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Cathie WoodSource: CNBCCathie Wood's flagship fund Ark Innovation hit its lowest point of the year on Monday amid further selling in innovation stocks.Ark Innovation's drop of as much as 5% on Monday dragged the "disruptive innovation" ETF below its February low, a level that many investors are watching as a barometer for the larger tech sector. Ark Innovation is now nearly 35% off its most recent high: $159.70 on Feb. 16.Wood's core ETF is now down nearly 13% this month and more than 15% year-to-date.Zoom In IconArrows pointing outwardsSome of Ark Innovation's top holdings took big hits on Monday as the Nasdaq Composite dropped as much as 1.5%. Tesla fell 4% and Teladoc Health dropped 4.6%. Square and Roku fell nearly 6% and 3%, respectively. DraftKings declined more than 3% and Zillow lost over 2%.Wood told CNBC on Friday that she loves the set-up for her ETFs following the most recent sell-off in technology stocks. She said she envisions her strategies posting a compound annual rate of return between 25% and 30%."I love this set-up," Wood said Friday on CNBC's "Closing Bell." "The worst thing that could have happened to us is to have the market narrowly focus on just our ilk of stock — the innovation space."However, more than $1.1 billion of fund flows have left Ark Innovation this month. Ark Invest — including its five core ETFs — has lost about nearly $2 billion in investor dollars in May, according to FactSet.200-day moving average long goneArk Innovation broke below its 200-day moving average, a key technical level watched by traders that is essentially the average of the past 200 closing prices."The issue with ARKK and other speculative growth ETFs is that short-term rallies have been aggressively faded for three months now," Frank Cappelleri, Instinet executive director, told CNBC. "The ETF will have to do more than just bounce for a few days to convince traders otherwise.""In other words, simply getting back above the 200-day moving average won't mean much without upside follow through. That continues to be the biggest concern," Cappelleri added.Zoom In IconArrows pointing outwardsWood's other ETFs also experienced intense selling pressure on Monday. The Ark Next Generation ETF lost 3.7%, bringing its month-to-date losses to more than 11%. The Ark Genomic Revolution ETF and the Ark Autonomous Technology and Robotics ETF fell 3.7% and 2.5%, respectively. The pair are down about 13% and 5% this month alone. The Ark Fintech Innovation ETF dropped 3.6%, bringing its losses for the month to nearly 9%.The Ark Autonomous Technology and Robotics ETF is Wood's only fund in the green for the year, up about 3%.Become a smarter investor with CNBC Pro. Get stock picks, analyst calls, exclusive interviews and access to CNBC TV. Sign up to start a free trial today
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Harley Finkelstein, COO, ShopifyScott Mlyn | CNBCInvestors should take note when an analyst becomes bullish on a stock after standing on the sidelines. It could signal the name is undervalued and poised for long-term growth. The stocks highlighted below have just been upgraded to Buy. As for the analysts handing out these upgrades, they boast a proven track record of success. TipRanks' analyst forecasting service works to identify the best-performing analysts on Wall Street, or the analysts with the highest success rate and average return per rating. These metrics factor in the number of ratings published by each analyst.Here are five stocks that were recently upgraded by Wall Street's best-performing analysts:ON SemiconductorBased on operating margin catalysts as well as its valuation, ON Semiconductor just scored an upgrade from Baird analyst Tristan Gerra. Now rating the stock a Buy, the top analyst also increased the price target from $38 to $48 (29% upside potential).While management guided for revenue that is less than the seasonal norm, Gerra remains unfazed.Expounding on this, the analyst stated, "The company's aggressive inventory shift… along with a very significant rebound in utilization rates enabled them to gain share in 2Q by outshipping competitors, in our view. We do not view management's preliminary 3Q below-seasonal revenue outlook as the sign of a coming downcycle, but rather a capacity limitation with the potential for the company to exceed second-half expectations on better supply availability."On top of this, the semiconductor company has been working to improve its mix. These efforts will be bolstered thanks to the current "tight supply environment," in Gerra's opinion, rather than if ON was operating in an over-supply environment.All of this prompted the analyst to note, "Investors for the medium-term should be rewarded with significant upside both from an ongoing upcycle and likely the most significant turnaround in the company's history. Cost initiatives, mix and pricing should catalyze further gross margin expansion in both 2H and 2022 as product repositioning initiatives gain momentum."Gerra is currently tracking a 62% success rate and 20.4% average return per rating, according to recent data provided by TipRanks.ShopifyIn a research report entitled "The Retail 'Shift' Appears Here to Stay," Roth Capital analyst Darren Aftahi makes the case for e-commerce name Shopify. In addition to upgrading the stock to Buy, he also set a $1,530 price target, suggesting 37% upside potential.Looking at the company's 1Q results, the numbers "once again" beat Aftahi's raised and above consensus expectations "as growth accelerated across all key segments and metrics." Total revenue growth reached 110%, and total gross merchandise value or GMV came in at $37.3 billion, reflecting 114% year-over-year growth and besting the analyst's call by 11%.According to management, the strong result was driven by growing traction and integration across social media platforms, as well as additional international expansion. International GMV growth exceeded that of North America, which implies "SHOP's growth was more than just a U.S. stimulus check dynamic," in Aftahi's opinion."While SHOP may not be able to outgrow its upcoming ~90%+ topline growth rates, it appears clear the company is continuing to gain market share and grow on the outskirts of the pandemic… International expansion acts as one of the major upside catalysts for SHOP where it will begin to invest more directly, and its portfolio of merchant solutions, internationally, has barely scratched the surface, beyond payments," Aftahi commented.With this in mind, the analyst bumped up his forecast for FY21 revenue by roughly 3%."When we look at multiple catalysts through international expansion and organic plan upgrades to Plus, alongside commentary April GMV has been on-par with 1Q trends, we see growth remaining quite healthy for this best-in-class e-commerce/tech name," Aftahi said.Landing among the top 66 analysts tracked by TipRanks, Aftahi boasts an impressive 44.5% average return per rating.Cogent CommunicationsFollowing its 1Q21 earnings release, Oppenheimer's Timothy Horan sees Cogent Communications as a compelling play within the internet, ethernet and colocation services space. As such, the five-star analyst upgraded the stock from Hold to Buy. In addition, he put a $90 price target on CCOI, which brings the upside potential to 16%.In the first quarter, the company posted total revenue of $146.8 million, which reflected a slight beat. In addition, gross margin was up by 200 basis points compared to the prior-year quarter.Looking ahead, management gave long-term, multi-year targets of 10% annualized revenue growth and 200 basis points of annual adjusted EBITDA margin expansion. As a result, post-earnings, Horan is "incrementally more positive on growth."When it comes to the netcentric business, it has bounced back to growth thanks to international expansion and retreating customers. What's more, according to the Oppenheimer analyst, corporate customers have been forced to close branch offices due to the pandemic. However, after peaking in the middle of the fourth quarter, churn has seen a significant improvement, with corporate purchasing activity (DIA) also getting a boost. To this end, the analyst estimates corporate revenues will gain 2% to 3% quarter-over-quarter when stabilized.It should also be noted that this stock trades at a 3.6% free cash flow yield, which is "attractive" in Horan's opinion, for a name "growing free cash flow in the mid-20% range over the next two years." The company is also making an effort to cut costs and increase unit growth, "supported by its low-cost positioning."Summing it all up, Horan stated, "Fundamentals are improving as we exit the pandemic and CCOI trades at an attractive valuation, which has created a buying opportunity. Long-term, we think the company is positioned to take share in both corporate (~20% market share today) and netcentric (~25% market share today) as the low-cost provider of internet services in a commoditized market."   