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The crypto market has been struggling to stage a rebound. However, the enthusiasm surrounding rate cuts saw Bitcoin (BTC), the world’s most popular cryptocurrency, surging above $60,000 for the first time since last month.
Several factors have posed headwinds for Bitcoin over the past few months but market experts believe a rate cut will help the cryptocurrency resume its rally. Given this scenario, it would be ideal to adopt the buy-the-dip approach. Four such Bitcoin-centric stocks with upside are Interactive Brokers Group, Inc. IBKR, Robinhood Markets, Inc. HOOD, CME Group Inc.’s CME, BlackRock, Inc. BLK and NVIDIA Corporation NVDA.
Bitcoin Surges on Rate Cut Hopes
On Tuesday, Bitcoin was trading at $60,477.98 after hitting an intra-day high of $61,337. The surge came as the Federal Reserve began its two-day FOMC meeting, with expectations high that a rate cut will be announced on Wednesday.
Bitcoin has been rangebound since April, with even the halving event failing to boost its price. Halving, which typically cuts the reward for mining new Bitcoin blocks by 50% to limit the total supply to 21 million, generally boosts demand and prices. However, Bitcoin's value dropped notably after the recent halving.
In early August, a broader market bloodbath saw Bitcoin’s price fall below $55,000. The cryptocurrency has since been trying to rebound.
Rate Cut to Boost Crypto-Centric Stocks
Soft August jobs data and a marginal rise in monthly inflation have somewhat dampened hopes of a 50-basis point rate cut by the Federal Reserve. The CME FedWatch tool presently shows a 63% possibility of a 25-basis point cut this week, while a 37% probability of a 50-basis point cut.
Bitcoin had a solid 2023 and despite its recent decline, has gained 43% year to date. It hit an all-time high of $73,750 on March 14.
A rate cut is likely to help Bitcoin and other cryptocurrencies. A rate cut of any size bodes well for growth assets like cryptocurrencies as they reduce the opportunity cost of holding assets that don’t provide yields. In a low-interest-rate environment, investors are more inclined to go for assets with higher potential returns, even if they involve greater risk.
Five Crypto-Centric Stocks to Gain
We have narrowed our search to five crypto-oriented stocks that have strong potential for 2024. Each of our picks carries either a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Interactive Brokers Group, Inc.
Interactive Brokers Group, Inc. is a global automated electronic broker. IBKR executes, processes and trades in cryptocurrencies. IBKR’s commodities futures trading desk also offers customers a chance to trade cryptocurrency futures.
Interactive Brokers Group has an expected earnings growth rate of 18.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last 60 days. IBKR currently carries a Zacks Rank #2.
Robinhood Markets, Inc.
Robinhood Markets, Inc. operates a financial services platform in the United States. Its platform allows users to invest in stocks, exchange-traded funds, options, gold, and cryptocurrencies. HOOD buys and sells Bitcoin, Ethereum, Dogecoin and other cryptocurrencies using its Robinhood Crypto platform.
Robinhood Markets’ expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 38.2% over the last 60 days. Robinhood Markets currently carries a Zacks Rank #2.
CME Group Inc.
CME Group Inc.’s options give the buyer of the call/put the right to buy/sell cryptocurrency futures contracts at a specific price at some future date. CME offers Bitcoin and ether options based on the exchange's cash-settled standard and micro-Bitcoin and Ethereum futures contracts.
CME Group’s expected earnings growth rate for the current year is 6.4%. The Zacks Consensus Estimate for current-year earnings has improved 1.5% over the last 60 days. CME presently has a Zacks Rank #3.
BlackRock, Inc.
BlackRock, Inc. is one of the world’s largest investment managers and is publicly owned. BLK was one of the first companies from the traditional market to join the Bitcoin ETF race back in June 2023.
BlackRock’s expected earnings growth rate for the current year is 9.5%. The Zacks Consensus Estimate for current-year earnings has improved 10.3% over the last 60 days. BlackRock currently carries a Zacks Rank #3.
NVIDIA Corporation
NVIDIA Corporation is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. Over the years, NVDA’s focus has evolved from PC graphics to artificial intelligence-based solutions that now support high-performance computing, gaming and virtual reality platforms.
