Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
The prospect of the imminent drawdown of the Federal Reserve's monthly bond purchases, raised by two Fed bank presidents yesterday, is being blamed for a continuation of yesterday's downdraft in equity prices. Major markets in Asia suffered losses on Wednesday (including a 4% decline in Japan's Nikkei 225), and stock markets in the U.K. and Germany are also down so far today.
On this side of the pond, stocks opened substantially lower this morning, with the S&P 500 (SNPINDEX:^GSPC) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES:^DJI) down % and %, respectively, at 10:10 a.m. EDT. If these losses are linked to "taper fear," it's a clear sign that (off-kilter) investor sentiment, rather than fundamentals, is driving this market.
Incredible shrinking volatility
I've been highlighting the depressed level to which volatility has fallen recently, as measured by the VIX Index (VOLATILITYINDICES:^VIX). The Financial Times ran a piece yesterday evening on the same topic. The "money" quote in the article comes courtesy of Nicholas Colas, chief market strategist at ConvergEx: "US stocks currently reflect, both in price level and implied volatility, an economic acceleration which has yet to fully flower."
Disney's earnings: Taking the long view
Despite producing spectacular summer flop The Lone Ranger, entertainment conglomerate and Dow component the Walt Disney (NYSE:DIS) managed to beat Wall Street's expectations in the second quarter. Earnings per share (ex-items) came in at $1.03 versus a consensus estimate of $1.01.
"There has been a lot said I know about the risk of basically high-cost, tentpole films, and we certainly can attest to that given what happened with 'Lone Ranger,'" chairman and CEO Robert Iger told investors and analysts on a conference call. He went on to justify the strategy on the basis that "one way to rise above the din and the competition is with a big film, not just a big budget, but a big story, big cast, big marketing behind it."
The movie business, as practiced by the major studios, is a high-risk, lumpy venture. Disney expects to record a loss of $190 million on The Lone Ranger. As such, the success of any studio can only be evaluated over a relatively long time frame. (This is a point actor George Clooney directed squarely at hedge fund manager Dan Loeb, who is taking on Sony.) In that regard, Disney's long-term track record looks pretty decent, if wealth creation and shareholder returns are anything to go by.