Supporting his position on TipRanks' ranking of best-performing analysts, Horan has achieved a 67% success rate and 17.5% average return per rating.Cirrus LogicCirrus Logic's high valuation and concentration of revenues from Apple had previously kept Needham's Rajvindra Gill on the sidelines. That said, given that shares have taken a major fall since the middle of January and its price-earnings multiple has compressed 40%, the analyst has reconsidered his stance.On May 4, Gill upgraded the fabless semiconductor supplier from Hold to Buy and put a $100 price target on the stock. This target suggests that shares could gain 31% in the year ahead.Although Gill acknowledges that the recent earnings results and guidance were "disappointing," he points out that "the numbers were attributed to revenue recognition timing, where the company is selling camera controllers for use in camera modules, where lead times are shorter than the rest of components, and thus are shipped earlier."Further explaining his bullish thesis, Gill noted, "New opportunities are emerging, including potential content gains at Apple with a new Power IC (with a $1 ASP). Net, we expect revenue growth to accelerate in FY22 and believe stock is compelling here."Looking at the analyst's current iPhone dollar content estimates, they land at about $4.20 ($5.20 with an additional $1 ASP for the Power IC). This is set to be integrated into iPhones in Fall 2021.Additionally, CRUS is working to expand beyond the audio domain with its high-performance mixed-signal chips. According to Gill, the "22nm chips could translate to either more digital processing closer to the analog or a radically smaller or more power efficient chip."What's more, the company is making a significant effort to grab market share with Android-based phones with haptic controllers. It's also growing the smart codec portfolio, working to deliver size and power improvements.A top analyst covering names in the tech sector, Gill's calls, on average, generate returns of 15.5%, with his success rate clocking in at 67%.General DynamicsOperating as an aerospace and defense company, General Dynamics offers products like combat vehicles, weapons systems, munitions, shipbuilding services, as well as communication and information technology systems and solutions.For Baird analyst Peter Arment, the company's long-term prospects appear to be even stronger. As "order growth has returned at Gulfstream, providing a cyclical kicker to a defense business that continues to quench budget concerns," Arment upgraded GD from Hold to Buy and gave the price target a lift, with the figure increasing from $180 to $243 (27% upside potential).Specifically, Arment argues that a "flat" budget request and a "heightened threat environment" in important regions has been helping to calm investor fears. Highlighting Combat Systems in particular, it saw a 6% gain in the quarter. He added, "In addition, Marine's long-term visibility on platforms such as the Virginia and Columbia class submarines, the defense business becomes an execution story in the medium-term."On top of this, the defense backlog is currently at more than $77 billion, which equates to roughly 2.6 years of related segment revenue. According to Arment, this will be supported by recurring submarine awards as well as a "growing pipeline" in Technologies, which closed out the quarter with $30 billion in proposals.Although commercial aerospace demand recovery has been slower, bizjets are an entirely different story, with flight activity spiking. "As travel restrictions ease internationally, we expect activity to pick up further and aid out-year results," Arment commented.It should also be noted that even though aerospace profitability will be under pressure this year, Arment believes this will reverse in 2022, with higher volume expected."Paired with an improving top and bottom line at Aerospace, we see potential for GD to return to its premium stance amongst the primes," the Baird analyst opined.Overall, Arment has delivered a 64% success rate and 13.8% average return per rating.
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Server Nioka Mantilla arranges items in the buffet at the DoubleTree by Hilton Hotel on Penn Street in Reading, Pennsylvania, Friday morning May 7, 2021.Ben Hasty | MediaNews Group | Reading Eagle via Getty ImagesThe stunningly disappointing April jobs report shouldn't be taken as an indictment against the fast-moving economic recovery but shouldn't be dismissed as merely a one-month blip either, according to Wall Street economists and market experts.A confluence of factors helped explain the weak Labor Department count that showed nonfarm payrolls grew by just 266,000 in a month that forecasters expected to see 1 million.Among them: Low labor supply caused by a lack of qualified workers, reluctance of some to go back to work because of Covid-related fears and the continuation of enhanced unemployment benefits, and seasonal factors that skewed expectations for job creation."The main thing we learned in this reopening trade was that we thought it was going to be this smooth trend of all this good stuff happening. What we're starting to realize is it's probably going to be a little bit bumpier," said Jim Caron, head of global macro strategies for the Global Fixed Income Team at Morgan Stanley Investment Management."The road is still pointed in the right direction. It's just going to be a little less smooth than we had thought," he added.Some positive signs amid the weaknessDespite the big miss, there were still things to like in the report that pointed to strong fundamental factors for the jobs market even if the headline number was a big letdown.For one, the unemployment rate rose one-tenth of a point to 6.1%, but that was primarily because more Americans returned to the labor force, a critical metric for policymakers.Also, the level of working remotely fell to 18.3% of those employed from 21% in March. Those who said they weren't working because their employer closed or lost business due to pandemic-related reasons declined from 11.4 million to 9.4 million. Those prevented from looking for work due to the pandemic fell to 2.8 million from 3.7 million the previous month. The average duration of unemployment declined to 28.8 weeks from 29.7 weeks.There's also hope for the future: Economic growth is expected to get even stronger through the second quarter, and other real-time indicators like restaurant reservations, foot traffic and employment costs all point to continued employment gains ahead."This is just a blip. It's one data point. I would not take a lot from it," said JJ Kinahan, chief market strategist at TD Ameritrade. "This is one of those reports that is kind of interesting, but that makes the next report even more interesting, because something about this seems odd."Indeed, the financial markets weren't disappointed at all.Stocks rallied through the day and shorter-duration government bond yields fell, an indication that at least near-term inflation pressures were diminishing.The market reaction was a bit puzzling, particularly the bond market moves, though there was an overall sense that any urgency the Federal Reserve may have felt to tamp down economic growth would be quelled further by the jobs situation."Time for a deep breath. One month's data prove nothing; payrolls could rebound massively in May," wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics. "But if the April report is indicative of [a] trend which will persist, then the rally in Treasuries after these data makes no sense, because the outcome will be substantially faster wage growth and the potential embedding of the impending reopening spike in margins."Lots of questionsWages did accelerate during the month, rising 0.7% from March though flat year over year. The gains may have reflected added pressure on businesses to pay more in order to encourage workers to return to jobs.The combination of higher pay and a slight decline in hours worked "suggests labor shortages are becoming more evident, which may in turn be a factor holding back jobs growth," Michael Pearce, senior U.S. economist at Capital Economics, said in a note."Overall, it is difficult to judge how much weight to put on this report at a time when most of the other evidence suggests economic activity is rebounding quickly, but it is a clear reminder that the recovery in the labor market is lagging the rebound in consumption," he added. "That's a crucial distinction for the Fed."Nationwide Chief Economist David Berson said the April numbers raise the question of "whether this relatively weak employment report is a sign of a weakening demand or a sign of lack of supply." Within that question is whether unemployment benefits, which provide $300 above what recipients normally would get, are too high. He also wondered whether a skills mismatch is at play, if it's a matter of schools yet to reopen, or if business startups are lagging."All of these probably are playing a role," he wrote.Krishna Guha, the head of central bank strategy for Evercore ISI, said the report "can only lower conviction in the view that a very vigorous acceleration is already underway" and characterized it as "more supply-constrained stagflation lite than Goldilocks."Stagflation is a term to describe a 1970s-like economy where growth is low and inflation runs high.But White House officials on Friday generally chalked up the report as indicative that more needs to be done, not less, to get the economy back to full power.President Joe Biden said the numbers are "on the right track" but "we still have a long way to go," while Treasury Secretary Janet Yellen said the report shows that there will be some bumps along the way.Wall Street generally agreed, maintaining that the high levels of stimulus combined with continued progress against the virus will spur more hiring ahead."My inclination is not to read too much into the weakness," wrote Eric Winograd, senior economist at AllianceBernstein. "I remain confident that the economy is accelerating sharply and will continue to do so, and that the labor market will reap the benefits of that expansion sooner rather than later."Become a smarter investor with CNBC Pro.Get stock picks, analyst calls, exclusive interviews and access to CNBC TV.Sign up to start a free trial today.