NVIDIA has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.1% over the last 60 days. NVDA presently carries a Zacks Rank #3.
Zacks Investment Research
For Immediate Release
Chicago, IL – September 18, 2024 – Today, Zacks Equity Research discusses Intercontinental Exchange ICE, CME Group CME, Nasdaq Inc. NDAQ, Cboe Global Markets CBOE and MarketAxess MKTX.
Industry: Securities and Exchanges
Link: https://www.zacks.com/commentary/2337271/5-securities-and-exchanges-stocks-to-watch-amid-market-volatility
Compelling and diversified product portfolios help drive revenues of Zacks Securities and Exchanges industry players. An increase in trading volumes, product expansion through prudent acquisitions and the increased adoption of a greater number of crypto assets are expected to benefit Intercontinental Exchange, CME Group, Nasdaq Inc., Cboe Global Markets and MarketAxess .
Increased focus on accelerating their non-trading revenue base, which comprises market technology, listing and information revenues, infuses dynamism in the business profile of the industry players. However, alterations in investment patterns and priorities, and compliance with regulations pose challenges. Also, the highly volatile crypto market experienced a downturn recently, affecting the performance of the companies.
About the Industry
The Zacks Securities and Exchanges industry comprises companies that operate electronic marketplaces, which facilitate the buying and selling of stocks, stock options, and bonds or commodity contracts. They facilitate trading across a diverse range of products in multiple asset classes and geographies.
The companies generate revenues from fees received from the listed companies on their exchanges. They also provide a range of data and listing services to global financial and commodity markets, including pricing and reference data, exchange data, analytics, feeds, index services, investments, risk management, desktops, and connectivity solutions, as well as corporate and ETF listing services, on the cash equity exchanges of the industry players. The industry is witnessing increased adoption of crypto assets. Yet, complying with a number of regulations result in challenges.
3 Trends Shaping the Future of the Securities and Exchanges Industry
Volatility Fueling Trading Volume: The players in the industry are largely dependent on product and service portfolios for revenues. Major services include trade execution, clearing, settlement services for securities and commodity contracts, listing services, plus trading and clearing systems services. Sustainable trading volume growth, driven by trading volatility, fuels transaction and clearing fees (a major component of the top line of industry players).
The maximization of transaction and clearing fees and the lowering of transaction-based expenses drive profits. Other revenue sources include data products and financial indexes, along with information and public company services. Increasing focus on accelerating the non-trading revenue base, which includes market technology, listing and information revenues, infuses dynamism in the business profiles of the industry participants.
Mergers and Acquisitions: The industry continues to witness mergers and acquisitions, with companies evaluating opportunities to supplement their internal growth story by forging strategic alliances or acquiring businesses or technologies. These enable them to penetrate untapped markets, offer new products or services and enhance the value of their platforms and existing trade-related operations.
Additionally, strategic buyouts lead to a diversified product portfolio (the primary growth catalyst) and help industry participants maintain their domestic market share, as well as fortify their global footprint. Also, exchanges are pursuing consolidations and mergers with technological, legal, and competitive changes, per Deloitte.
Continuous Investment in Technology: Industry players continue to invest heavily in technological development. Focus on building a strategic economic market model via technological advancements and upgrades of products and services, AI in particular, will help all exchanges stay afloat amid changing industry dynamics.
In recent years, the players have launched a number of innovative technologies that rely on machine learning, automation and algorithms designed to improve trading decisions while reducing trading inefficiencies, cyber threats and human errors, thus accelerating trading frequency. Players are also investing in automating non-trading operations that play an important part in revenue generation for the companies.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Securities and Exchanges industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #158, which places it in the bottom 37% of the 251 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, reflects dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have been losing confidence in this group’s earnings growth potential. Estimates for the current year have declined 0.5% in a year.
Before we present a few securities and exchanges stocks worth considering for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms Sector and S&P 500
The Zacks Securities and Exchanges industry has underperformed the broader Zacks Finance sector as well as the Zacks S&P 500 composite over the past year. The industry has gained 20.5% compared with the broader sector and the Zacks S&P 500 composite’s increase of 25.7% each in the said time frame.
