09 Nov Capital 19 Catch-Up
Election Fever Sees Wall Street Bounce Back From Losses As Trump Digs His Heels In
Stocks bounced back from heavy losses in the previous week to set Wall Street alight in what had to be one of the most unusual Presidential election weeks in history. Last week Matt told us that the stock market had suffered its worst week leading into an election since 1932. Well, this week the stock market experienced its best election week since, well you guessed it, 1932. If that week, when Franklin Delano Roosevelt won the first of his four election wins, was more outrageous than this one, then it must have been an absolute banger.
This week had it all, and importantly for us, the stock market liked what it saw. For the two days leading into the election and the two that followed each of the major indices rose by well over 1%. It was the first time that has happened for four straight sessions for both the Dow and the S&P500 since 1982, a time when markets were recovering from a global recession.
As it currently stands, Joe Biden has been announced as the winner of the election and is therefore President-elect. Trump, in a move which has surprised no one, is claiming that he has won and that the results are fraudulent. However, it seems the writing is on the wall for the current President, and other than barricading himself in the oval office, he doesn’t seem to have much choice other than to pack up his desk and retire to the golf course. It will be interesting to see how he handles it from here, but either way, it will have minimal impact on the stock markets, assuming we don’t see any social unrest stemming from his glued on supporters.
What did matter for the markets was the quelling of the so-called blue wave that has so far failed to eventuate. For the democrats to have total control of congress they needed to take control of the Senate. With incoming Vice President Kamala Harris now controlling the tie-breaker vote, they needed to take three seats away from the Republicans. They have only managed the one thus far, and while two others in North Carolina and Alaska are yet to be called they are favoured to remain in Republican hands. This means it will all come down to the two seats in Georgia which look to be headed for runoff elections in January.
It is expected that half a billion dollars will be invested into these two races, as they will decide whether Democrats have full control of the government for the next four years. Wall Street will be looking for a Republican victory. A gridlocked government is good for stocks. Reversing Trump’s tax cuts will be off the table, and there will be less chance of stricter regulations on big business in areas such as finance and technology.
Not surprisingly, it was these two sectors who led the way last week. Facebook (FB), who has been the company most under the pump from congress rose an impressive 12% for the week. While Amazon (AMZN) and Apple (AAPL), who have both caught the ire of regulators in recent times both picked up 9.4% and 9.3% respectively. Microsoft (MSFT) performed even better with a 10.3% gain.
On the finance side, it was the investment banks Morgan Stanley (MS) and Goldman Sachs (GS), the breeding grounds for anyone who wants a Fed Reserve board seat, who rose to the occasion with gains of 6% and 6.2% respectively. Bank of America (BAC) and Citibank (C) both gained 3.6%, while Wells Fargo (WFC) made 3.4%.
The Biden victory was also a boon for renewables. The Trump administration had done away with the Paris climate agreement which plans to reduce greenhouse gas emissions, but the President-elect has committed to rejoin as soon as he is in office. The Invesco Solar ETF (TAN), which tracks the MAC Global Solar Energy Index, was up 7.5% for the week, while our recent stock report subject Brookfield Renewable Partners (BEP) made 7%. If you had jumped on board just a few weeks ago you would already have a healthy 10% profit on your investment.
Away from the election drama we also had some positive stock news. On the earnings front, we had Qualcomm (QCOM) report fourth-quarter earnings that smashed estimates on sales and profits, thanks to its careful positioning to profit from the rollout of 5G technology. The chipmaker gained 12.8% after the results were announced. General Motors (GM) also reported an earnings win as an increase in truck sales boosted profits. The automaker gained 5.4%. And in merger news, Walgreens Boots (WBA) has completed its agreement with Mckesson Corp (MCK) to create a joint venture for their pharmaceutical wholesale businesses in Germany. Both had stellar weeks with Mckesson gaining 15% over the five sessions, and Walgreens picking up 8.27%.
On the data front, the ISM manufacturing index hit an almost two year high in October of 59.3, and manufacturing employment expanded for the first time since July 2019. The nonfarm payrolls were also a surprise to the upside as 638,000 jobs were added in October, and unemployment dropped from 7.9% to 6.9%. It was a nice boost in an otherwise chaotic week and only tempered by the rising cases of coronavirus that are increasing across the US and Europe.
In the week ahead we will be keeping an eye on any litigation coming out of the Trump camp in regards to the election. We’ll also be closely watching the continuing rise of coronavirus cases in the US and abroad. On Saturday the US experienced their highest number of recorded new cases in the one day with 126,742, which was also the fourth day in the week that numbers had exceeded 100,00. It also pushed the country over the 10 million confirmed cases mark. 19 states also reported a record-high number of hospitalisations.
Earnings wise we’ll be seeing results from Walt Disney (DIS), McDonald’s (MCD), Beyond Meat (BYND), Lyft (LYFT), and Cisco (CSCO). Alibaba (BABA) will be holding its annual singles day event, which is the Chinese equivalent of Black Friday but on steroids. And Apple will be holding yet another event where rumours suggest it will be introducing a new line of Apple Silicon Macs.
Have a great week everybody.