12 Oct Capital 19 Catch-Up
The Stimulus Fight Continues As The Big Banks Kick Off The Offical Start To Earnings Season
Last week on Wall Street was all about the long-awaited stimulus package. Was it finally about to happen? Could the two sides finally come to some sort of an agreement? Would we get a smaller deal as an entree before the main deal to come later in the year? Stock prices ebbed and flowed throughout the week depending on the latest negotiation updates, and even though we ended up with sweet nothing by the end of the week the major indices still had their best weekly performances since July.
The Nasdaq led the way with a 4.6% gain, adding to its losing streak snapping 1.5% gain from last week. The benchmark S&P500 finished in second place with a 3.8% gain. While the headlining Dow added to its 1.9% gain last week with another 3.3% move higher over the five sessions.
Market swings were the order of the day earlier in the week as a hopped-up President Trump, possibly still woozy from his COVID stint at Walter Reed over the weekend, went on another of his tweeting rampages which turned positive one moment and negative the next. Mondays market was flying with optimism, while Tuesday markets were sent scrambling with Trump tweeting “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business”. Gotta admire that confidence.
House Speaker and Democrat Nancy Pelosi didn’t hold back with her thoughts on the cancelled negotiations. She stated that “walking away from coronavirus talks demonstrates that President Trump is unwilling to crush the virus, as is required by the Heroes Act. He shows his contempt for science, his disdain for our heroes – in health care, first responders, sanitation, transportation, food workers, teachers, teachers, teachers and others – and he refuses to put money in workers’ pockets, unless his name is printed on the check”. I’m getting the impression she isn’t a big fan of the President.
Federal Reserve Chairperson Jerome Powell decided it was time to throw his two cents into the ring and impress on all involved the importance of keeping the economy moving. He declared “even if policy actions ultimately prove to be greater than needed, they will not go to waste. The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.” No doubt those thoughts were supported by every single worker on Wall Street and those of us with a US share portfolio.
By Wednesday Trump was angling for a smaller bill that would solve some but not all of the issues while we waited for the “proper” bill to pass. He tweeted “The House & Senate should IMMEDIATELY Approve 25 Billion Dollars for Airline Payroll Support, & 135 Billion Dollars for Paycheck Protection Program for Small Business”. The airlines loved that one, with United Airlines (UAL) jumping 4%, and Delta Airlines (DAL) gaining 3.5%. The President also requested another round of $1200 stimulus checks to go out as quickly as possible. The man is trying to win an election in just a few weeks remember.
But the Democrats were having none of it. They know that if they pass a smaller bill they instantly lose their negotiating power to get the larger bill across. It paints them into a difficult corner though. By not passing the smaller bill they can be accused of withholding help to the population in their time of need. Perhaps the Republicans are holding back so they can continue making them sweat. By the end of the week, Mitch McConnell was quoted as saying he didn’t think a deal would be done until after the election. I tend to agree. There’s just too much at stake over the next few weeks leading into the election and no one wants to give an inch. We’ll just have to wait and see.
With the main earnings season set to kick off this week, there wasn’t a lot of individual stock news to keep us going. Although IBM (IBM) had a big one as it announced it would be selling off its IT infrastructure business into a new company, which at the moment has been titled simply “NewCo”. The move will help separate IBM’s cloud and artificial intelligence services, which it intends to focus on going forward, from its older lines of revenue. IBM jumped 9% on the news before settling slightly lower to finish the week with a 4.3% gain.
The week wasn’t as impressive for Pizza maker Domino’s (DPZ). Despite increasing revenue by 17.9% in the third quarter, rising costs impacted on profits with earnings per share coming in at $2.49 when analysts were expecting a healthier $2.79. While the pandemic has been great for home-delivered pizza sales, some stores are closed to “eat in” diners while costs have risen by $11 million due to higher wages being paid to frontline workers, the cost of personal protective equipment, and enhanced sick pay. Domino’s lost more than 9% for the week.
It was a better week for drugmaker Eli Lily who gained 7.7% for the week as the company received positive findings for its new coronavirus fighting drug LY-CoV555 (it might need a sexier name when it comes to market). Eli is seeking emergency authorization from the US Food and Drug Administration for the drug which it says reduces the rate of hospitalisations for coronavirus patients when combined with its stablemate drug LY-CoV016, importantly with no serious adverse effects.
There are now more than 150 coronavirus vaccines in development globally. The US governments “Warp Speed” initiative has invested $10 billion to develop a vaccine by the start of 2021, and the World Health Organisation aims to deliver a vaccine with two billion doses by the end of 2021. The average time to market for such drugs is usually around 10 to 15 years, with the record fastest so far being 4 years for the mumps vaccine back in the 1960s. It’s great to see the world coming together to fight for a common cause. It only took a global pandemic.
The week ahead will see earnings season have its official kickoff with all of the big banks getting a start in the run-on side. The second quarter saw company profits down 31% year on year, which was better than expected and resulted in a powerful quarter for stocks. The forecast for the third quarter is for losses of 21% year on year. Anything better will hopefully see another strong run into end the year.
JP Morgan (JPM) and Citibank (C) will start the ball rolling on Monday and will be followed by Wells Fargo (EFC) and Bank of America (BAC) on Wednesday. Fellow financial bigwigs Goldman Sachs (GS) and Morgan Stanley (MS) will report on Tuesday and Wednesday respectively, while we’ll also see results from the beleaguered airlines United (UAL) and Delta (DAL), Johnson & Johnson (JNJ), UnitedHealth (UNH), Walgreens (WBA), and Bank of New York (BNY).
Other notable events include the Apple event labelled “Hi, Speed” which will introduce 5G technology to the iPhone for the first time, and may also include an update on the HomePod Mini, and AirPod over-ear headphones. Zoom Video (ZM) will also be hosting an event entitled “Zoomtopia” where it will be discussing everything video conference-related and is unsurprisingly being held virtually this year. If any conference was prepared to go virtual it was this one. It is also Amazon Prime day on October 13-14 where the e-commerce behemoth offers sales and discounts across its various sales portals. The event brought in $6.2 billion in sales last year, with this year forecasted to capture up to $9.9 billion globally.
Today is the Columbus Day holiday in the US, however, all stock markets will be open except for the bond market which will reopen on Tuesday. And remember, after our daylight savings kicked in for many of us last week the US markets have been pushed back an hour as our clocks changed. These times will change again for all of us on November 1 when the US changes their clocks back to standard time, and opening and closing hours will be pushed back another hour.
Have a great week.