Industry's Current Valuation
On the basis of trailing 12-month price-to-book (P/B), which is commonly used for valuing finance stocks, the industry is currently trading at 3.6X compared with the S&P 500’s 8.55X and the sector’s 3.75X.
Over the last five years, the industry has traded as high as 4.01X, as low as 2.38X and at the median of 3.27X.
5 Securities and Exchanges Stocks to Keep an Eye On
We are presenting five Zacks Rank #3 (Hold) stocks from the Securities and Exchanges industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Nasdaq: Headquartered in New York, Nasdaq is a leading provider of trading, clearing, marketplace technology, regulatory, securities listing, information, and public and private company services. Its strategy of accelerating its non-trading revenue base, successfully maximizing opportunities as a technology and analytics provider, and growing core marketplace businesses, as well as intensifying its focus on Market Technology and Information Services businesses, should continue to drive growth.
The Zacks Consensus Estimate for 2025 earnings per share indicates an increase of 12.8% year over year. NDAQ came up with a four-quarter average earnings surprise of 3.39%. The expected long-term earnings growth rate is pegged at 8.9%, better than the industry average of 8.5%. The consensus estimate for 2024 and 2025 earnings has moved 1.9% and 1.6% north, respectively, in the past 60 days.
Intercontinental Exchange: This Atlanta, GA-based company is a leading global operator of regulated exchanges, clearing houses and listings venues and a provider of data services for commodity, financial, fixed-income and equity markets. Its compelling portfolio, expansive risk-management services, strategic buyouts and a solid balance sheet bode well. It is the second-largest global fixed-income provider. ICE, with the largest mortgage network across the United States, remains well poised to benefit from accelerated digitization in the U.S. residential mortgage industry.
The Zacks Consensus Estimate for Intercontinental Exchange’s 2024 and 2025 EPS indicates a year-over-year rise of 7.5% and 10.5%, respectively. It came up with a four-quarter average earnings surprise of 2.35%. The expected long-term earnings growth is pegged at 9.4%, better than the industry’s average. The consensus mark for 2024 and 2025 has moved 0.8% and 0.5% north, respectively, in the past 60 days.
Cboe Global Markets: Based in Chicago, IL, Cboe Global is one of the largest stock exchange operators by volume in the United States and globally for ETP trading. The company is poised for growth, given an expanding product line across asset classes, broadening geographic reach and a diversifying business mix with recurring revenues and technology.
The Zacks Consensus Estimate for the company’s 2024 and 2025 EPS indicates year-over-year increases of 10.5% and 5.5%, respectively. The expected long-term earnings growth is pegged at 13.8%, better than the industry’s average. It came up with a four-quarter average surprise of 5.01%. The consensus mark for 2024 and 2025 has moved 1.1% and 0.2% north, respectively, in the past 60 days.
CME Group: Headquartered in Chicago, IL, CME Group boasts the largest futures exchange in the world in terms of trading volume as well as notional value traded. Efforts to expand futures products in emerging markets, non-transaction-related opportunities, OTC offerings, cross-selling through alliances, strong global presence and solid liquidity should drive this company’s growth.
The Zacks Consensus Estimate for the company’s 2024 EPS indicates a year-over-year increase of 6.4%. It came up with a four-quarter average earnings surprise of 3.55%. The expected long-term earnings growth rate is pegged at 2.5%. The consensus mark for 2024 and 2025 has moved 1.5% and 0.7% north, respectively, in the past 60 days.
MarketAxess: Based in New York, MarketAxess is a leading multi-dealer trading platform. Growing commissions, solid credit trading volume, the extensive reach of the Open Trading platform, acquisitions and a notable financial position continue to drive growth.
The Zacks Consensus Estimate for 2024 and 2025 earnings per share indicates an increase of 3.1% and 12.8%, respectively, year over year. MarketAxess came up with a four-quarter average earnings surprise of 2.63%. The expected long-term earnings growth rate is pegged at 6%. The consensus mark for 2024 and 2025 has moved 2 cents north each in the past 60 days.
