17 Aug Capital 19 Catch-Up
The S&P500 Index Finishes Just Short of All-Time Highs as Job Numbers Improve and a Coronavirus Vaccine Draws Nearer
The S&P500 fell agonisingly short of all-time highs at least three times last week, but each time the market pulled up just short. The bulls and bears continued to battle over the technology industry, in particular the big names of Apple (AAPL), Netflix (NFLX), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN) and Facebook (FB), with each rising or falling depending on the whims of Wall Street on the day. Because of this, the Nasdaq failed to really get going for the week, finishing with a less than 0.1% gain over the five sessions. The Dow was the star again, making 1.8% for the week, while the S&P500 managed a 0.64% advance as it was muffled by its larger tech components.
This battle between the tech stocks, which have led the fightback since the market crumbled in March, and with those companies who have suffered the most at the hands of the economic shutdowns, has been a major theme for investors over the last few weeks. Will the tech industry be able to continue surging higher? Or has its run been overdone with Wall street now looking to the airlines, banks, retail stocks, and car manufacturers to drag us higher as we get closer to a coronavirus vaccine?
Such vaccine hopes were raised briefly during the week as Russian President Vladimir Putin approved a vaccine that he said was “safe and effective”. Markets moved higher on the news, however, a quick investigation by leading global public health experts, showed that such claims were premature and that the vaccine had not gone through the proper testing procedures as yet. It appears Vladimir’s press conferences on medical matters are about as reliable as those from the White House. But at least he didn’t tell people to inject disinfectant.
So far the World Health Organisation says that there are currently six vaccines going through phase 3 trials at the moment, with none yet completed, and more than 100 more that are in development. On Tuesday Goldman Sachs (GS) raised its economic outlook, predicting a vaccine would be approved by the end of the year and in production by the second quarter of 2021. As the market takes a breather we may need to see some more concrete vaccine success before we see the market take its next leg higher. Hopefully, it won’t be too far away. If the S&P500 can manage to finally break above its all-time highs this week it will be the fastest recovery from a more than 30% fall in its history.
We still don’t have a stimulus bill out of congress, with both sides claiming the negotiations are at a stalemate. The Republicans are stating they are willing to come back to the table, however, the Democrats say they aren’t interested in talks unless the unemployment supplement is raised to $600 per week. A resolution will no doubt see the benchmark index sail through all-time highs, but it remains to be seen whether it will happen by the end of August.
In more political news (yes, I know it’s painful but it has implications on the economy and our stock portfolios) Democratic challenger Joe Biden chose his running mate for the upcoming US elections during the week. The good news for Wall Street is that it was a safe pick from the centre of the party, a much better option for markets than if it had been someone from the progressive left (not that that was ever going to happen). Kamala Harris, the junior senator from California, will team up with Joe on the campaign trail leading up to the November 3rd election.
It was a quiet week on the earnings front but there were still a few names reporting that we follow here at the Catch-Up. Cisco (CSCO) beat estimates on both profit and revenue but concerned investors with poor quarterly guidance for its fiscal Q4 earnings. The technology hardware maker is seeing much of its business stolen by cloud offerings from the likes of Amazon, Microsoft, and Google. Its share price dropped 11.5% in the Thursday session.
Rideshare company Lyft (LYFT) reported a horror second quarter with revenue falling by 61% as customers stayed at home thanks to the pandemic. A silver lining came with the news that rides in July had increased by 78% from its April numbers, but the finances are still expected to struggle in the current quarter. Lyft fell 6.5% after the announcement.
For our weed sector followers Canopy Growth (WEED, CGC) also reported earnings during the week, and left investors disappointed with a 22% rise in revenue year on year. While cannabis sales increased by 17% in Canada in the last quarter, Canopy Growth sales could only manage a 2.3% increase in the same period. On a brighter note, management were able to reduce operating expenses by a significant amount, while they also managed to burn through less cash than the previous quarter. WEED lost just over 5% for the week.
The weekly jobless claims fell below the million mark for the first time since March. 963,00 people applied for unemployment benefits last week, and the amount of continuing claims fell to 15.5 million in what was finally some good news for the employment numbers. Retail sales rose less than expected, coming in at 1.21% compared to the 2.3% estimates. However, excluding auto sales, the number rose to a much more respectable 1.9% rise.
The retailers will be out in force in the week ahead as many of the big players announce their latest earnings. It will be more crucial than ever for the bricks and mortar retailers, such as Walmart (WMT), to prove they have managed the conversion to online e-commerce sales. If they’ve been slow to move they will have no doubt suffered in the second quarter. Walmart, Home Depot (HD), and Advanced Auto Parts (AAP) will kick off earnings tonight, while later in the week we’ll also see numbers from Lowe’s (LOW), Target (TGT), TJX Companies (TJX), L Brands (LB), Ross Stores (ROST), and Foot Locker (FL). Chipmaker Nvidia (NVDA) will also report on Wednesday, with Alibaba (BABA) doing the same on Thursday.
Economic data will include the Empire state index tonight and new housing starts tomorrow. While we’ll get to see the FOMC minutes on Wednesday, and all eyes will be on the weekly jobless claims on Thursday to see if the number can stay below 1 million for two weeks straight.
Have a great week.