthcare property REITs, yet I’ve still been holding Cofinimmo and Aedifica. This week, they’re leaving my portfolio. The final push came from fresh losses among nursing home operators. On Thursday evening, it was revealed that Armonea — which operates 74 nursing homes in Belgium — reported a loss of 250 million euro last year. According to management, the losses were partly due to rising rental costs. Other players in the sector are struggling as well. Landlords like Aedifica and Cofinimmo may eventually have to slow rent increases, possibly under government pressure. That’s why I’m not optimistic about the sector. Still, I won’t be dumping my shares at any price — they’ll be sold with limit orders.

Little fear on the markets

Those who paid attention in class last Monday will recognize this topic. The VIX index — Wall Street’s so-called “fear gauge” — fell on Friday to its lowest level since early October. It briefly touched 16.02, down from 25.31 on October 16. The drop shows that investors aren’t expecting major swings in stock prices. The VIX is based on implied volatility in S&P 500 options. When volatility expectations are high, options become expensive. When volatility is low, options become cheap — meaning investors expect calmer markets. A VIX of 16 implies that the S&P 500’s expected standard deviation over the next 12 months is 16%. If we assume the S&P 500 rises 9% per year on average, that translates into a range from roughly -7% (9% – 16%) to +25% (9% + 16%) over the coming year. Most investors dislike such wide swings and therefore prefer a relatively low VIX.

Did you know…

that the VIX index has been calculated by the Chicago Board Options Exchange (CBOE) since 1993? Until 2003, it was based on a basket of 100 stocks, but since then it has been derived from S&P 500 option prices.

This article was translated from Dutch and was originally published on Spaarvarkens.be.