08 Jun Capital 19 Catch-Up

Wall Street Shrugs off Protests and Pandemic As Nasdaq At All-Time Highs and S&P500 Almost Positive Year To Date

Wall Street has managed to shrug off continuing protest rallies across the country, while a pandemic, all but forgotten, continues to bubble along in the background. Amazingly the Nasdaq hit all-time highs this week, while the S&P500 is only a good session away from being positive for 2020. It’s down only 1.1% for the year to date, while the Dow finds itself still lower by 5%. The comeback has been nothing short of astounding. 

Markets are now pricing in a fast and effective reopening of the economy, which was highlighted this week by a resurgence in the sectors that have been most affected. American Airlines (AAL) was up an astounding 67% over the five sessions, and not far back were rivals United Airlines (UAL) up 44%, and Delta Airlines (DAL) up 31%. To keep things in perspective all are still down around 40-50% for the year so there is still a long way to go for the industry to find its feet.

Cruise lines were also in overdrive, as Norwegian Cruise Lines (NCLH) jumped 35% for the week, while Carnival Cruises (CCL) gained 31%, and Royal Caribean (RCL) made 28%. The banks were also in favour as Citibank (C) rose 21.6% over the five sessions, Wells Fargo (WFC) added 18.2%, Bank of America (BAC) 14.65%, and JP Morgan (JPM) 13.7%. 

This is all while we are seeing the worst economic data experienced in our lifetimes. But the market is looking forwards not backwards. It’s expecting things to get back on track without a hitch. It’s like the last couple of months never happened. I hate to admit it here in an open forum, but Matthew was right. Back on the 20th April, we wrote about our opposing views on where we thought the markets were headed. I suggested markets would struggle to keep going higher while Matt predicted we’d seen the worst of the selling and we’d be back at all-time highs after seeing the bottom on March 23. What can I say, every dog has his day. 

I anticipated the death toll would rise well past the 65,000 the White House had predicted, and that we would see a “glut of civil disruptions”. Both have come true. What I didn’t predict was that the market would all but ignore it. I didn’t have the foresight to predict that the US and China would start arguing over trade again – who would have the time during a pandemic? But of course, they have, and the markets have ignored that as well. I’ve been beaten by global optimism. Personally, I think we are a long way from being out of the woods just yet, but well done Matt. Your six pack of Peach and Ginger Cruisers are with the courier and you should have them shortly. 

We did finally see some positive data come out this week. Economists had expected nonfarm payrolls to be down by 8.3 million jobs in May with an unemployment rate of 19-20%. However the numbers surprised all with jobs gaining back 2.5 million and unemployment falling to 13.3%. It was darn sight better than the 20.7 million jobs the economy lost in April. I have also never seen the analyst predictions so far out from reality. I guess it’s difficult to make predictions in such unusual times as these.

Private payrolls were down by 2.76 million, but it was still better than the predicted losses of 8.75 million. The US services sector also contracted less than expected in May, coming in at 45.4, up from 41.8 in April. A number under 50 signals a contraction. A lot of the new jobs added came from restaurant staff and retail employees, while governments continued to shed workers. New jobless claims added another 1.877 million unemployed to the growing list with continuing claims rising to an unexpected 21.5 million. 

Capital 19 Pandemic portfolio stocks Zoom (ZM) and Slack (WORK) both announced earnings during the week, to differing results. Zoom’s results were described by Barron’s Eric Savitz as “one of the best earnings reports in the history of American business”, while JP Morgan’s Sterling Auty descibed it as “the largest beat we have witnessed in covering software for over 20 years”. Revenue was up a staggering 169% to $328.2 million while the consensus was for just $202 million. Zoom now predict they will bring in $1.7-$1.8 billion in revenue for the January 2021 fiscal year. That’s almost double the $934 million previously estimated. ZM was up 7.6% after the results were announced, but then settled lower later in the week. The stock is up a respectable 202% since the start of the year. 

Slack couldn’t manage the same blowout earnings as ZOOM had earlier on in the week however. Nevertheless, revenue was up by 169% for the quarter, which was more than double its guidance and well over predictions. It also lost 2c per share while analysts had expected a loss of 6c. The company added 12,000 paid customers in the quarter, while users spent more than 120 minutes per day in Slack compared to 90 minutes in the previous quarter. The results were still impressive, just not “out of the ballpark” impressive. Shares dropped 14.18% on Friday but are still up more than 40% from the start of the year. We see this pullback as a brilliant buying opportunity that may not come again. 

You can read our stock report on Zoom here : https://capital19.com/investing-in-us-stocks/zoom-video-conferencing-zm/ and the latest update on our pandemic portfolio here: https://capital19.com/investing-in-us-stocks/the-pandemic-portfolio-update-3/

In the week ahead there’ll be a lot of focus on the Federal Open Market Committee (FOMC) meeting that will occur on Tuesday and Wednesday culminating in Fed Chair Jerome Powell’s press conference on Wednesday afternoon. We’ll hopefully get a glimpse into what the Fed’s plans are for handling the economy during the reopening attempt. 

Earnings wise we have Catch Up favourite Lululemon (LULU) reporting on Thursday. Despite cratering in March the LULU stock price is up 37% for the year, thanks to a strong online retail presence. Sales are expecting to fall by about 10% for the last quarter with revenue expected to be around $677 million. The share price is looking a little toppy at the current moment so a fall here would be welcome for those looking to get into the stock. We’ll wait and see. Other notable earnings will come from Gamestop (GME) on Tuesday and Adobe (ADBE) on Thursday.   

Of course there is still a pandemic going on, so eyes will be also closely following the Covid19 death toll which is now upwards of 110,000 in the US. Protests are also continuing and in normal times the markets might have reacted more negatively, but I can’t see this having a big impact at the current time.

Have a great week everybody.