19 Oct Capital 19 Catch-Up
Earnings Keep Markets Positive As Coronavirus and Stimulus Failures Have Wall Street on Edge
Despite a strong start to the week the major indices experienced mild mid-week losses, which saw them just manage to cling onto weekly gains. The Dow and the S&P 500 eked out gains of 0.1% and 0.2% respectively and increased their positive weekly run to three, while the Nasdaq fared a little better, rising 0.8%, and locking in its own four-week winning streak.
While earnings season kicked off and kept positivity high, concerns over rising coronavirus cases in the US, the UK, and Europe, coupled with continuing doubts that a stimulus bill won’t be passed before the election, kept any move higher in check. A late boost from the retail sales report that came out on Friday with a reported a 1.9% gain in September helped save markets from losses.
In positive news, Wall St seems less uncertain about the impending election results as Joe Biden looks to lock in a winning margin over current sitting President Trump. There’s nothing the market hates more than uncertainty, and the worst result for markets on November 3 would be a close election result. The Biden/Haris bill has a strong poll lead over Trump/Pence with three weeks to go, currently around 9.2% point, but as we found out four years ago (and pretty much every election around the globe since) the polls don’t always get it right.
The margin this time, however, is becoming insurmountable according to those in the know, with Deutsche Bank strategist Jim Reid stating that on current numbers a Trump win would be the “biggest error” in the modern era of mass polling. However, three weeks is a long time in politics and anything could happen in between now and then. I doubt 2020 is finished with us just yet. And this is American politics we are talking about here.
Earnings season has started out well and will be an important boost for Wall Street if expectations continue as predicted. JP Morgan (JPM) and Citibank (C) both beat comfortably to lead the week out, and they were joined by Dow component Johnson & Johnson (JNJ) who also raised its full-year guidance. Investment manager Blackrock (BLK) rose 3.9% after its results showed it had increased funds under management from $7.32 trillion to $7.81 trillion, while the long-suffering Delta Airlines (DAL) missed the mark, with revenue falling by 75% and the share price dropping 2.7%.
Later in the week we also saw earnings wins from Goldman Sachs (GS), and United Health (UNH) on the Wednesday, as well as Morgan Stanley (MS) and Walgreens (WBA) on the Thursday. The news wasn’t as good for leading banks the Bank of America (BAC) and Wells Fargo (WFC) who missed expectations and blamed the current low interest rate environment for their woes. Walgreens was the standout though, as sales at its chain of pharmacies increased, and guidance showed that increased profits were expected through 2021. WBA jumped by 4.8% after the results were announced.
In other stock news, we had Apple release its first 5G iPhone, the iPhone 12. Interestingly, after a 6% jump on the Monday the share price fell throughout the week to finish flat. Historically, for the six months after Apple releases a new iPhone, the share price beats the overall market by an average of 13%. We also saw a 3.2% jump in Disney (DIS) on Tuesday as the house of mouse announced they were reorganising the company structure with its streaming business to sit at the forefront. Competitor Netflix (NFLX) reports this week and they have been on a wild ride higher so far in 2020. The market will be expecting impressive results to keep them there.
Elsewhere we saw Pfizer (PFE) close out the week with a jump of 3.88% as it applied for emergency use of its coronavirus drug it wants to release in November if safety milestones are hit. Disappointingly, two other drug studies were halted during the week as offerings from Eli Lily (LLY) and Johnson & Johnson both had to be stopped over safety concerns. They weren’t kidding when they said drug testing is a hit and miss business.
The two major political parties don’t seem to be any closer to coming to a stimulus agreement. Treasury Secretary Steve Mnuchin said on Wednesday that both sides were a long way apart from where they need to be. And over the weekend House Speaker Nancy Pelosi has given a 48-hour deadline for the Republicans to make an agreement otherwise there will be no deal until after the election. The clock is now ticking.
In the week ahead markets will be keeping a close eye on the rising numbers of coronavirus cases across the globe. In the US John Hopkins University says that infections are rising in 39 states, and the rate of daily new cases are at its highest levels since August. Over in Europe, governments are looking at reintroducing pandemic restrictions, with France, in particular, entering a public health state of emergency. Cases are also heading higher in the UK with the government there strongly considering going into a second stage of shutdowns.
The second week of earnings will also kick off with plenty of big names announcing their numbers. Headliners include Netflix and Tesla (TSLA), IBM (IBM), Procter & Gamble (PG), Chipotle (CMG), Verizon (VZ), Coke (KO), and rival airlines American (AAL) and Southwest (LUV). American Express (AXP) is also expected to report on Friday with analysts expecting earnings to decline by 32% year on year, and revenue to be down by 20%. Anything better than this will see a nice little price jump.
On the data front, we’ll see housing starts and building permits early in the week to give us an insight into the current state of the US housing market. While later in the week we’ll get to see the latest weekly jobless numbers which seem to be stalling around the 800k-900k number recently, as well as figures for existing home sales and the Markit manufacturing and services PMI numbers.
Have a great week.