Closing Stock Market SummaryThe S&P 500 rose 1.4% on Thursday, bouncing back from two days of sharp losses. The Dow Jones Industrial Average (+1.8%) and Russell 2000 (+2.7%) outperformed the benchmark index, while the Nasdaq Composite underperformed on a relative basis with a 0.8% gain.
Supportive factors included 1) a bargain-hunting mindset amid an increasing number of stocks trading near 52-week lows, 2) a view that the Omicron variant might not be as bad as feared after the second reported case in the U.S. produced mild symptoms in a vaccinated person like the first case, and 3) a recognition that the S&P 500 reclaimed its 50-day moving average (4543).
All 11 S&P 500 sectors closed higher, featuring leadership positions from the cyclical industrials (+2.9%), energy (+2.9%), financials (+2.8%), and materials (+2.0%) sectors. The information technology (+0.8%), consumer staples (+0.8%), and health care (+0.4%) sectors trailed with more modest gains.
The relative underperformance of the Nasdaq was due to softness in Apple (AAPL 163.76, -1.01, -0.6%), Microsoft (MSFT 329.49, -0.59, -0.2%), Amazon.com (AMZN 3437.36, -6.36, -0.2%), Tesla (TSLA 1084.60, -10.40, -1.0%), and Facebook (FB 310.39, -0.21, -0.1%).
Apple was pressured by a report from Bloomberg indicating that the company told suppliers that demand for the iPhone 13 has weakened. AAPL shares declined 0.6%, but they were down as much as 4.2% shortly after the open.
Boeing (BA 202.38, +14.19, +7.5%) stood out with a 7.5% gain on news that China may soon allow the 737 MAX to return to flight. Snowflake (SNOW 360.38, +49.28, +15.9%) and Kroger (KR 44.65, +4.44, +11.0%) rallied noticeably following their earnings reports.
Elsewhere, the Treasury yield curve experienced some flattening activity amid a rise in shorter-dated rates. The 2-yr yield increased five basis points to 0.61%, and the 10-yr yield increased one basis point to 1.45%. The U.S. Dollar Index increased 0.1% to 96.14. WTI crude futures settled higher by 1.6%, or $1.03, to $66.64/bbl.
Strikingly, WTI crude futures were down more than 4.0% immediately after it was reported that OPEC+ agreed to stick to its planned production schedule for January. There was some speculation that the ministers would adjust production because of the Omicron variant and the U.S.-led effort for nations to tap into their oil reserves.
Reviewing Thursday's economic data:
- For the week ending November 27, initial jobless claims increased by 28,000 to 222,000 (consensus 255,000). Continuing claims for the week ending November 20 decreased by 107,000 to 1.956 million.
- The key takeaway from the report is that initial jobless claims are firming up at lower levels seen before the start of the pandemic.
Looking ahead to Friday, investors will receive the Employment Situation Report for November, the ISM Non-Manufacturing Index for November, Factory Orders for October, and the final IHS Markit Services PMI for November.
- S&P 500 +21.9% YTD
- Nasdaq Composite +19.3% YTD
- Dow Jones Industrial Average +13.2% YTD
- Russell 2000 +11.7% YTD
After Hours Summary: SMAR +17%, MRVL +16% rise while DOCU -29%, OLLI -19% fall on earnings/guidanceAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: SMAR +16.6%, MRVL +16.1%, TLYS +12.6%, ZG +10.2% (updated Homes segment revenue outlook in connection with wind-down progress of Zillow Offers; also authorized $750 mln share repurchase program), JOAN +8.5%, YEXT +6.0%, ULTA +5.1%, ZUMZ +3.2%
Companies trading higher in after hours in reaction to news: FIZZ +6.8% (announced special cash dividend), SBGI +4.2% (subsidiary Diamond Sports Group announced multi-year renewal of digital rights agreement with the NHL), RJF +3.5% (raised its quarterly dividend and approved a $1 bln share repurchase authorization), ENFA +2.9% (received shareholder approval for BuzzFeed combination), ENBL +1.4% (closed combination with Energy Transfer [ET]), RIOT +1% (provided November production and operations update)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: DOCU -28.9%, OLLI -18.6% (also increased share repurchase program), ASAN -14.9%, SWBI -12.9%, DOMO -7.9%, OOMA -5.7%, GWRE -1.7%, COO -1.7%
Companies trading lower in after hours in reaction to news: ESPR -14.2% (announced public offering of common stock), SPWH -10% (disclosed termination of merger agreement with Great Outdoors Group), APP -5.3% (announced secondary offering of common stock by selling stockholders)
Hedge funds wage pandemic battle for top traders
Multi-manager funds are driving traders’ compensation sky-high after thriving during coronavirus crisis
As investors race to size up the threat from the Omicron coronavirus variant, one corner of the hedge fund industry needs no reminding that the pandemic moves markets.
Helped by diversified portfolios and an ability to slash or raise their level of risk quickly, multi-manager funds including Millennium Management and Citadel have been among the industry’s winners in the wild markets of the past two years.
