Capital 19 Catch-Up

Nasdaq Continues Record Run As Tech Stocks Remain King


Wall Street managed to keep plodding higher last week, despite coronavirus infections and hospitalisations continuing to hit records across the country. It was led again by the seemingly unstoppable Nasdaq which continued to set record closing highs during the week, ably supported by some its biggest components Apple (AAPL), Amazon (AMZN) and Netflix (NFLX) who all registered closing record highs throughout the week.

The Nasdaq is now up 18% year to date, in total contradiction to the economy which has reported some of the worst economic data to come out since the Great Depression. In contrast, the S&P500 is still 1.4% down on where it started the year, while the Dow Industrials are still 8.6% lower. It’s been all about the technology stocks during the pandemic shutdowns. If you can’t make money online when everyone is locked away in their homes then you’re not going to be seeing any love from the markets.

If you cast your mind back to 2018, the media were building excitement over which stock was going to be the first to hit the USD$1 trillion valuation mark. Well, just a few short years later we now have three with valuations topping $1.5 trillion – all based on the Nasdaq. Apple (AAPL) leads the way with $1.663T, followed by Microsoft (MSFT) with $1.62T, and Amazon (AMZN) with $1.596T.

As little as twelve months ago, only Microsoft was clearing the $1 Trillion cap, and it was only just clinging onto it. Apple had crossed the mark first in August 2018 but slipped back. It’s amazing how much value they’ve added in such a short space of time. And even more incredible when you think about what has happened over the last six months. It’s obvious where you want to have the bulk of your portfolio located in the event of another downturn.

The Nasdaq made another 4% this week. It led the S&P500 as it gained 1.7%, while the Dow managed to pull back 0.9% of its yearly losses so far. The Dow was hampered by a poor earnings report from Walgreen’s (WBA) who dropped 7.7% in the Wednesday session after missing estimates and cancelling its share buyback programme. The pharmacy giant said fewer people were going to the doctor and getting prescriptions during the pandemic, while costs rose from paying employees more to be at work and implementing cleaning procedures to cope with the virus.

It was a better week for another Nasdaq leader Netflix (NFLX) who jumped 8% on Friday and finished on its own closing all-time high of $547.73. It was boosted by a report out of Goldman Sachs (GS) who predicted second-quarter earnings would smash estimates and lifted its target share price to $670 share. They predict Netflix will pick up 12.5 million net subscribers, compared to analyst estimates of 8.1 million. Netflix is up by more than 65% so far this year. It will report earnings on Thursday.

Ridesharing leaders Uber (UBER) were also in the news last week. They’ve agreed to buy food delivery rivals Postmates for $2.65 billion. Uber Eats and Postmates will continue to run separately, but share technology and delivery operations at the back end. Uber recently attempted to purchase competitor Grubhub but was instead beaten to the punch by European rival Eat Takeaway. The food delivery sector is getting a big boost from COVID-19 shutdowns, but when things get back to normal it will be a tough business to be in with lots of competitors and continually decreasing margins. Uber was up 6% after the news and is now up 9% for the year.

Looking ahead to the new week we have one of the most intriguing earnings season of all time about to get underway. Very few companies have been brave enough to give guidance so no one is really sure what to expect, although it is pretty obvious it won’t be pretty. The good news is the market is expecting a disaster. Earnings are predicted to fall by 44-48%. Anything better than that and Wall Street will be cheering.

Soft drink leader Pepsi (PEP) will lead us off tonight (FYI we’ve got a brand new stock report on rival Coke in the Catch-Up email today), before the real action starts on Tuesday with JPMorgan (JPM), Wells Fargo (WFC), Citigroup (C), and Delta Airlines (DAL). They’ll be followed on Wednesday by Goldman Sachs (GS), United Healthcare (UNH), and Alcoa (AA), and then Bank of America (BAC), Morgan Stanley (MS), Netflix (NFLX), and Johnson & Johnson (JNJ) on Thursday.

In reality, earnings season will be a sideshow compared to the coronavirus numbers across the US. They’ve been continually rising along with hospitalisations, however, the death rates haven’t jumped by similar amounts just yet. There’s hope that the death rate, which lags the rise in cases by a month or so will not eventuate. We had news this week that Gilead’s drug Resmidvir supposedly reduces the mortality rate of those infected by around 62% which would be a fantastic result. The drug is expected to be approved by December so we’re still a fair way off seeing the benefits of it just yet. Here’s hoping the numbers stay low.

Economic data out this week will include CPI and Core CPI for June, Industrial Production, weekly jobless claims, the Philly Fed, and consumer sentiment, while we’ll also see Chinese GDP. Fed Reserve Presidents from across the country will be making speeches left, right, and centre, while the leaders of the 27 European states will hook up in Brussels to work out how to spend approximately 750 billion euros on the pandemic recovery.

Have a great week.