How to Train Your Dragon: Stocks Suffer Setback as Cantor, Iraq Spook Markets

How to Train Your Dragon 2 hits theaters this week, and as with any sequel, you know that it will have to up the ante for its Viking hero Hiccup. When we last saw him, he’d managed to convince save his father and the others from a giant dragon, losing his leg in the process. This time the danger is even greater, as a villain named Drago captures dragons and prepares for war. The reviews have been stellar: Grantland’s Wesley Morris says the humans in How to Train Your Dragon 2 are “almost more graceful than the dragons', and the dragons could dance for Alvin Ailey;” NPR’s Bob Mondello notes that the film “took inspiration from the first Star Wars trilogy — not a bad model for breathing new life, and yes, a bit of fire, into one of Hollywood’s more nuanced animated franchises;” and the Wall Street Journal’s Joe Morgenstern calls it “a movie the world needs.” No wonder, then, that How to Train Your Dragon 2 is forecast to pull in $67 million at the box office. My only fear: Can I take my kids? Not only are battles big, but the stakes are supposed to be higher. I just hope it’s not too traumatic.

20th Century Fox Licensing/Merch

Stocks also faced unexpected travails this week, including Eric Cantor’s surprise primary loss and the unexpected success of a militant group in Iraq–and suffered for them. The Dow Jones Industrial Average fell 0.9% to 16,775.74 this week, its biggest weekly drop since April 11, while the S&P 500 dropped 0.7% to 1,936.16. The Nasdaq Composite dipped 0.2% to 4,310.65, snapping a four-week winning streak, and the small-company Russell 2000 finished off 0.2% at 1,162.68.

Boeing (BA) dropped 4.3% to $132.29 this week, making it the biggest loser in the Dow Jones Industrial Average. Boeing fell after Emirates cancelled an order with Airbus (EADSY), raising concerns that more cancellations could follow, RBC cut its shares and Eric Cantor lost in a primary.

Tyson Foods (TSN) plunged 12% to $35.43 this week, making it the biggest loser in the S&P 500. Tyson won a bidding war for Hillshire Foods (HSH) this week–and probably overpaid.

Vodafone (VOD) fell 5.9% to $32.88, making it the Nasdaq 100′s biggest loser. Moody’s put Vodafone’s debt on review for a downgrade.

The Bancorp (TBBK) plunged 30% to $11.37 this week, earning it the honor of the biggest loser in the Russell 2000. The Bancorp said in a filing that the FDIC had demanded it to more to comply with the Bank Secrecy Act.

Strategas Research Partners’ Jason Trennert contemplates this week’s mild uptick in volatility:

It shouldn't come as any surprise to anyone who's been in this business for any length of time that banner headlines and cover stories in newspapers and magazines can sometimes be wonderful contrarian indicators. While it will be unlikely to rival Business Week's famous "The Death of Equities" cover story from August 1979, the FinancialTimes' "Volatility Plummets After Central Bank Interventions" earlier this week may wind up being similarly off the mark. Indeed, volatility (and concomitantly trading volume) has been almost painfully low in recent weeks. The VIX now rests at a mere 12.6. But as the Fates are wont to capriciously embarrass forecasters and other expensive "experts" at inconvenient times, two revolutions of sorts were to take place in less than 48 hours after the FT's banner headline – one within the Republican Party here at home and a far more serious one now playing out in Iraqi cities like Mosul and Tikrit.

Citigroup’s Tobias Levkovich considers the S&P 500′s valuation and comes away feeling OK:

Investors continue to worry about valuation as the market scales higher but our normalized earnings yield gap analysis which captures both Cyclically Adjusted P/Es and the market-driven five-year forward swap contract assessment of the 10- year bond yield argues otherwise. At 1.4 standard deviations below average, there's a good reason to be upbeat as one can see a 92% probability of gains in the next year as valuation is in the one-to-two standard deviation below average area. In many respects we have great issue with using absolute CAPE since the correlation to one-year future returns would generate an R-squared correlation of only 0.06, while the five-year number picks up to 0.22, but few investors have the luxury to wait five years to perform before their clients probably take their money back. Thus, one has to string together a year-by-year track record and cannot look out too far anymore.

Unless of course, you do want to look out more than five years, in which case feel free to worry.