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SEC Chairman Gary Gensler told CNBC on Friday the agency is looking into how commission-free retail brokerage apps encourage more stock trading and then make money off m the execution of those trades."There is a little bit of a conflict of interest," Gensler said on "Squawk Box," one day after testifying about this issue before House Financial Services Committee. "An app that says they have zero commissions is earning revenue on your trading through something called 'payment for order flow.' Someone is paying them for that order flow and paying them for that data."Gensler said the issue comes down to the so-called gamification that apps use, such as "props, leaderboards, behavioral ways to get individuals to trade more," and how apps market their platforms.Asked what should be done to change or regulate gamification and payment for order flow practices, Gensler said he's reserving judgment while the Securities and Exchange Commission seeks public comment at the matter. However, he did say, "Disclosure alone may not do it."In December, Robinhood agreed to pay a $65 million civil penalty, without admitting or denying SEC charges that the popular trading app deceived customers about how it makes money and failing to deliver the promised best execution of trades."One of Robinhood's selling points to customers was that trading was 'commission free,' but due in large part to its unusually high payment for order flow rates, Robinhood customers' orders were executed at prices that were inferior to other brokers' prices," the SEC said at the time, about a month before Robinhood became a central figure in the GameStop saga.At the time, a Robinhood spokesperson said the firm is "fully transparent" in its communications with customers over its current revenue streams and has improved its best execution processes.Gensler acknowledged that trading apps on smartphones have certainly brought new investors to stock trading and have given them greater access to markets. But he said that as technology changes the way people interact with markets, regulations to protect investors need to keep up.Gensler was sworn in last month as President Joe Biden's choice to lead the SEC, which serves as Wall Street's watchdog. During the presidency of Barack Obama, Gensler ran the Commodity Futures Trading Commission, which regulates derivatives including futures, swaps, and certain kinds of options.
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A trader works at the Goldman Sachs stall on the floor of the New York Stock Exchange.Brendan McDermid | ReutersGoldman Sachs has formally kicked off the cryptocurrency trading era on Wall Street.The bank informed its markets personnel on Thursday that a newly created cryptocurrency trading desk had successfully traded two kinds of bitcoin-linked derivatives, according to an internal memo obtained exclusively by CNBC.The crypto team exists within the firm's global currencies and emerging markets trading division, reporting to Goldman partner Rajesh Venkataramani, who authored the memo, and is part of the bank's overall digital assets effort led by Mathew McDermott.Goldman Sachs, a dominant global investment bank for trading fixed income and equities, had been mulling the creation of a bitcoin trading desk since at least 2017. The firm tabled those plans initially and restarted the crypto trading team in March, Reuters reported earlier this year. The Thursday memo was the first time New York-based Goldman officially acknowledged its involvement in crytpocurrency trading.Under CEO David Solomon, Goldman is seeking to broaden its market presence by "selectively onboarding" crypto trading institutions to expand offerings, the bank said. The firm also said it launched a new software platform this week that provides the latest cryptocurrency prices and news to clients.Banks, including Goldman and rival Morgan Stanley, had announced plans to offer bitcoin investments to rich clients in their wealth management divisions, but have mostly stayed away from the volatile asset in their Wall Street trading operations. Traders at firms including JPMorgan Chase have been asking managers when they could begin handling bitcoin, CNBC has reported.The derivatives it traded, bitcoin futures and non-deliverable forwards, are ways to wager on the price of bitcoin. The contracts are settled in cash and don't require that Goldman deals with actual bitcoin, called "physical bitcoin" in the industry, because the bank isn't yet in a position to do so, Venkataraman noted in the memo.Here is the memo:May 6, 2021Formation of Cryptocurrency Trading TeamI am pleased to announce the formation of the firm's cryptocurrency trading team, which will be our centralized desk for managing cryptocurrency risk for our clients. The Crypto trading team will be a part of Global Currencies and Emerging Markets (GCEM), reporting to me, within the firm's Digital Assets effort led by Mathew McDermott.As part of our initial launch, we have successfully executed Bitcoin (BTC) NDFs and CME BTC future trades on a principal basis, all cash settling. Looking ahead, as we continue to broaden our market presence, albeit in a measured way, we are selectively onboarding new liquidity providers to help us in expanding our offering.In addition, yesterday we launched our Digital Assets dashboard which provides daily and intraday cryptocurrency market data and news to our clients. We invite you to highlight the dashboard to your clients. For more information on trade approval and onboarding, contact the Digital Assets team.Please note, the firm is not in a position to trade bitcoin, or any cryptocurrency (including Ethereum) on a physical basis. Rajesh VenkataramaniThis story is developing. Please check back for updates.Become a smarter investor with CNBC Pro. Get stock picks, analyst calls, exclusive interviews and access to CNBC TV. Sign up to start a free trial today.
