Capital 19 Catch-Up

Re-open rally back on Track as Amazon and Facebook Hit Highs


Wall Street’s “re-open rally” was back on track last week as US Federal and State governments attempted the challenging task of getting the economy back online after months wallowing in shutdown mode. Market results were still choppy however with the S&P500 failing to experience consecutive days of either gains or losses, while the Dow had three down sessions out of the five. 

A big jump in the Monday session of more than 3% was enough to see all of the major indices make more than 3% for the week. While the Russell 2000 small-cap index outshone its peers gaining more than 7% after lagging behind for much of the market recovery. 

Promising signs of a coronavirus vaccine from drug maker Moderna (MRNA) helped kick off the Monday session with the stock jumping 20%, and bringing with it many of the stocks that will benefit from a pandemic free economy. Carnival Cruise lines made a healthy 15.2%, Disney (DIS) gained 7.15%, and airlines Delta (DAL) and United (UAL) were both up more than 13%. The big banks were also winners with Wells Fargo (WFC) gaining 8%, and Citi (C) and Bank of America (BAC) jumping by more than 6%.

It only took a day for some of the shine to come off of Moderna with a report from health-oriented news website Stat News throwing doubt on the studies findings – It didn’t stop Moderna taking advantage of the initial “news”, however, raising $1.25 billion in cash thanks to a well-timed share offering. Nothing suspicious here. Moderna’s share price ended up losing 15% throughout the week. I suspect we’re going to see a lot more of such shenanigans throughout the rest of the year. 

One interesting fact to come out of the week was a statistic on what Americans were doing with their $1500 stimulus checks – that being punting them in the stock market. Securities trading was in the top three uses for the funds amongst all age brackets, along with increasing savings and cash withdrawals. According to a report from data aggregation company Envestnet Yodlee people earning between $35,000 and $75,000 increased stock trading by 90% after receiving their check, while those earning $100k to $150k increased trading by 82%. Maybe that’s why this market is pumping?

Retailers had an interesting week as earnings impressed but warnings overshone their successes. Walmart (WMT) beat on both profit and revenue and reported e-commerce sales leapt by 74% in the first quarter. Normally this would be cause for celebration, however, overall transactions dropped by 6% and spending on dealing with a pandemic increased costs. 

The largest retailer in the world employed more than 200,000 people to help clean stores, restock shelves and fulfil online orders nearing the end of the quarter. And of the $900 million in extra expenditure three-quarters went on employee bonuses and expanded benefits. You need to keep the workers happy when it’s dangerous just coming in to work. Like most companies in this earnings round, Walmart neglected to give guidance on future earnings which spooked investors sending the shares down 2.1%.

Home improvement retailer Home Depot (HD) was a similar story. It missed on profit but beat on revenue and saw same-store sales increase by 6.4%. They also saw an increase in expenditure, spending $640 million on increasing wages, increasing paid time off for employees, doubling overtime, and providing weekly bonuses. Online orders increased, while foot traffic in-store was reduced after implementing customer limits. HD lost 3% after earnings were announced. 

Catch Up favourites Nvidia (NVDA) and Take-Two Interactive (TTWO) both had similar earnings results as well. Both smashed profit and revenue expectations, both fell slightly following their reports after rising solidly in the lead-up, and both finished the week with solid gains. You can read our reports here and Nvidia is up more than 50% year to date while Take-Two is up more than 15%. 

Facebook (FB) and Amazon (AMZN) both hit all-time highs during the week. These big tech stocks have been a major players in the markets comeback rally. Facebook gained 6% on Wednesday after announcing an e-commerce feature called Facebook Shop for its namesake website and for stablemate Instagram. Moving in on the businesses of eBay and Amazon and the like is a no brainer for Facebook. They have a ready and willing subscriber base that is the envy of the business world. It will make them a fortune – although according to FB CEO Mark Zuckerberg they are doing it for the good of humanity and to help buisiness suffering in the wake of Covid-19. How charitable. Regardless of the faux benevolence, its a great move. 

The week ahead will be a shortened one with markets closed tonight for the Memorial Day long weekend. I suspect the main focus this week will be on the worsening relations between the US and China, as they battle over tarrifs, Chinese company listings being banned from US exchanges, and Hong Kong. 

The econmic data will include new home sales, consumer confidence, and the weekly jobless claims which are now up at 38 million over the last eight weeks. And of course, all eyes will be focussed on any increase in covid-19 infections as states continue to open up their economies and the public party hard over the long weekend. 

Earnings for this week will include Costco (COST), Autozone (AZO), and Autodesk (ADSK). While Dollar Deneral (DG), Dollar Tree (DLTR), Salesforce (CRM), Gamestop (GME) and Canopy Growth (CGC) will also report. 

It seems like it may be a quiet one. But that is generally when all of the exciting stuff happens. There’s another update below on our pandemic portfolio. Click on the link below to take a look. 

Have a great week.