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Zacks Investment Research
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release
Zacks Investment Research
Whether the Federal Reserve will implement a 25-basis-point reduction or a 50-basis-point cut, is top of mind ahead of Wednesday’s meeting.
But there’s an "even bigger question" to answer, Thomas Hayes of Great Hill Capital tells Benzinga.
What will Japan's central bank decide at its meeting on Friday? Recall how Japan's rate hikes created volatility, particularly in tech stocks.
“Fed should have cut [rates] in August,” Hayes says. Instead, Japan’s central bank hiked and the Fed didn't. As a result, “it created a liquidity mismatch that caused an abrupt selloff” in the Magnificent Seven stocks.
See Also: Gold ETFs Poised For Liftoff: Can The Fed’s Rate Cut Propel Prices To New Heights?
If the Bank of Japan (BoJ) meets Friday and hikes again while the Fed only cuts 25 basis points, more turbulence could arise, Hayes predicts.
Things should be alright if the Fed cuts 50 basis points and the BoJ hikes 25 basis points, he says. Likewise, if the BoJ keeps rates unchanged and the Fed cuts 25 basis points.
The Fed's Decision: Of the last three 50 basis-point cuts, March 2020 “worked great,” Hayes recalls. The cuts from September 2007 and January 2001 each has a “bad outcome.”
Fed Fund Futures suggest a 65% chance of a 50 basis-points cut, though Hayes isn't sure.
A cut that size could suggest the Fed is falling behind. It might also give the appearance of political motivation, which the Fed will most likely try to avoid. With the effective federal funds rate (EFFR) at 5.33%, more than 230 basis points above inflation, Hayes believes monetary policy is already too restrictive.
Hayes expects the Fed will go with a 25 basis points cut paired with dovish commentary, suggesting further cuts in November and December. While the market is pricing in 100-125 basis points of cuts by year-end, Hayes is in the 75-100 basis points of reductions camp.
Hayes also points to stronger-than-expected growth, with Q3 GDPNow estimates at 2.5% and 15% earnings per share (EPS) growth forecast for 2024.
"Hard to have a recession with GDP growing over 2%," Hayes said.
Hayes is not repositioning ahead of the rate cuts. However, other major funds made significant moves in the second quarter ahead of the rate-cut cycle.
According to HedgeFollow:
Now Read: S&P 500 Briefly Hits Record High Just Ahead Of Fed Rate Cut, Extends 7-Day Winning Streak
Image: Shutterstock
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Compelling and diversified product portfolios help drive revenues of Zacks Securities and Exchanges industry players. An increase in trading volumes, product expansion through prudent acquisitions and the increased adoption of a greater number of crypto assets are expected to benefit Intercontinental Exchange ICE, CME Group CME, Nasdaq Inc. NDAQ, Cboe Global Markets CBOE and MarketAxess MKTX. Increased focus on accelerating their non-trading revenue base, which comprises market technology, listing and information revenues, infuses dynamism in the business profile of the industry players. However, alterations in investment patterns and priorities, and compliance with regulations pose challenges. Also, the highly volatile crypto market experienced a downturn recently, affecting the performance of the companies.
About the Industry
The Zacks Securities and Exchanges industry comprises companies that operate electronic marketplaces, which facilitate the buying and selling of stocks, stock options, and bonds or commodity contracts. They facilitate trading across a diverse range of products in multiple asset classes and geographies. The companies generate revenues from fees received from the listed companies on their exchanges. They also provide a range of data and listing services to global financial and commodity markets, including pricing and reference data, exchange data, analytics, feeds, index services, investments, risk management, desktops, and connectivity solutions, as well as corporate and ETF listing services, on the cash equity exchanges of the industry players. The industry is witnessing increased adoption of crypto assets. Yet, complying with a number of regulations result in challenges.