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In this articleBRK.AWarren Buffett.Gerald Miller | CNBCBerkshire Hathaway's operating earnings rebounded as the conglomerate's businesses recovered from the pandemic hit. Chairman Warren Buffett kept buying back Berkshire shares aggressively in the first quarter, but at a slightly slower pace.Berkshire reported operating income of $7.018 billion in the first quarter, up 20% from $5.871 billion in the same period a year ago. The conglomerate's hodge-podge of businesses including insurance, transportation, utility, retail and manufacturing saw signs of a recovery amid the economy reopening.During the first quarter, the company bought back $6.6 billion of Berkshire shares, after a record $24.7 billion in buybacks last year in lieu of deal-making. The conglomerate recorded $9 billion in share buybacks in the fourth quarter.Berkshire Hathaway's cash pile grew about 5% during the quarter to more than $145.4 billion. Just slightly below the record level seen at the end of the third quarter last year.Buffett has been sitting on the sidelines as the deal-making environment becomes more competitive and market valuations turned lofty. The legendary investor said at last year's annual meeting that he hasn't seen anything attractive to pull the trigger on a sizable acquisition like he has in the past.Berkshire's equity investments also registered solid gains, increasing approximately $4.69 billion last quarter. However, Buffett has told shareholders to not focus on quarterly fluctuations in investing gains and losses."The amount of investment gains (losses) in any given quarter is usually meaningless and delivers figures for net earnings per share that can be extremely misleading to investors who have little or no knowledge of accounting rules," Berkshire said in a statement.Thanks to the buyback program and a recovery in its operating businesses, Berkshire's "B" shares have rallied more than 18% in 2021 to a record high.In total, Berkshire posted net earnings of $11.71 billion, or $7,638 per Class A share, in the first quarter. The conglomerate suffered a net loss of $49.75 billion, or $30,653 per Class A share, a year ago as the stock market's pandemic plunge dramatically lowered the value of the company's many equity investments.The conglomerate's total revenue came in at $64.6 billion last quarter, higher than the Street's estimate of $63.66 billion, according to Refinitiv.Berkshire's annual shareholder meeting will kick off Saturday at 1:30 pm ET in Los Angeles with both Buffett and Vice Chairman Charlie Munger present. The event will be held virtually without attendees for a second time.Correction: Berkshire's investment gains increased by $4.69 billion in the first quarter. A previous version of this story misstated the gains.Enjoyed this article?For exclusive stock picks, investment ideas and CNBC global livestreamSign up for CNBC ProStart your free trial now
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In this articleTSLAXPEVNIOZE594-CNChinese battery and electric vehicle maker BYD shows off a model of its Han EV series at the 2020 Beijing auto show.Evelyn Cheng | CNBCBEIJING — Chinese automaker BYD sold more than twice as many battery-powered electric cars as start-up Nio delivered in March.BYD, which is backed by U.S. billionaire Warren Buffett, disclosed Tuesday that sales of its battery-powered passenger cars totaled 16,301 units last month.That's more than double Nio's deliveries in March of 7,257 cars. Rival start-up Xpeng delivered even fewer vehicles, at 5,102 units last month. Both companies still beat analysts' expectations with those figures.In the new energy vehicle category, which includes hybrid as well as pure-electric cars, BYD sold more than 23,000 units in March — that brings the total in the first quarter to 53,380 cars.BYD also sold nearly as many oil-fueled vehicles in the first quarter, at 49,394 units.The sales of electric cars come as China's auto market recovers from the coronavirus pandemic, which hit the country the hardest in the first quarter of 2020.New motor vehicle registrations in the first quarter of this year climbed to a record high of 9.66 million, China's Ministry of Public Security said Tuesday. New energy vehicles accounted for 466,000, or just over 6% of newly registered cars, the data showed.The percentage of new energy cars nationwide that are pure electric was 81.5% in the first quarter, about the same as the ratio in 2020, according to public security data.When it comes to the global market, China's electric automakers still have a large gap to close.Electric car market leader Tesla said last week it delivered 184,800 cars worldwide in the first quarter. While the U.S. electric car maker did not break out figures for China, the company noted in a release: "We are encouraged by the strong reception of the Model Y in China and are quickly progressing to full production capacity."Elon Musk's car company began deliveries of a China-made Model Y in January. The car was the third best-selling new energy vehicle in China in February, according to the China Passenger Car Association.Tesla has installed annual production capacity for 200,000 Model Y units at its factory in Shanghai, according to an investor presentation in late January.
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Jakub Porzycki | NurPhoto | Getty Images GameStop stock has defied gravity in the past and it could again, but there are some signs its stock may be topping out, some strategists say. GameStop was down sharply Monday, off more than 30% at $225. It has been the poster child of a group of stocks shorted by hedge funds but snapped up by small investors who helped drive share prices higher. The price rises even more when hedge funds are forced to buy the stock to cover short positions. GameStop has had a wild ride. It surged to an all time high of $483 last week but appeared to run out of steam Monday, falling well below its Friday close of $325. The stock closed at $17.25 on Jan. 4, the first trading day of 2021. Arrows pointing outwards 1. Call options cost trends When viewing a stock that's had a long speculative run, it's important to look at the call options on the stock when it stops moving higher, said Julian Emanuel, chief equity and derivatives strategist at BTIG. Call options, which allow but don't require investors to buy at a certain price, are basically bets the stock will continue to rise. Aggressive buying in those options can help speculative stocks go even higher until the options themselves become too expensive. "The high price of the options themselves are likely to cause the stock to top and then sell-off or at least go sideways and ultimately sell off as the speculative mania moves on to different areas," said Emanuel. "We're seeing this today in silver." Silver has been the target of aggressive buying and has also caught the interest of traders in the Reddit forum WallStreetBets. iShares Silver Trust ETF jumped 7.1% Monday and call buying continued to surge at record levels in the ETF. Retail investors have been very active in options, opening and closing positions in the same day in many speculative stocks. As for GameStop, Emanuel said the calls appear to have become too expensive to remain a source of further upside for the stock. For instance, the at-the-money Feb. 19 call options — that is, an option with a strike price that's identical to the company's current share price — in GameStop at Friday's close cost about 50% of the company's actual share price, Emanuel said. To give that perspective, the S&P 500 Feb. 19 at-the-money options cost just 2.5% of the S&P's value. "It's difficult to maintain a level of speculative interest when it becomes too expensive to buy call options," said Emanuel. 2. Reduced demand Two other factors depressing the stock are the reduction in short interest as investors were forced to cover shorts, and that brokers have restricted buying in GameStop, Emanuel added. That takes away an important source of demand, and speculative investors become less interested, he said. "It seems the Reddit army is moving into a different area," said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group. "The stock is going down and the volatility goes down." "Usually when a stock goes down, volatility goes up," he said. "In this instance, as people leave and move into other areas, you're going to see the stock price and volatility go down." The 30-day implied volatility in GameStop options on Friday was 430% but it declined to 375% and continues to fall, Murphy said. Implied volatility measures the expected swing in a stock's price. That means investors are now expecting a move as big as 23% in the stock in one day in either direction, down from 27% on Friday. Of course, GameStop has also been affected by trading restrictions. Robinhood and other online brokers last week limited buying in GameStop, but allowed investors to sell. Brokers raised margin requirements on GameStop and some other stocks. It's very hard to tell whether GameStop was near a top because of restrictions on the stock, said Steve Massocca, managing director with Wedbush Securities. "When you tell people they can't buy but can only sell, of course it usually goes in one direction," he said. Robinhood on Monday continued to prohibit clients who own more than 20 shares of GameStop from buying any new shares.
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Getty Images Global travel screeched to a halt during the pandemic, and it's hurting credit card companies' bottom line.  American Express, Mastercard and Visa all reported double-digit drops in profit for the recent quarter, compared to a year ago. The companies pointed to a plunge in international travel as borders remain closed during the pandemic.  The companies earn a fee off of every transaction that runs on their network, while American Express also makes a significant portion of revenue from annual fees. A lack of cross-border payments is especially painful as those card swipes have higher margins, and end up being more lucrative. Visa was the latest major card company to report results on Wednesday. Cross-border transactions fell 29%, while Visa's revenue in the quarter was down 17% from a year ago. The company did not give guidance based on uncertainty around the virus, but said the cross-border weakness remains a "significant and continued drag on revenue growth." That will likely continue into 2021, according to Visa's CFO Vasant Prabhu.  "The cross-border recovery has been sluggish since borders remain closed, and there are significant impediments of crossing borders like quarantines and other such restrictions," Prabhu said on a call with analysts Wednesday.  Prabhu cited "significant uncertainties" including the impact of spikes in Covid infections happening in the U.S. and Europe, the timing of reopening of borders, the impact of therapeutics and a vaccine, additional stimulus programs and the economic impact once stimulus programs end. Covid cases in Europe spurred leaders of Germany and France to announce new economic restrictions for the next month, while new cases in the U.S. have hit record highs in recent weeks. Visa rival Mastercard reported earnings Wednesday, with many of the same themes. Mastercard's net income fell 28% year over year, and net revenue fell 14%, missing analysts' expectations. The company reported a 36% drop in cross-border volumes, and did not forecast a rebound in travel spending anytime soon.  "While we believe that cross-border will ultimately recover, it will take time for people to build their confidence in the safety of travel," Mastercard's chief financial officer, Sachin Mehra, said on a call with analysts Wednesday. "We believe that is tied to the broad availability of vaccines and therapeutics, likely towards the latter part of next year." Shares of Mastercard have fared the worst in the past week, and are down 11% this week. Visa and American Express are down 8% and 10% this week, respectively. Arrows pointing outwards Amex kicked off the card earnings on Friday with a 40% drop in profit from a year earlier. Travel and entertainment spending was down 69% year over year. While the company is "highly confident" that travel demand will return, "it will take a while," American Express CFO Jeffrey Campbell told CNBC in a phone interview.  "The human urge to travel is insatiable, but it will take some time to come back, just like it did after September 11th," said Campbell, who is also a former American Airlines chief financial officer. "For our company to be back at its pre-pandemic levels of earnings, we do need consumer travel to come back -- we're highly confident and in the meantime we're trying to take the right steps to rebuild growth and momentum." Business travel -- which makes up about 6% of the American Express's revenue -- could take "years to come back," Campbell said. Despite the travel-related slump, there were a few bright spots for the companies. Mastercard CEO Ajay Banga pointed to improvement in domestic travel in the quarter, including spending on lodging and sports. The card companies pointed to a rebound in domestic spending and an uptick in e-commerce that helped offset losses elsewhere. Payment volume for Visa rose 4%, while gross dollar volume, the dollar value of transactions processed, rose 1% at Mastercard. 
