21 Sep Capital 19 Catch-Up

Markets Lose For Three Weeks Straight But Vaccine News Keeps Wall Street Enthusiastic For Future

The major indices locked in a three-week losing streak on Friday despite positive signs earlier in the week that had many thinking the selloff was finally over. The three majors hadn’t all lost for three weeks straight since September/October of 2019, but a late-week fall by the tech stocks locked in the unwanted milestone.

The Dow was the best performer over the five sessions, only just falling negative for the week and logging in a 0.1% loss. Both the S&P500 and the Nasdaq lost ground in the final two sessions to log in a 0.6% loss for the week. Interestingly the Russell 2000 was up 2.6% for the week, however, the small-cap stock index is still down 7.9% for the year to date and well behind its bigger siblings so far in 2020. Here the Nasdaq still leads, despite its recent bad run, and is up 20.3% year to date, while the S&P500 is up 2.8%, and the Dow is down 3.1%.

Early in the week some M & A action saw markets bounce back from last week’s falls. Chipmaker Nvidia (NVDA) created a bounce for the semiconductor industry when it announced it was buying Arm Holdings from Softbank for $40 billion. It will be the biggest semiconductor deal in history. Pharmaceutical giant Gilead Sciences (GILD) also announced it would purchase Immunomedics (IMMU) for $21 billion which pushed the entire biotech sector up by 5%, and Immunomedics up by 100%. Gilead rose early in the Monday session but fell throughout the week.

Tik-Tok owner ByteDance has also been desperate to find a US partner to avoid being banned by the Trump administration. It announced earlier in the week that it had rejected a Microsoft (MSFT) bid and will instead team up with Oracle (ORCL) who will now handle its US operations and take a significant stake in the company. Oracle jumped 4.3% on the news, then later in the week, Trump announced all downloads from Tik-Tok and Wechat will be blocked by the US government from Sunday. Since then he has backtracked on the TikTok ban and a judge has ruled the WeChat ban is unlawful and against the first amendment. China has been extremely upset by the US government actions but will be unlikely to kick up too much of a stink in the hopes there will be a regime change in November.

There was also positive economic data throughout the week. China’s retail sales rose in August and for the first time in 2020, showing they may be finally climbing out of the chaos caused by Covid19. In the US the Empire State index rebounded from August’s 3.7 to hit 17 in September when analysts had only expected a 7. The weekly jobless claims were also better than expected, coming in at 860,000 when the market was expecting a higher 875,000.

There was also some positive Coronavirus vaccine news as Pfizer CEO Albert Bourla suggested that a cure could be distributed in the US before the end of the year, and AstraZeneca resumed its phase three trials after they were halted due to possible side effects seen in the UK. By weeks end we had Trump giving conflicting advice to the head of the Centre for Disease Control and Prevention when he said a vaccine could be out before the election on November 3. It seemed to be more wishful thinking than anything else as the CDC insist a cure is at least 6-9 months away.

The Federal Reserve kept interest rates on hold again and suggested that a move higher might not be seen until 2023. They agreed to let inflation run over the targeted 2% for as long as it would take to bring the long-term average back to 2%. That could take years depending on how long the rate stays low for. Jerome Powell said in his press statement “with inflation running persistently below this longer run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved”.

Normally this would be music to Wall Street’s ears. It’s a licence to print money and the stock market would have usually rallied hard on such news. But these are not normal times. The markets instead fell on Thursday and Friday as the tech sector again dragged the rest of the market down. There’s still the thought in the markets that the tech sector rallied too hard and too fast since March and needs a pullback before it can start going up again.

Just how big that pullback needs to be is anyone’s guess. I suspect that the stimulus package which is still being argued over in congress is the key to another move forward. Trump is urging the Republicans to accept the Democrats deal of more stimulus. It’s an election year remember. However, the Republicans are holding their ground, and a deal still seems a fair way off. But I think they’ll cave before too long. They all want to be re-elected as well and a big payout to taxpayers would certainly help their cause.

The week ahead looks like a quiet one, although they never usually turn out that way. Earnings reports will come from the likes of Nike (NKE), Costco (COST), Autozone (AZO), and Aurora Cannabis (ACB). While Federal Reserve Chairman Jerome Powell and Treasury Secretary Steve Mnuchin will both testify before Congress. Elsewhere, Tesla (TSLA) will hold its annual Battery Day on Tuesday where it will announce new products, and CEO Elon Musk has proclaimed on Twitter that “It will be very insane”. Knowing Elon’s work I wouldn’t be surprised.

Have a great week.