Morning MoneyBeat is the Journal’s pre-market primer packed with market updates, insights and must-read news links. Send us tips, suggestions and complaints: steven.russolillo@wsj.com
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MARKET SNAP: At 5:55 a.m. ET, S&P 500 futures up 0.1%. 10-Year Treasury yield higher at 2.54%. Nymex down 12 cents at $103.95. Gold 0.5% higher at $1294.70. In Europe, FTSE 100 up 0.03%, DAX up 0.1% and CAC 40 down 0.3%. In Asia, Nikkei 225 up 2.1% and Hang Seng up 0.5%.
WATCH FOR: Weekly Jobless Claims (8:30 a.m. Eastern Time): seen 310K; previously 297K. May Markit “Flash” PMI (9:45). April Existing Home Sales (10:00): seen +2.0% at 2.68M; previously -0.2% at 4.59M. April Leading Index (10:00): seen +0.5%; previously +0.8%. May Kansas City Fed Manufacturing Survey (11:00): seen 8; previously 7. Aeropostale, Best Buy(BBY), Borcade, Buckle, Dollar Tree(DLTR), GameStop(GME), Gap(GPS), Hewlett-Packard(HPQ), Marvell Tech(MRVL), Mentor Graphics(MENT), Ross Stores(ROST) and TiVo are among companies scheduled to report quarterly results.
THE BREAKFAST BRIEFING10 Best Restaurant Stocks To Own Right Now
Risk taking in the stock market is showing signs of cooling.
The latest example comes from the New York Stock Exchange’s April figures on margin debt, or the amount that investors borrowed against their brokerage accounts. NYSE reported margin debt dropped for a second straight month, falling to $437.2 billion. That’s down 6.1% from a record high $465.7 billion in February and the lowest level since November.
Falling margin debt over the past two months coincides with a drop in many of the speculative corners of the market. The small-cap Russell 2000 briefly hit correction territory earlier this month on an intraday basis. Social media, Internet and biotech stocks have been hit hard since early March.
The broad market, though, has weathered the storm. The Dow Jones Industrial Average jumped 158 points Wednesday and finished 1.1% away from its record high.
"It is good to see some of the leverage coming out of the stock market as frothy areas of the market correct," says Peter Boockvar, managing director at The Lindsey Group.
With margin debt, investors pledge securities—stocks or bonds—to obtain loans from their brokerage firm. The money doesn’t have to be used to just buy more investments. The funds can be used in whatever way the account holder wishes.
Margin debt had risen for eight straight months until February, which at the time raised concerns that the Fed’s easy-money policies were creating a bubble-mentality among stock investors. The last two times margin debt peaked–2000 and 2007–coincided with major tops in the stock market.
The question now is whether margin debt’s latest drop is a temporary pause before it takes another leg higher, or a sign of investor concern about the rally’s ability to continue marching higher.
The last time margin debt suffered a sustained pullback was in the second half of 2011, when the debt ceiling and European debt crisis sent tremors through the stock market. Few expect a repeat of that.
If anything, one could argue it’s better to see margin debt drop a bit from record levels as opposed to watching it soar in unabated fashion. The recent move is a sign of a healthy market, and one that could be poised for another leg higher.
Morning MoneyBeat Daily Factoid: On this day in 1992, Johnny Carson hosted "The Tonight Show" for the final time, ending a 30-year career.
-By Steven Russolillo; follow him on Twitter @srussolillo.
STOCKS TO WATCHBest Buy is projected to report first-quarter earnings of 19 cents a share, according to a consensus survey by FactSet.
Dollar Tree is forecast to post first-quarter earnings of 66 cents a share, Hewlett-Packard is expected to report earnings of 88 cents a share in the fiscal second quarter.
GameStop is projected to post first-quarter earnings of 57 cents a share, while Gap is forecast to post earnings of 57 cents a share in the first quarter.
MUST READS (LINKS)Russia, China Reach Major Gas Accord: “Moscow and Beijing signed a contract to supply China with hundreds of billions of dollars of Russian gas, in a long-stalled deal that could give Vladimir Putin a boost as his relations with the West have sharply soured.”
Thai Military Declares a Coup: “Thailand’s army chief announced a military coup in a televised statement Thursday, just days after declaring martial law. ”
Fed Officials Tussle Over Labor Market Slack: “Fed Chairwoman Janet Yellen has argued consistently in recent months that labor markets are abundant with slack that will hold inflation and wages down. But she hasn’t convinced all her colleagues.”
Heard on the Street: Home Problems Hit the Fed: “Housing tops the list of things the Federal Reserve is worrying about right now. But all it may be able to do is stand back and hope the rest of the economy takes up the slack.”
Gold Bug Looks to Share the Buzz: “One of the biggest believers in gold is prospecting for outside investors after seeing the value of his personal holdings slashed in the metal’s steep fall.”
Despite Data Thefts, the Password Endures: “Passwords are a bane to computer and smartphone users and a security threat to companies. Yet even after eBay(EBAY) and others urge users to change them, few people are likely to heed the warning.”
NY Fed to Allow Credit Suisse(CSGN.VX) to Remain a Primary Dealer: “Credit Suisse Group AG’s ability to serve as a counterparty to the Federal Reserve Bank of New York hasn’t been affected by the bank’s criminal tax-evasion settlement.”
Dutch Firm to Buy Goldman Sachs(GS) NYSE Floor Trading Business: “MC Financial Markets, a Dutch high-speed trading firm, agreed on Wednesday to acquire Goldman’s rights to operate as a designated market maker in more than 600 NYSE-listed stocks.”
BofA Shuts Retail Electronic Market-Making Unit: “Bank of America is abandoning an electronic market-making unit it established last year to handle orders for its retail client base.”
KKR Error Raises a Question: What Cash Should Go to Investors?: “KKR has made several erroneous disclosures about its ties to an in-house consulting unit, a lapse that highlights a broader issue of private-equity firms’ duties to pass along fee income to investors.”
JD.com Prices Offering Above Expectations: “Chinese online retailer JD.com’s initial public offering priced above expectations Wednesday, even as investors continue to nurse their wounds from a selloff in high-octane technology stocks.”
Even in Scandinavia, a CEO Gender Gap: “Of 145 big Nordic companies, only 3% had a woman as chief executive, compared with 5% of the U.S. Fortune 500.”
Signs of a Suburban Comeback: “The long tug of war between big cities and suburbs in the U.S. is tilting ever so slightly back to the land of lawns and malls. After two years of solid urban growth, more Americans are moving again to suburbs and beyond.”
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