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Property data and analytics firm CoreLogic has received multiple potential takeover bids that value the company at north of $80 a share, sources tell CNBC's David Faber. The multiple parties interested in pursuing a deal with CoreLogic include private equity firms, Faber reported citing sources familiar with the talks. The company has already signed a non-disclosure agreement with at least one potential buyer, the people said. CoreLogic confirm later on Wednesday that it is "engaging with third parties indicating preliminary interest based on public information in the potential acquisition of the Company at a value at or above $80 per share." "No decision has been made to enter into a transaction at this time, and the Company can offer no assurance that it will enter into any transaction in the future or, if entered into, what the terms of any such transaction would be," the company added in its statement. Shares were last seen up 11.5%, around $76 a share, following news of the takeover bids. CoStar Group could be one of the potential bidders. Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.
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Jim Cramer Scott Mlyn | CNBC CNBC's Jim Cramer said Wednesday that a lack of coronavirus stimulus is making it hard for investors to buy stocks into a worsening of the United States' Covid-19 outbreak. "It's very hard to buy a lot of stocks when you see these numbers," Cramer said on "Squawk Box," as U.S. stocks were headed to steep declines Wednesday. Dow futures were down over 600 points. "And it's shame too because with stimulus, we'd be very tempted to own some of these stocks," added Cramer. "But right now, I think everyone is just fearful." Stocks also were falling Wednesday in Europe, as multiple nations there experienced increasing coronavirus cases and leaders such as German Chancellor Angela Merkel called for tougher business restrictions to try slowing spread. The pan-European Stoxx 600 was sliding over 2.5%. U.S. investors were surely monitoring the situation in Europe, Cramer said, likely influencing the negative sentiment for Wall Street. The "Mad Money" host worried, however, about the implications of more strict public-health measures in America without more fiscal support from Washington, where Democrats and the Trump administration have been locked in a stalemate on stimulus negotiations for months. "The lockdowns without the stimulus equals what we're seeing, and I think it's a shame because had there been stimulus, we would then be focusing on earnings and the earnings are actually pretty darn good," he said.
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Hari Moorthy, Goldman Sachs global head of transaction banking. Source: Goldman Sachs Goldman Sachs wants to help any company in the world become a bank. The firm has just released software that allows clients to embed banking services into their own products as part of a push to break into the $32 billion a year industry managing cash for big corporations, according to Hari Moorthy, Goldman's global head of transaction banking. Decades late to the global cash management industry ruled by Citigroup and JPMorgan Chase, Goldman hopes to leapfrog rivals by offering a fresh approach to corporate bank accounts and cross-border payments. After building a new cloud-based system for accounts and payments, Goldman is publicly releasing software known as APIs to allow clients' programmers to build on top of the bank's platform. "We are trying to create a new industry by integrating our services into their businesses so they can cater to their clients as if we had them," Moorthy said in a phone interview. "Imagine a technology company that can use these APIs to create a solution for payments or deposits in concert with whatever else they currently provide to that client." The approach, dubbed banking-as-a-service, is inspired by what Amazon has accomplished with its cloud business. Just as Amazon enabled a generation of businesses to tap into cheap computing power, Goldman's wager could theoretically spur the proliferation of digital wallets and seamless payments throughout the corporate and consumer realms. Arrows pointing outwards Source: Goldman Sachs "This is the financial cloud for corporates," Moorthy said. "The possibilities of what we could do here are practically limitless." The strategy could help Goldman jumpstart its push into transaction banking, an area which has lagged consumer technology in ease of use but where clients are slow to switch providers. The move is part of CEO David Solomon's broader expansion into corporate and consumer banking, steady businesses that will broaden the firm's revenue base away from volatile trading and investment banking. "There's this butterfly effect that will kick in after we roll this out," Moorthy said. "It allows us to acquire clients of our clients, allows us to seamlessly be integrated in the fabric of banking and corporates." By connecting directly into Goldman's corporate platform, clients can open accounts quickly and take advantage of the bank's automated payments programs, which it created for itself as its first client. The transaction banking effort, which officially launched in June to outside clients, has garnered $28 billion in deposits and more than 200 clients so far. Moorthy rejoined Goldman Sachs in 2018 to lead the nascent effort after spending almost four years at JPMorgan. The ten biggest players reaped $32 billion in revenue from transaction banking last year, led by Citigroup, Bank of America and JPMorgan, according to institutional research firm Coalition.
