Stocks Lower Friday: S&P 500 Pulls Back From Record High After Powell Remarks, Snapchat Plunges

Last Updated: Tuesday, October 26, 2021 4:27 PM | Nick Dey

Stocks were for the most part lower Friday following some underwhelming earnings reports. The S&P 500 briefly set a fresh intraday record high before pulling back following comments from Federal Reserve Chair Jerome Powell regarding tapering and inflation.

Snap (SNAP) and the rest of the social media powerhouses, namely Facebook (FB), Twitter (TWTR), and Google (GOOG), had it rough today after Snapchat’s earning raised several red flags. Snap beat EPS estimates and missed revenue estimates, but what investors really cared about was the company lowering fourth quarter guidance due to changes Apple made with the latest version of iOS. Snap also said global supply chain and labor issues may be contributing to advertisers pulling back on spending.

In short, the iOS change made data tracking on the iPhone operating system an opt-in service rather than something that you had to go through settings to change. According to Statista, the worldwide opt-in rate is at just 21%. However, that is likely much lower in the U.S., as the opt-in rate was just 4% through the first 2 weeks after the update.

Taper Time

Fed Chair Jerome Powell offered his least vague and cryptic opinions about tapering asset purchases and interest rates to date today in a speech at the Bank for International Settlements conference. This was the final day before monetary policymakers enter a media blackout period ahead of the November FOMC meeting, so it should be the last bit of insight provided before the November 2 and 3 meeting.

In regards to the long-awaited timeline for tapering, Powell said the Fed is “on track to begin a taper of our asset purchases that, if the economy evolves broadly as expected, will be completed by the middle of next year.” Of course, Powell couldn’t just tell us that the Fed expects to begin tapering on a certain date, but investors are expecting that announcement during the Fed’s meeting next month. So we are still asking how much and when, but at least we know an expected end-point.

Tapering aside, Powell’s talk on inflation likely did little to lessen worries about inflation, and perhaps, added to them. Neil Dutta, the head of economics at Renaissance Macro Research said in a Bloomberg interview that Powell seemed more anxious about inflation and that he wasn’t “leaning against the market pricing”, which was “revealing in and of itself”.

Powell said inflation will most likely decline as roadblocks in global supply-chain ease and that it would be premature to “tighten policy using rates now with the effect and intent of slowing job growth when there’s good reason to expect a return to robust job growth and for the supply constraints to diminish, both of which would have the effect of increasing the potential output of the economy.”

However, what is premature today was a nonstarter six months ago when the only real answer to inflation given was basically “it’s ok, it’s transitory inflation.” So when Powell said the Fed would “certainly use our tools to preserve price stability” if persistent inflation arises as a serious threat, it would be quite the backtrack.

Bitcoin

Bitcoin and other cryptocurrencies alike were dealt a win this week after ProShares Bitcoin Futures ETF (BITO) debuted at $40.88 per share on October 20. The futures-based ETF is the first Bitcoin ETF to win approval in the U.S. Bitcoin rallied in the lead up and immediately after the launch, even setting a new record high on Wednesday, but has fallen the last two days.

BITO’s debut was so successful, that it actually proved Mark Twain’s famous saying : “Too much of anything is bad, but too much good whiskey is barely enough.” After just two days of trading, BITO owned nearly 1,900 Bitcoin futures contracts, just 100 short of its Chicago Mercantile Exchange front-month cap of 2,000 contracts.

This pushed ProShares to add 1,400 November futures contracts as the CME permits up to 5,000 in any other month that isn’t the front month. While adding these contracts satisfied ProShare’s dilemma of not being able to add to its futures position, it also made the futures-based ETF less correlated to the actual current price of Bitcoin.

ProShare’s ability to effectively track the price movements of Bitcoin was the biggest criticism of the ETF in the lead up to its debut, but those criticisms mostly focused on the costs that the ETF carry in order to roll over the futures contracts from month to month.

So with it taking just two days for the cap to have to be navigated around, it’s safe to say that it was a little more hyped up than it might have wanted to be.

Also, with rolling costs and low front-month contract limits, and Bitcoin being available to most people through the likes of Venmo, CashApp, Robinhood, and all of these brokers, we’re not sure who actually has access to just this futures ETF and couldn’t opt for a true Bitcoin holding.

All told, stocks rose across the board this week. The S&P 500 added 1.64%, while the Nasdaq grew 1.29%. The Dow grew 1.08%, while the Russell 2000 added 1.13%.

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