The rapid growth of such funds, which trade a wide range of assets and strategies, has unleashed a fierce battle for talent, driving compensation for top traders sky-high and helping to reshape Wall Street as firms try to entice recruits by expanding beyond New York.
“There’s huge competition and scarcity of talent,” said Tanya Lutyens, founding partner at recruiter and consultancy Lutyens Advisory. “When there wasn’t this mad war for talent, it was more of a buyer’s market and firms could dictate terms. Now they’re throwing more at them [staff they want to hire] to get them over the line.”
As the competition for staff has intensified, Millennium, a $57bn fund headquartered in New York, this year opened offices in the far more temperate Palm Beach and Miami as part of its sales pitch. At the same time, funds are sometimes having to guarantee millions of dollars in payments to persuade traders to sign on the dotted line.
“It’s super-competitive,” said one large European-based investor that backs such funds. “It’s now got past the point in aggregate [across the sector] where it’s economical” to make these hires, he added.
For now at least, such unease over the rising rewards remains rare. Assets in the sector, which includes firms such as New York-based ExodusPoint, Balyasny and Steve Cohen’s Point72, have ballooned by more than $100bn during the pandemic to $620bn, according to eVestment data.
Multi-manager funds operate in perhaps the most brutal pocket of the hedge fund world. Employing tens or even hundreds of small teams or “pods” that independently trade a range of strategies and assets, they use borrowing to improve gains from winning bets while trying to limit exposure to sudden market jolts.
The approach has proved a good fit for the market mayhem of the coronavirus crisis, making such funds the most popular within the hedge fund industry this year, according to eVestment.
Founded in 1989 by former stock broker Izzy Englander, Millennium made 25.6 per cent last year, its best performance in two decades according to investor documents, and is up 10.9 per cent through to the end of October this year.
Citadel, the $43bn group run by Ken Griffin, gained 24.5 per cent in 2020 and is up 19.5 per cent in the first 10 months of this year, according to a person familiar with the matter.
While their performance this year has so far trailed the S&P 500, these hedge funds continue to benefit from some investors valuing returns derived from specific bets more highly than those that come from tracking an overall index.
Since 2019 Millennium, for example, has returned billions to investors, who have also been willing to lock their money up for longer with the firm.
Adding to the allure is the consistency of their returns over long periods, even in turbulent markets. Despite having half of its $13.5bn in fixed-income assets ExodusPoint, founded in 2017 by Michael Gelband, Millennium’s former head of fixed income, lost less than 3 per cent in October’s bond market turmoil, better than macro funds such as Rokos Capital and Alphadyne.
Black and white
The “eat what you kill” model adopted by many of the firms means successful traders share in the spoils, while those losing even relatively small amounts of money can quickly be fired.
At Millennium, a trader can have their positions liquidated and could be fired if they lose around 7.5 per cent, although the firm will also take other factors such as market conditions into account, according to people familiar with the matter.
In extreme cases a trader within the multi-manager world can be out of the door just weeks after arriving, the people said.
“It’s black and white,” said a Millennium portfolio manager. “You know the rules of the game. Millennium tells you that they want to empower you; bring over your business and your team and we’ll take care of compliance, administration, trading systems etc. At a time when starting your own hedge fund is getting more expensive and more complex, this really resonates.”
For talented traders, that has worked out well. In addition to a base salary that can in some cases reach $250,000 to $400,000, those with strong performance are now regularly being offered 20 per cent of the trading profits they generate, with some offered as much as 25 per cent, say industry insiders.
Traders are also tied in by notice periods and lengthy non-compete clauses to stop them decamping to rivals, often six months but sometimes stretching to several years. To hire them, funds have to compensate them for accrued bonuses they are leaving behind plus lost earnings during their notice periods and early months at the new firm. Such payments can now reach $10m and occasionally as much as $20m.
Looked after
Although they can accrue lavish rewards, industry executives say the trend also reflects how traders’ options have narrowed over the past decade.
Multi-manager funds have benefited as the cost of complying with post-financial crisis regulations has made starting a fund more onerous. Traders who might once have done so are increasingly tempted by multi-manager funds, where regulation and compliance is looked after and where they could be given up to $750m or more to manage on day one.
This dynamic has added fuel to the hiring spree. Since the start of last year the number of lead managers, each of whom heads a pod, at Millennium has climbed from 230 to more than 265, while the size of pods has also been growing. At ExodusPoint the number of lead managers has risen from 60 to 105.
The firms frequently go head to head in sometimes bitter fights for traders. Citadel recently hired trader Brad Schneider, who was previously at Millennium. ExodusPoint, whose name was inspired by the number of Millennium colleagues Gelband first took with him, has added tens of traders and other former Millennium employees to its ranks, although the flow has recently slowed.
New York-based ExodusPoint has hired 40 traders this year from a range of firms, including 10 in Europe and 10 in Asia.
In recent months it is Millennium that has been especially active, particularly in Europe. Of the 22 hedge fund trader hires that headhunter OCR Alpha listed for September across the industry, eight of them were made by Millennium — by far the largest by any single firm. One rival executive described Millennium as “trying to hire the market”.