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A man walks a dog in the shade away from the midday sun past the New York Stock Exchange (NYSE) building in Manhattan, during hot weather in New York City, New York, U.S., August 11, 2020. Mike Segar | Reuters Dividends and buybacks are bouncing back.  At the end of the first quarter, there was tremendous concern that the levels of dividends and buybacks would be cut dramatically.  There have been cutbacks, but there's good news amid the bad. The good and bad news on dividends For lovers of dividends, the end of the first quarter and the start of the second quarter looked pretty dire.  Forty-two companies in the S&P 500 — nearly 10% — completely suspended their dividends, and 25 reduced them, in some cases considerably. "That was unprecedented," Howard Silverblatt from S&P Dow Jones Indices told me. "No company suspended their dividend in 2018 or 2019." But as the economy reopened, things began to turn around. Five of the 42 companies who suspended their dividends reinstated their dividend, at least partially. Even as some companies reinstated dividends, many more continued with what they had been doing for years: increasing dividends. A total of 216 companies have increased their dividends this year. The bottom line: Silverblatt estimates that the S&P 500 will pay out $479.1 billion in dividends in 2020, only 1.3% below the $485.5 billion paid out in 2019, which was a record year. The bad news: The S&P is yielding only 1.6%, one of the lowest dividend yields in decades.  Buybacks bouncing back from Q2 lows, but companies issuing much more stock The second quarter started out poorly, as companies sought to preserve liquidity by cutting back buybacks— big time. How big? Companies in the S&P 500 bought back $199 billion of their own stock in the first quarter. In the second quarter that figure dropped to $89 billion, a bigger than 50% reduction, according to data supplied by Goldman Sachs. But then, a funny thing happened. Just like earnings, which bottomed in the second quarter, buybacks also bottomed. In the third quarter, Goldman estimates, $112 billion was bought back, a 26% increase from the second quarter, and Goldman estimates $125 billion will be bought back in the fourth quarter. That's the good news. The bad news: while gross buybacks are climbing, companies are also issuing a lot more new shares, according to Brian Reynolds, who tracks buybacks at Reynolds Strategy. The result:  net buybacks — how much buybacks are increasing or decreasing overall share count — was flat in the second quarter and likely will also be flat for the rest of the year: "The average company reported a share count increase this quarter of 0.1%, compared to a share count decrease of 0.6% a year ago," Reynolds said in a recent note. An increase in the share count means that corporations can't rely on buybacks to boost their earnings.  Reynolds noted that the S&P Buyback Index, which consists of the 100 companies in the S&P that are buying back their stock most aggressively, had also shifted from reducing to increasing their share counts. The top holdings in the index include MGM, Best Buy, Qualcomm, Kansas City Southern, Lennar, Cummins, and Xerox. "A year ago, less than 20% of this group of companies were growing their share count. Now, 44% of them are. That is a striking shift," he said.  What's all this mean for investors? The S&P Buyback Index has underperformed this year, as investors dumped companies that had high levels of buybacks in 2019 for other parts of the market. Reynolds concludes that it may be time for those companies that can still aggressively buy back stock to outperform: "From a momentum standpoint, it appears that the stocks of companies who are still able to buy back their shares are approaching the point where we would want to buy them on weakness." Speaking of increasing buybacks: after the close, Microsoft announced that it had increased its buybacks in the third quarter dramatically, to $6.74 billion, from $5.8 billion in the second quarter. Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.
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As parts of the world brace for a second wave of Covid-19 infections, the economic impact on Asia will likely be "limited" as the region will remain resilient, according to a Credit Suisse strategist. "I think clearly Asia is going to be resilient in the face of a second wave in developed markets in the West," said Dan Fineman, co-head of equity strategy for Asia Pacific at the Swiss bank. The U.S. is seeing a surge in coronavirus cases again in recent days, while some countries in Europe are also seeing another sharp spike. "We need to look at the shift in consumption patterns that has occurred in the West since the Covid pandemic began. Although services spending has cratered in a number of countries as the pandemic hit, we've seen a shift of consumption patterns away from services towards goods — and that has enabled Asian exports to improve in recent months," he said. "As long as that shift in consumption patterns in the West continues away from services towards goods, actually the damage to Asia from a second wave in the West might be quite limited," he told CNBC's "Street Signs Asia" on Tuesday. Top picks There are some countries worth investing in due to how they've managed the pandemic, Fineman said. He flagged South Korea as a "top pick." "They've handled the pandemic quite well, and they don't really have much of a domestic problem as far as the pandemic is concerned," Fineman said, adding that the outlook for the country's export sector has also improved. If the global economy is going to gradually recover in 2021, 2022, that means … the outperformance of emerging markets is likely. Tai Hui chief Asia market strategist at J.P. Morgan Asset Management Fineman also recommended countries such as Australia and Singapore, which he said had "relatively low risk on the pandemic." He added: "We would be looking to rotate into the higher risk, harder hit economies, places like say Hong Kong or Thailand, which have suffered more from the pandemic – if we get good news on vaccine phase three trials." Global outlook But there would be risks for corporate debt if there isn't another stimulus package in the U.S., warned Tai Hui, chief Asia market strategist at J.P. Morgan Asset Management. Uncertainty still looms over the White House and it is unclear whether the Republicans will be able to strike a stimulus deal with Democrats before the election. White House economic advisor Larry Kudlow told CNBC's "Squawk Box" on Monday that talks had slowed down, but noted they were still ongoing. However, Tai said the high yield market has already priced in some of the default risks. He said current spreads are already reflecting some of those concerns. If the global economy moves to gradual recovery next year, it will benefit emerging market assets as well as U.S. and European corporate debt in the high-yield sector, said Tai. "If the global economy is going to gradually recover in 2021, 2022, that means … the outperformance of emerging markets is likely," he told CNBC's "Squawk Box Asia" on Tuesday. "You're likely to get a weaker U.S. dollar, which typically is good news for emerging market assets, whether it's fixed income or equities."
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Whatever the outcome, the November presidential election promises to bring a period of uncertainty and volatility to the markets. However, equities are still your best long-term bet, two experts said on Tuesday at the CNBC Financial Advisor Summit, a day-long virtual conference for financial advisors. After hitting fresh highs even during the Covid-19 crisis, stocks have proved remarkably resilient, said Jeffrey Mills, the chief investment officer at Bryn Mawr Trust. "There could be some front-loaded selling but I do feel like that's a near-term phenomenon," he said. More from FA 100:CNBC ranks the top-rated financial advisory firms of 2020Stock market is 'OK,' right now, says top advisorAdvisors use tech to helps clients adjust to new environment Overall, there is no alternative that offers a comparable return, Mills said. "There is going to be this continued pull toward equity markets — where else are you going to go when you need to earn a certain percentage to fund retirement, fund education?" When broken down by industry, infrastructure, renewable energy and technology will be among the big sector winners with a potential Joe Biden win, said Daniel Clifton, head of policy research at Strategas Securities. At the same time, Biden could ease concerns about the trade war with China and lack of stimulus to bolster the economy in the wake of the coronavirus. On the flipside, some investors fear a Biden win could lead to higher corporate taxes and tighter regulations. However, the odds that Biden could push through tax increases without a Democratic-controlled Congress, are "as close to zero as you could possibly imagine," Clifton said. Alternatively, if President Donald Trump is reelected, there will be "huge upside" in industries such as defense, financials and even the for-profits, Clifton said, including prisons, education and student loan lenders. In either case, "investors are going to have plenty of opportunities going into this election," he added.  Investors are going to have plenty of opportunities going into this election. Daniel Clifton head of policy research at Strategas Securities More than a third, or 37%, of top-rated financial advisory firms said they believe the Democratic nominee will be elected as the next U.S. president, compared to 20% predicting Trump will come out ahead, according to a recent poll of firms on the 2020 CNBC FA 100 list. Most also said that there will likely be no change in the congressional breakdown, predicting that the Republicans will retain control of the Senate and Democrats will retain control of the House. Even if the election does lead to market swings, it's not a reason to change your overall investment strategy, according to both advisors. "Using the election as a specific catalyst to make investment decisions without the benefit of hindsight is really difficult," said Mills.
