Capital 19 Catch-Up

Stock Market Records Best August Results Since the 1980’s as Technology Sector Gets Dumped Late in the Week


Wall Street closed out the month of August last Monday with some of its best performances since the 1980s. Led admirably by the tech sector the S&P500 gained an impressive 7% last month, gaining its best August result since 1986. The Nasdaq led the way yet again as it racked up a 9.6% gain and its best August result since its mini-rally during the tech downturn of 2000. The Dow was also impressive notching a 7.6% gain and its best August since 1984.

Remarkably, it wasn’t just the tech sector that helped markets to their fifth straight month of gains and the best results since the April bounce back rally. Sectors that have struggled over the last six months also improved their previously troubled positions bouncing off of their lows. Amongst the Tesla’s (TSLA) and the Apple’s (AAPL), up 74.1% and 21.4% respectively, we also saw Royal Caribean Cruises (RCL) lead the S&P500 with a 41.5% gain (although it’s still down 48.4% for the year to date), MGM Resorts (MGM) pick up 39.8% (down 32.4% YTD), and Delta Airlines (DAL) rise 23.7% (still down $47.2 YTD).

Other winners included (CRM) who rose 39.9% for August and is now up 67.6% for the year to date and fertiliser maker Mosiac (MOS) who added 35.3% for the month but is still down 15.8% for the year. It’s also not a surprise to anyone that courier Service FedEx (FDX) has been busy during the pandemic. They gained 30.5% in August and are now up 45.4% for 2020. While Catch Up favourite Nvidia (NVDA) still goes from strength to strength, making 26% in August and is now up 127.4% for the year to date.

Zoom Video (ZOOM) closed out the month with an impressive 28% gain, then after announcing earnings that night leapt another 40.7% the next day to start September with a mighty roar. It nearly doubled analyst estimates on profit, while revenue grew by 355% on an annualised basis to be $163 million higher than expected. The video meeting provider averaged 148.4 million users in the last quarter, up a substantial 4,700% on last years numbers. The guidance was also well above expectations, with 73c per share expected, alongside revenue of $685-690 million.

The Zoom share price hit highs of $478 during the week but closed out down around the $370 mark as investors took profits and the entire tech sector sold off heavily later in the week. Despite the late fall, the stock is still up a hefty 438% for the year to date, and up 223% since our stock report on March 6 which you can read here:

The tech sector took a big hit on Thursday and Friday and it was hard to find a cause for the sell-off other than a simple reversal of sentiment. It was reported in the Wall Street Journal late in the week that Japan’s SoftBank had been making big bets on the US tech sector and may have been partially responsible for much of the hype that has surrounded the big names of the industry for the last few months. Perhaps this caused many investors to rethink the dizzying heights such companies have reached during the current global pandemic and causing some hesitation amongst buyers.

Whatever it’s cause it didn’t miss any of the big names. Thursday was the S&P500 tech sector’s worst session since the big falls in March. Apple dropped 8% on Thursday, and despite gaining nicely thanks to its earlier stock split on Monday was still down 5.7% for the week. Amazon (AMZN) and Netflix (NFLX) both lost more than 4%, while Microsoft (MSFT) lost 6.2%, Alphabet (GGOGL) dropped 5.1% and Facebook (FB) lost 3.8%. The Nasdaq finished the week the worst of the major indices losing 3.3% over the five sessions, while the S&P500 lost 2.3% and the Dow fell 1.8%.

Despite the market falls the economic data showed that the economy continued to improve in August. PMI manufacturing was at its highest since January 2019 coming in at 56, beating expectations by 1.5 points. The New Orders index climbed to 67.6 from 61.5 which was its highest reading since 2004. And while the private payroll numbers came in worse than expected at 428,000 (1.17 million expected), the weekly unemployment numbers beat analyst expectations, dropping to 881,000, while the nonfarm payrolls also beat expectations with the economy adding 1.37 million jobs and the unemployment rate dropping to 8.4%.

It’s nice to see the economy continuing to improve despite the number of new coronavirus cases remaining stubbornly high. September has traditionally been the worst month for stock markets since the 1950s, with the Dow losing 0.7% on average and the S&P500 falling 0.5%. However, the last three years have bucked the trend with September being a positive month since 2017. Even better, the month of September during an election year is actually positive on average. Let’s hope we can make it four in a row.

The week ahead is a shortened one on Wall Street thanks to the US Labor Day public holiday tonight. Markets will reopen for trading on Tuesday.

Earnings reports this week will include our leading stock in the Pandemic Portfolio, Peloton Interactive (PTON) who, like Zoom, will be looking to back up its astronomical rise so far in 2020 with some solid financial results. We’ll find out on Thursday whether it has justified its current valuation. We’ll also see reports out from Catch Up favourite Lululemon (LULU) on Tuesday, and GameStop (GME) and American Eagle Outfitters (AEO) on Wednesday. Economic data will be on the quiet side with job openings for July on Wednesday, and the weekly jobless claims on Thursday.

Have a great week.