3 Trends Shaping the Future of the Securities and Exchanges Industry
Volatility Fueling Trading Volume: The players in the industry are largely dependent on product and service portfolios for revenues. Major services include trade execution, clearing, settlement services for securities and commodity contracts, listing services, plus trading and clearing systems services. Sustainable trading volume growth, driven by trading volatility, fuels transaction and clearing fees (a major component of the top line of industry players). The maximization of transaction and clearing fees and the lowering of transaction-based expenses drive profits. Other revenue sources include data products and financial indexes, along with information and public company services. Increasing focus on accelerating the non-trading revenue base, which includes market technology, listing and information revenues, infuses dynamism in the business profiles of the industry participants.
Mergers and Acquisitions: The industry continues to witness mergers and acquisitions, with companies evaluating opportunities to supplement their internal growth story by forging strategic alliances or acquiring businesses or technologies. These enable them to penetrate untapped markets, offer new products or services and enhance the value of their platforms and existing trade-related operations. Additionally, strategic buyouts lead to a diversified product portfolio (the primary growth catalyst) and help industry participants maintain their domestic market share, as well as fortify their global footprint. Also, exchanges are pursuing consolidations and mergers with technological, legal, and competitive changes, per Deloitte.
Continuous Investment in Technology: Industry players continue to invest heavily in technological development. Focus on building a strategic economic market model via technological advancements and upgrades of products and services, AI in particular, will help all exchanges stay afloat amid changing industry dynamics. In recent years, the players have launched a number of innovative technologies that rely on machine learning, automation and algorithms designed to improve trading decisions while reducing trading inefficiencies, cyber threats and human errors, thus accelerating trading frequency. Players are also investing in automating non-trading operations that play an important part in revenue generation for the companies.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Securities and Exchanges industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #158, which places it in the bottom 37% of the 251 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, reflects dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have been losing confidence in this group’s earnings growth potential. Estimates for the current year have declined 0.5% in a year.
Before we present a few securities and exchanges stocks worth considering for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms Sector and S&P 500
The Zacks Securities and Exchanges industry has underperformed the broader Zacks Finance sector as well as the Zacks S&P 500 composite over the past year. The industry has gained 20.5% compared with the broader sector and the Zacks S&P 500 composite’s increase of 25.7% each in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of trailing 12-month price-to-book (P/B), which is commonly used for valuing finance stocks, the industry is currently trading at 3.6X compared with the S&P 500’s 8.55X and the sector’s 3.75X.
Over the last five years, the industry has traded as high as 4.01X, as low as 2.38X and at the median of 3.27X, as the chart below shows.
Price-to-Book (P/B) Ratio (TTM)
Price-to-Book (P/B) Ratio (TTM)
5 Securities and Exchanges Stocks to Keep an Eye On
We are presenting five Zacks Rank #3 (Hold) stocks from the Securities and Exchanges industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Nasdaq: Headquartered in New York, Nasdaq is a leading provider of trading, clearing, marketplace technology, regulatory, securities listing, information, and public and private company services. Its strategy of accelerating its non-trading revenue base, successfully maximizing opportunities as a technology and analytics provider, and growing core marketplace businesses, as well as intensifying its focus on Market Technology and Information Services businesses, should continue to drive growth.
The Zacks Consensus Estimate for 2025 earnings per share indicates an increase of 12.8% year over year. NDAQ came up with a four-quarter average earnings surprise of 3.39%. The expected long-term earnings growth rate is pegged at 8.9%, better than the industry average of 8.5%. The consensus estimate for 2024 and 2025 earnings has moved 1.9% and 1.6% north, respectively, in the past 60 days.
Price and Consensus: NDAQ
Intercontinental Exchange: This Atlanta, GA-based company is a leading global operator of regulated exchanges, clearing houses and listings venues and a provider of data services for commodity, financial, fixed-income and equity markets. Its compelling portfolio, expansive risk-management services, strategic buyouts and a solid balance sheet bode well. It is the second-largest global fixed-income provider. ICE, with the largest mortgage network across the United States, remains well poised to benefit from accelerated digitization in the U.S. residential mortgage industry.
The Zacks Consensus Estimate for Intercontinental Exchange’s 2024 and 2025 EPS indicates a year-over-year rise of 7.5% and 10.5%, respectively. It came up with a four-quarter average earnings surprise of 2.35%. The expected long-term earnings growth is pegged at 9.4%, better than the industry’s average. The consensus mark for 2024 and 2025 has moved 0.8% and 0.5% north, respectively, in the past 60 days.