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JPMorgan Chase is making a play to sell more services to millions of American small business owners, pushing into an area pioneered by fintech firms including Square, PayPal and First Data, CNBC has learned. The bank is rolling out a checking account that is paired with a new fintech-inspired service called QuickAccept, according to JPMorgan executives. QuickAccept lets merchants take card payments within minutes, either through a mobile app or a contactless card reader, and users will see sales hit their Chase business accounts on the same day. That fast funding is offered free, unlike competitors including Square, which typically take a day or more and charge a 1.5% fee to make instant transfers. "Our competition either doesn't have same-day funding, or they charge for it," Max Neukirchen, CEO of JPMorgan's merchant services arm, said in an interview. "We think it's a great differentiator for businesses because getting money into their account quickly is so important as they manage their cash flow." The move shows that JPMorgan, the biggest U.S. bank by assets, isn't content letting newer rivals monopolize emerging trends. Small merchants struggled with point-of-sale card transactions until 2009, when Twitter co-founder Jack Dorsey came up with the idea for a piece of hardware that attached to smartphones. That was the launching point for Square, and now the company manages $100 billion in payment volumes annually and has an $83 billion market capitalization. That swift ascent caught the eye of JPMorgan CEO Jamie Dimon, who mentioned Square during a February 2019 investor conference. "They came out with this whole dongle to process stuff and it was a great idea," Dimon said at the event. "They did all stuff we could have done that we didn't do." Square slipped 2.5% in premarket trading on Wednesday. Besides Square, PayPal is a major player in this arena. The payments firm, which first gained traction as the rails for eBay sellers, now has 346 million active accounts globally. Another player is Clover, an Andreessen Horowitz-backed start-up that was acquired by First Data in 2012. First Data was later bought by Fiserv. Max Neukirchen, CEO of Merchant Services, JP Morgan Source: JP Morgan Now, as fintech firms including Square and PayPal move more directly into competition with banks by offering lending products and digital wallets that increasingly resemble checking accounts, JPMorgan is ready to fight back. The bank designed its QuickAccept card reader, a hardware device that processes card payments via tap, dip or swipe, internally with the help of a team gained from its 2017 WePay acquisition, Neukirchen said. The firm leaned on tech investments made in the bank's Treasury Services division to help process payments faster, he said. Mass migration JPMorgan will migrate "a large portion" of its more than three million small business customers to the new service, said Jen Roberts, CEO of the Chase business banking unit. It is targeting customers with less than $500,000 in annual revenue who want to avoid paying fees, she said. The pitch to these customers: Bring more of your overall transactions to JPMorgan's new all-in-one solution, called Chase Business Complete Banking, rather than cobbling together services from banks and fintech providers, she said. A monthly fee is waived if they hit either $2,000 in average daily balances, $2,000 in QuickAccept volumes or $2,000 spent on a small business credit card. "We know there are obviously those that are using competitors' products, we can see them settling into their deposit accounts," Roberts said. "Our hope is that through this more integrated experience, they will migrate their business over to QuickAccept through Business Complete Banking." Instead of having to separately sign up for a merchant services account, a process that JPMorgan said previously took longer than a week, payments capabilities can be unlocked with a few clicks. Processing fees At stake for JPMorgan and its competitors, of course, are lucrative card-processing fees. The bank charges 2.6% plus 10 cents per tap, dip or swipe transaction and 3.5% plus 10 cents per transaction that is keyed into the mobile app, JPMorgan said. The card reader costs $49.95. That's all in line with what competitors charge. Jen Roberts, CEO of Business Banking, JP Morgan Source: JP Morgan The upheaval caused by the coronavirus pandemic could prove to be an opportunity for Chase. The bank piloted its service in Utah earlier this year, and 95% of users were new to the bank's small business brand, and more than two-thirds were owners of businesses formed this year, the bank said. The bank's experience there suggests that it's not just digitally-savvy e-commerce merchants that will benefit from this new service, but other sectors that have resisted electronic payments until now, Roberts said. "We've had construction companies, landscapers, people who don't like to accept credit cards regularly but will do it for a big ticket," she said. "They want to accept payments easily while they're on the go, but they aren't who you would consider e-commerce."
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Mario Gabelli Scott Mlyn | CNBC Investor Mario Gabelli struck a positive note on Tuesday on the U.S. economy even as coronavirus cases in the country are on the rise. More than 8 million coronavirus cases have been confirmed in the U.S. alone, according to data from Johns Hopkins University. A CNBC analysis also found that cases are growing by 5% or more in 35 states. This recent infection increase comes as the latest economic data shows signs the U.S. recovery may be stalling. However, Gabelli thinks the U.S. economy will continue to recover into the new year. "In the U.S., I see extraordinarily good growth in 2021," Gabelli, chairman of Gamco Investors, said at the annual CNBC Financial Advisor Summit. "That's because of a long runway for automobiles, a long runway for housing and I see some return of spending in commercial aviation." Fiat Chrysler reported earlier this month their auto sales jumped 38% from the second to third quarter. Meanwhile, General Motors said its car sales improved sequentially each month during the third quarter. The used-car market in the U.S. has also been on fire this year as more people avoid mass transportation during the coronavirus pandemic, pushing shares of Autonation and CarMax sharply higher. On the travel front, the Transportation Security Administration said Monday they screened more than 1 million travelers over the weekend, reaching a seven-month high. Airline stocks have been under massive pressure in 2020 as the pandemic upended the overall travel industry. However, airline shares are up sharply over the past six months as the travelers feel more comfortable flying. Delta Air Lines and United are both up at least 30% over the past six months. JetBlue and American Airlines have gained 42.5% and 15.7%, respectively, over that time period. Gabelli also advised investors buy a market-tracking exchange-traded fund, which could lead to annualized returns ranging between 6% to 8% over the next decade. To be sure, Gabelli sees some risks on the horizon. He noted that while the Federal Reserve is expected to maintain an easy stance on monetary policy near term rates will start rising "over time." "If I go back 30 to 40 years ago, the 10-year yield was at 7% or 8%. Today, it's [about] 70 basis points," Gabelli said. "So, what's going to happen to multiples when those rates invariably rise to reflect the underlying inflation?" Gabelli added that "taxes are likely to go up," which would hinder corporate profits. Opportunity in sports betting The investor highlighted sports betting companies as an attractive investment opportunity as professional sports leagues ramp up their seasons and more states legalize sports gambling. "I'm looking at how to participate in that," he said, noting that stocks such as Manchester United, Liberty Media Braves and MSG Networks are attractive investments with exposure to this trend. Manchester United shares are down more than 30% year to date along with Braves stock. MSG Networks — which broadcasts games of the New York Knicks and New York Rangers —  has dropped 46.8% in 2020.
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Would you talk differently if you knew a machine was listening to you and grading you based on what you were saying, or based on whether you were using positive or negative words, or even if the sound of your voice was optimistic or pessimistic? Apparently, Wall Street executives are talking differently. They are trying to game machine algorithms on earnings calls. You've heard of George Carlin's "7 words you can't say on TV?" We may now have "words you can't say on an earnings report." A recent study found that executives on earnings calls are increasingly avoiding using negative words and trying to sound more upbeat, so machine algorithms will score the call as more "positive" than "negative." Oh man. Anything to fool the algos. This is a new round in the war between machines and people. Machines can fool people, but people are trying to fool machines, too. All of this makes sense if you understand the evolution of trying to figure out what is "really" going on with corporate earnings. First, there were earnings reports, which came out of the creation of the Securities and Exchange Commission in the early 1930s. Then there were earnings calls. Then there were analysts trying to figure out the "body language" of the executives on the calls to determine how they "really" felt about their company prospects. Then came machines listening to executives for keywords that were deemed important and deciding whether the calls sounded "upbeat" or "downbeat" based on the words being used. Now, there's a new twist: Seems like the executives have figured out that the machines are listening, and that if they (the executives) avoid using certain words that sound "downbeat" or "negative" they can improve the score they will get, and their earnings call will magically sound more positive. So say Sean Cao, Wei Jiang, Baozhong Yang & Alan L. Zhang, authors of "How to Talk When a Machine Is Listening: Corporate Disclosure in the Age of AI," published on the National Bureau of Economic Research website. Their main conclusion: "Firms with high expected machine downloads manage textual sentiment and audio emotion in ways catered to machine and AI readers, such as by differentially avoiding words that are perceived as negative by computational algorithms as compared to those by human readers, and by exhibiting speech emotion favored by machine learning software processors." In other words, humans are using words they think the machines want to hear and that will give them a more positive score. The authors noted that this effect was particularly notable on companies that had very high interest in their filings. In other words, the more people paying attention, the more likely the execs were to change their behavior. Of course, we have known for years about the ability of machines to analyze earnings calls, but the authors say "our study is the first to identify and analyze the feedback effect, i.e., how companies adjust the way they talk knowing that machines are listening." OK, so we are in a giant hall of mirrors. Humans (investors) are trying to figure out what other humans (corporate executives) really feel about their company's prospects by listening to earnings calls that are analyzed by machines, and the humans (corporate executives) are changing their behavior so the machines will tell the other humans (investors) that things are better than they really are, or at least as good as the executives really meant it to sound. Got that? What could go wrong? "Humans are taking machines and using them to analyze emotional signals so we can analyze other humans more efficiently," said DataTrek's Nicholas Colas. "But the machines are doing it on a scale humans could never do. There's an endless loop that is being set up, and expect this to get even more refined over time." Even the study authors are a little worried about where this will ultimately lead us: "Such a feedback effect can lead to unexpected outcomes, such as manipulation and collusion," they said. Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.
