16 Nov Capital 19 Catch-Up
Coronavirus Vaccine News Dominates Headlines As Travel and Hospitality Stocks Rise And Technology Takes A Back Seat
Coronavirus headlines, both good and bad, ruled the direction of the market again last week. Growth stocks fought it out with cyclical stocks, travel and hospitality stocks duked it out with technology stocks, and the small-caps made a decent-sized comeback against its larger counterparts.
It all started with the announcement on Monday that Pfizer’s latest vaccine had a 90% efficacy rate against COVID-19 in early trials, with no apparent safety concerns. That’s a fantastic response rate if the final results remain at that level. The flu vaccine, for example, is around 40-60% effective but still saves millions of lives every year. It would be more in line with the measles vaccine which is considered to be 93% effective and has been all but eliminated in most countries.
Not underselling his company’s achievement, Pfizer CEO Albert Bourla called it a “great day for science and humanity” and the ” most significant medical advance in the last 100 years”. There’s still reason for caution while the trials continue, however it is very promising. The vaccine comes in two doses and protection from the virus is achieved 28 days after the initial dose. The doses also need to be kept at temperatures below 94 degrees Fahrenheit to remain effective, which may cause some logistical issues, but it is hoped if the vaccine is passed for use we may see vaccinations begin for the vulnerable as early as this year.
All of the vaccine excitement came at just the right time with coronavirus cases take off across the US. By the end of the week, there had been 9 straight days of 100,000 plus cases, with the Wednesday and Thursday numbers coming in at records of 144,000 and1 50,000 respectively. Hospitalisations were also increasing across 46 states. I suspect it would have been a tough week for Wall Street if the Pfizer news hadn’t come through.
The news of the potential vaccine saw a momentum shift in what stocks traders were looking to buy. Technology stocks were out the window, replaced by those that have been most hurt by covid such as travel, restaurants and hospitality. Carnival Cruise lines jumped 39.3% in the Monday session, Southwest Airlines (LUV) was up 9.7%, while Walt Disney (DIS) who has had its chain of theme parks shut down, rose 11.9%.
The banks were also charging higher with Bank of America (BAC) gaining 14.2%, JPMorgan (JPM) 13.5% and Citibank (C) 11.5%. It was tougher for those that have benefitted from the shutdowns. Zoom (ZOOM) who has been perhaps the most rewarded example over the last six months lost 17.4% on Monday and another 9% on Tuesday. Peloton (PTON), another covid star, lost around 19% for the week, while streaming service Netflix (NFLX) fell by more than 6%.
The “stay at home stocks” are quickly falling out of favour, and while we are not out of the woods yet it was an interesting insight into what will happen to these types of stocks once the pandemic is gone. We have made a lot of money with the pandemic portfolio over the last six months but it certainly wouldn’t hurt to take some money off of the table and lock in some profits if you are currently holding them.
The Dow starred for the week, making 4.1% as the blue-chip stocks ruled. The S&P500 fared almost as well but was held back by the technology sector, gaining 2.16% over the five sessions. Not surprisingly, considering the tough week tech stocks had, the Nasdaq lost ground for the week, falling by 0.6%.
On the earnings front, we had the “House of Mouse” report positive numbers that beat expectations on Thursday. Disney reported it had more than 73 million paid subscribers to its Disney + streaming channel by the end of their fourth fiscal quarter, and losses from its closed Disney Parks were smaller than expected. The share price rose by a little over 2% in the Friday session, with gains hampered by a cancellation of the semi-annual January dividend.
McDonald’s (MCD) impressed with its own earnings beat on Monday, as profit and revenue beat expectations on the back of a successful return from shutdowns and the popularity of its “spicy nuggets” promotion. Global same-store sales were down by 2.2% but domestic US stores stayed strong, with sales rising by 4.6%. Its recovery looks to be outpacing rival Burger King but has been eclipsed by Wendy’s (WEN) who have introduced a popular breakfast range in 2020 and have been stealing some of the Big M’s market share. Maccas will increase its quarterly dividend by 3% to $1.29 per share.
Rideshare service Lyft (LYFT) was another earnings winner, jumping 26% after announcing earnings which showed a smaller loss than expected and revenue and ridership that had significantly increased from a year ago. The news wasn’t as good for purveyors of faux meat, Beyond Meat (BYND), who have struggled with restaurant shutdowns and missed on both revenue and profit expectations. The share price fell more than 29% on the news, however, the stock is still up by 48% in 2020.
In the week ahead we’ll be looking closely at the ever-increasing case of covid numbers in the US. As of this morning, they have seen another 1 million cases in just the last 6 days. Hopefully, positive vaccine news will quell any concern in this area. We’ll also be watching out for any instances of civil unrest stemming from the outgoing President refusing to concede defeat in the recent election. The markets don’t seem to be too concerned at the moment but any escalations might make Wall Street a little jittery.
Earnings will mostly focus on the retail sector and how they have fared with the latest shutdowns. It will be an important insight into who has their online game in order. We’ll see results from Home Depot (HD), Walmart (WMT), Lowe’s (LOW), Target (TGT), Macy’s (M), and Footlocker (FL). We’ll also see chip maker and Catch Up favourite Nvidia (NVDA) report earnings on Thursday.
Have a great week everyone.