25 Oct Capital 19 Catch-Up
Stimulus Talks Fizzle Out As Predictions of a Blue Sweep Rise For Election Day
The major indices struggled to gain traction throughout last week as stimulus negotiations continued without a result and Biden and Trump faced off in the final Presidential debate. The tech sector, in particular, had a tough time breaking the Nasdaq’s four-week winning streak with a 1.1% loss over the five sessions. The Dow lost 0.95% for the week, while the S&P500 finished 0.5% lower.
As the final debate between the two Presidential candidates came and went without any big surprises Wall Street increased the odds of a blue sweep election result. This would mean the Democrats would have control of the White House, hold onto the House of Reps, and take the Senate as well. Such a result has the potential to disrupt markets, with the Democrats having little opposition to implementing their full suite of policies.
In a general sense, the stock markets would prefer to have a different party control each chamber of government, thereby providing checks and balances to any introduced policies. A government wholly controlled by the Democrats could result in higher taxes for corporations and for wealthier individuals, and an increase in regulations – especially for the tech sector. The tech sector was down 2% over the last week.
At the moment the forecasters are predicting a 70% chance of a blue sweep. The Chances of Biden winning the White House are around 80-90% according to polls. However, there’s still more than a week to go and anything could happen in between now and then. Sectors which are expected to do well from a Biden victory include construction, health providers, renewable energy, and biotech, while those expected to do well out of a Trump victory include mining, aerospace, autos, tobacco, and the financials.
Nancy Pelosi’s stimulus deadline came and went without a result and it now looks like any hopes for a new round of funding will be dealt with after the election. Markets swung up and down on any rumours and news surrounding the negotiations all week, but in the end, the two parties failed to come to an agreement yet again. Luckily the economy is yet to show signs of heading backwards after the previous stimulus shut off in late July. The weekly jobless claims came in below 800,000 this week for only the second time since March, and recent retail figures have been surprisingly higher than expected.
Earnings continued to beat market expectations for the most part with Snap (SNAP) being the standout result of the week. The parent company of social media app Snapchat increased revenue by 52% year on year to $679 million when the market was expecting $550 million. Importantly, the sites daily active users jumped 18% to 249 million and the number of photo or video messages sent increased by 25%.
With these great numbers comes an increase in advertising dollars. Advertising companies want their ads to be seen by the most amount of consumers as possible. The Snap share price jumped an impressive 28.3% on the news, and all of the social media stocks rose higher on the back of it as well. Facebook (FB) rose by 4.2% and Twitter (TWTR) by 8.4%, while Google parent company Alphabet (GOOGL) gained 2.3%. A Deutsche Bank analyst called the result a “bonanza for online advertising”.
Dow component Travelers Co (TRV) was also an earnings winner. The insurance leader brought in $3.12 per share profit where the market was looking at $3.03 per share, and revenue jumped from $8.013 billion to $8.275 billion year on year when analysts were expecting $7.595 billion. The result came despite catastrophe losses that were well above the 10 year average for the third quarter. These losses stemmed from windstorms in the midwest, tropical storm Isais, Hurricane laura, and the Californian wildfires.
Tesla (TSLA) recorded its fifth quarter of consecutive profits after the close on Wednesday. The electric car maker and renewable energy company announced earnings per share of 76 cents (57 cents expected) and revenue of $8.77billion ($8.36 billion expected). Operating expenses jumped by 33% as they set about building new factories in Texas and Germany, while auto-deliveries increased to a new quarterly record of 139,300 vehicles. The share price gained only 0.8% in the next days trading but the stock is still up 348% for the year.
Other earnings winners for the week including Coke (KO), who increased profit more than expected. The beverage giant is now up more than 10% since we sent out a stock report on the 9th of July and we think there is room for a much higher move in the long term. Freight transporter CSX Corp (CSX) and telecommunications provider AT&T (T) also beat expectations and rose after announcing their results.
Earnings weren’t as impressive for chipmaker Intel (INTC). Profit was in line with expectations but revenue fell thanks to a tough quarter for its data centre business. The share price fell 10.6% after the announcement. Streaming leader Netflix (NFLX) also dropped after announcing growth was beginning to slow after a pandemic uptick earlier in the year. Revenue exceeded expectations but profit per share was down and new subscribers came in at 2.2 million when the market wanted to see 3.57 million. Despite a 6% fall after announcing the share price is still up 47% for 2020.
The week ahead will see the big names of the tech sector announce their numbers. Apple (AAPL), Facebook (FB), Amazon (AMZN) and Alphabet (GOOGL) will all report while we’ll also see results from Microsoft (MSFT), Pfizer (PFE), Mastercard (MA), Boeing (BA), Ford (F), Visa (V), eBay (EBAY), Twitter (TWTR), Yum Brands (YUM), Starbucks (SBUX), Exxon Mobil (XOM), and Chevron (CVX). What a week!
Data wise we’ll see new home sales, durable goods orders, consumer sentiment, and an all-important GDP number for the third quarter. A record 33% bounce in GDP is expected, following on from the 31.4% fall in the previous quarter. The Fed forecast for 2020 is still expected to be a fall of 3.7% which would mark the biggest GDP decline since World War 2. Elsewhere Facebook’s Mark Zuckerberg, Twitter’s Jack Dorsey, and Google’s Sundar Pichai will appear before Congress to cop another grilling on the safety of the internet and their policies on dealing with “obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable” material.
Have a great week.