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U.S. President Donald Trump holds a campaign rally in Carson City, Nevada, October 18, 2020. Carlos Barria | Reuters The S&P 500 is up about 5% since the end of July, and that higher market historically would favor the occupant of the White House if stocks hold their gains into the election. But strategists say the so-called stock market indicator may not be working for President Donald Trump, and it looks like the market is betting on a win by Joe Biden. The Democratic former vice president leads by 8.9% in RealClearPolitics average of major polls. "You could say the market is discounting that Trump is going to lose," said Daniel Clifton, Strategas Research head of policy research. "Normally, the S&P predicts the presidential election, but that's usually confirmed by the election portfolio." Clifton said a portfolio of stocks that should do well during a Biden presidency have been outperforming Trump stocks. For instance, the Invesco Solar ETF TAN has gone from $45.01 on July 31, to $74.63, up 1.5% Monday in a down market. Biden is a proponent of more clean power and solar energy. Sam Stovall, CFRA chief investment strategist, said since World War II, there have been only two instances where the president or his party lost in November when the market was higher between July 31 and the November election. Stovall believes this year could be similar because there is a geopolitical disruption — the coronavirus pandemic. One of the years when the S&P indicator didn't work was 1968, when the nation was divided over the Vietnam War. There were protests and presidential candidate Robert Kennedy and civil rights leader Martin Luther King Jr. were assassinated. That year, the S&P 500 was up 5.8%, and Americans elected Republican Richard Nixon president. In 1980, Democrat Jimmy Carter did not win reelection. During his term, 52 American diplomats and citizens were held hostage in the U.S. Embassy in Tehran for more than 400 days, and were released when Republican Ronald Reagan was inaugurated. Stovall said those two election periods were affected by geopolitical disruptors, and this year the market is already pricing in some of Biden's policies. "I think the market is moving 40% on things getting better with Covid, and then 60%, based on the election, the belief we should end up with a Democratic victory and a likely Democratic sweep, that would increase the possibility of economic stimulus coming from Washington," said Stovall. Biden 'portfolio' higher Matthew Bartolini, head of SPDR Americas Research at State Street Global Advisors, said the Biden portfolio is showing up in clean energy ETFs, like SPDR S&P Kensho Clean Power ETF CNRG, a clean energy fund, and in SPDR S&P Kensho Intelligent Structures SIMS, an ETF focused on sustainable, intelligent infrastructure. "[CNRG] is one of the best performing ETFs in our lineup. ... We've seen a vast move upward, 160% since March 23," he said. SIMS is also up about 80% this year. For a Trump portfolio, he would include ETFs for metals and mining and traditional infrastructure, such as XME, the SPDR S&P Metals and Mining ETF, and XLI, the Industrial Select Sector SPDR Fund ETF. Trump and Biden, are diametrically opposed on trade. "Biden takes more of a globalist view, repealing tariffs that have been put in place," said Bartolini. He said he would suggest SPDR S&P China ETF GXC and FEZ, the SPDR Euro Stoxx ETF. Bartolini said Trump's "America First" strategy is more U.S. focused, so his policy may positively impact ETFs that represent American small and mid-cap stocks, such as SPSM, the SPDR Portfolio S&P 600 Small Cap ETF, and SPMD, the SPDR Portfolio S&P 400 Mid-cap ETF. Biden wants to raise taxes, so that may hurt sectors with high effective tax rates like consumer staples and retail, Bartolini said. The retail ETF is XRT, SPDR S&P Retail ETF. "The market is starting to believe Joe Biden will not raise the corporate tax rate until 2022. There's a possibility he would raise taxes in 2021 but would have a phase-in," said Clifton. "From a market perspective, the Strategas high tax basket which should be underperforming is not underperforming. The market is saying 'we're really not sure taxes are going up in 2021.'"
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CNBC's Jim Cramer  is worried President Donald Trump's administration will keep applying pressure to China into the election, creating a headwind for the market.  "I think that the president is keeping the heat on. I expect more negatives about China," Cramer said on "Squawk on the Street." Cramer's remarks Thursday come as the relationship between the U.S. and China continues to grow increasingly frigid, following a brief cooling in January after the two sides agreed to a phase-one trade agreement. However, China is reportedly far from meeting its commitments on goods purchases under the deal, which was reached after a back-and-forth tariff war between the world's two largest economies that began in 2018.   At a White House briefing Monday, Trump said the trade deal now means "very little in the overall import of things," then again criticized China's handling of the coronavirus and blamed the country for the pandemic.  "We view China differently than we did eight months ago. Very much differently," said Trump, who had initially praised China's coronavirus response but now argues its government was not transparent in sharing information on the initial outbreak.  While the virus emerged from Wuhan, China, public health experts say the U.S. government's failure to act quickly to contain the virus, as well as a lack of coordination between federal and state entities, are partly responsible for America having more reported cases of Covid-19 than any other country.  White House spokesman Judd Deere said in a statement to CNBC that Trump "is constantly reviewing our relations with China." But the president has "nothing to announce at this time," Deere added.  The Trump administration has also ratcheted up scrutiny of Chinese tech companies — specifically ByteDance, which owns the social media video app TikTok, and Tencent, which owns the messaging app WeChat.  Last week, Trump signed a pair of executive orders that banned U.S. firms from transacting with ByteDance and Tencent's WeChat. The orders go into effect in September, although there is still some confusion over how they would be implemented.  Business leaders from major American companies including Ford Motor Co. and Disney voiced their concerns over a WeChat ban to the White House earlier this week, according to a report from The Wall Street Journal.  Tensions between the U.S. and China also have intensified over Beijing's sweeping national security law it imposed on Hong Kong this summer. The Trump administration recently sanctioned 11 people, including Hong Kong Chief Executive Carrie Lam.  The U.S. Treasury Department said it was targeting Lam for "implementing Beijing's policies of suppression of freedom and democratic processes" in the former British colony.  China responded with its own batch of sanctions on U.S. officials, including Republican U.S. Sens. Ted Cruz of Texas and Marco Rubio of Florida.  - CNBC's Berkeley Lovelace Jr. contributed to this report. 
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