Price and Consensus: ICE
Cboe Global Markets: Based in Chicago, IL, Cboe Global is one of the largest stock exchange operators by volume in the United States and globally for ETP trading. The company is poised for growth, given an expanding product line across asset classes, broadening geographic reach and a diversifying business mix with recurring revenues and technology.
The Zacks Consensus Estimate for the company’s 2024 and 2025 EPS indicates year-over-year increases of 10.5% and 5.5%, respectively. The expected long-term earnings growth is pegged at 13.8%, better than the industry’s average. It came up with a four-quarter average surprise of 5.01%. The consensus mark for 2024 and 2025 has moved 1.1% and 0.2% north, respectively, in the past 60 days.
Price and Consensus: CBOE
CME Group: Headquartered in Chicago, IL, CME Group boasts the largest futures exchange in the world in terms of trading volume as well as notional value traded. Efforts to expand futures products in emerging markets, non-transaction-related opportunities, OTC offerings, cross-selling through alliances, strong global presence and solid liquidity should drive this company’s growth.
The Zacks Consensus Estimate for the company’s 2024 EPS indicates a year-over-year increase of 6.4%. It came up with a four-quarter average earnings surprise of 3.55%. The expected long-term earnings growth rate is pegged at 2.5%. The consensus mark for 2024 and 2025 has moved 1.5% and 0.7% north, respectively, in the past 60 days.
Price and Consensus: CME
MarketAxess: Based in New York, MarketAxess is a leading multi-dealer trading platform. Growing commissions, solid credit trading volume, the extensive reach of the Open Trading platform, acquisitions and a notable financial position continue to drive growth.
The Zacks Consensus Estimate for 2024 and 2025 earnings per share indicates an increase of 3.1% and 12.8%, respectively, year over year. MarketAxess came up with a four-quarter average earnings surprise of 2.63%. The expected long-term earnings growth rate is pegged at 6%. The consensus mark for 2024 and 2025 has moved 2 cents north each in the past 60 days.
Price and Consensus: MKTX
Zacks Investment Research
Market volatility cratered last week as stocks bounced back from one of their worst weeks of the year. With the Fed rates decision looming, we could see volatility pick up this week.
That could mean it’s a good time to look for stock with a low implied volatility percentile.
A lot of stock are showing a low implied volatility percentile.
Pfizer for example, is showing implied volatility of 21% compared to a twelve-month low of 18% and a twelve-month high of 34%.
Implied volatility percentile is one of the most common metrics used when trading options.
IV Percentile is a measure of implied volatility where current implied volatility is compared to the range of implied volatilities in this past.
This comparison is made on the same stock.
For example, Palantir’s IV percentile takes the current implied volatility and compares it to the past implied volatilities Palantir has had.
This is then made into a percentage ranging from 0-100%.
A percentage of zero would depict a stock is currently at the lowest level of implied volatility it has been during the lookback period.
In contrast, an IV percentile of 100% illustrates that the stock is trading at its highest level of implied volatility.
To get a true picture of stocks with a low implied volatility percentile, we can use the Stock Screener.
Using the Stock Screener to Find Low Volatility Stocks
Using the Stock Screener, we can set the following filters to find stocks with low implied volatility percentile.
This screener gives us the following stocks ranked from lowest IV Percentile to highest:
Fidelity National Information Services
Here is the full list:
How To Use IV Percentile
As a general rule, when implied volatility percentile is low, it’s better to focus on long volatility trades such as debit spreads, long straddles and long strangles.
It also makes sense to compare a stock’s current IV Percentile to the market in general. If all stocks are showing low IV Percentile, then there might not be much of an edge in buying volatility on a specific stock. But, if general market implied volatility is high, that could be a good time to buy cheap volatility in some of the names above.
It’s also a good idea to keep an eye on the upcoming earnings dates as stocks can make big moves following earnings announcements.
Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
On the date of publication, Gavin McMaster had a position in: BABA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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