Millennium and ExodusPoint declined to comment. Citadel said: “We invest heavily in building high-performing teams leveraging resources and technology that help our portfolio managers be more successful.”
Despite the robust performance from multi-manager funds, the sector has had setbacks. Some suffered initial losses as markets slumped in March 2020 with the spread of Covid-19, before intervention by the Federal Reserve sparked a recovery in riskier assets.
But with central banks signalling their determination to scale back stimulus next year, some industry executives are wary of how adept multi-manager funds will prove at navigating any market fallout, particularly given their huge asset growth during the pandemic.
“The issue for multi-strategy funds” that borrow to juice returns is that “when you have a big, unexpected move in markets triggering a liquidity squeeze, you’re going to have larger drawdowns [losses]”, said Jim Neumann, chief investment officer at Sussex Partners, which advises investors on hedge fund investments.
Gapping down
In reaction to earnings/guidance:
- MEI -9.9%, ESTC -8.7%, VEEV -7%, DG -3.5%, SMTC -1.9%
Other news:
- KPLT -12.6% (provides inter update on quarter-to-date gross orginiations)
- VBIV -6.1% (to present new survival data from Phase 2a Study)
- MEIP -3.8% (prices offering of 17.5 mln shares of common stock at $2.60 per share)
- WE -3.1% (discloses material weakness in internal control over financial reporting to amend financial statements; issues Statement Regarding 8-K Filing on Former SPAC's Financial Statements)
- IPHA -2.6% (to Present Monalizumab Data at ESMO Immuno-Oncology 2021 Congress)
- COST -2% (reports Nov adjusted comps of +9.2%)
Analyst comments:
- BYSI -7.5% (downgraded to Hold from Buy at Jefferies; downgraded to Underperform from Buy at BofA Securities)
- EXPD -2.3% (downgraded to Underweight from Equal-Weight at Morgan Stanley)
Gapping up
In reaction to earnings/guidance:
- SNOW +12.9%, FIVE +8.9%, ZUO +4.7%, SIG +2.2%, OKTA +1.5%, GMS +1.5%, TD +1.1%, AI +1%
Other news:
- VIR +15.3% (Preclinical Data Demonstrate Sotrovimab Retains Activity Against Key Omicron Mutations New SARS-CoV-2 Variant)
- HGEN +9.7% (The Lancet Respiratory Medicine Publishes Peer-Reviewed Paper and Independent Expert Commentary on Positive Phase 3 Lenzilumab Results)
- XOS +5.1% (announced the receipt of a purchase order for Xos last mile delivery vehicles from Route Consultant a premier broker and consultant for FedEx Ground contractors)
- ACTD +3.9% ( OPAL Fuels to list on Nasdaq through combination with ArcLight Clean Transition Corp. II)
- RDS.A +3.7% (commences shareholder distributions from Permian business sale proceeds)
- WNC +3.6% (backlog grows to a record $2.3 bln during NovQ)
- RRD +3.3% (board decides that Chatham acqusition propsal is superior to Atlas deal)
- TRIT +3.3% (provides update on independent audit)
- SWIR +3.2% (names new chair of board)
- CLVT +2.7% (completes acquisition of ProQuest; also reaffirms FY21 guidance and provides combined outlook for FY22; also names new CFO)
- CHK +2.6% (authorizes $1 bln repurchase of common stock and/or warrants from time to time)
- CLBK +1.5% (announces merger agreement with RSI Bank)
- AIRC +1.4% (files mixed securities shelf offering)
- BOAS +1.4% (Selina and BOA Acquisition Corp. have entered into a definitive business combination agreement that will result in Selina becoming a publicly listed company)
- CVX +1.1% (announces $15 bln capital and exploratory budget for 2022; also raises its share buyback guidance range to $3-5 bln/yr)
Analyst comments:
- ALV +2.6% (upgraded to Outperform from Peer Perform at Wolfe Research)
- CUBE +2.3% (upgraded to Outperform from Mkt Perform at Raymond James)
- GGG +1.2% (upgraded to Outperform from Mkt Perform at William Blair)
Early premarket gappers
- Gapping up:
- SNOW +15.3%, FIVE +12.9%, HGEN +8.8%, VIR +8.6%, OKTA +5.7%, IPHA +4.8%, ZUO +4.7%, GBX +4.6%, TRIT +4.3%, RDS.A +4.2%, AI +4%, CRWD +3.7%, WNC +3.6%, SWIR +3.2%, SPLK +3%, CLVT +2.7%, CVX +2%, NR +1.9%, IMGN +1.5%, FLGT +1.3%, LAC +1.3%, TARO +1%, RTX +1%, PWR +0.9%, DIS +0.8%, DSGX +0.8%
- Gapping down:
- KPLT -9.6%, VBIV -7.1%, SMTC -6.6%, ESTC -5.1%, VEEV -4.8%, MEIP -3.1%, AAPL -1.9%, DAN -1.7%, NCNO -1.6%, APH -1.2%, COST -0.9%, WE -0.7%, PVH -0.6%