23 Nov Capital 19 Catch-Up

Vaccine Success Raises Hope as Infections Rise and Retail Earnings Take Centre Stage

Wall Street continued to weigh up conflicting coronavirus news last week as positive vaccine reports battled against rising infections and state shutdowns. Sentiment swayed between the beaten-down pandemic affected stocks and the high flying technology sector, while earnings results from the retail sector kept investors on their toes.

The Dow and the S&P500 ended three-week winning streaks as both fell back from strong early starts to finish lower for the week. The headlining Dow index was down 0.7% over the five sessions, while the benchmark S&P500 lost 0.8%. The Nasdaq, however, managed to eke out a tiny gain of 0.3%.

Investors are in a tough position at the moment. From all reports, we know salvation is coming with more positive vaccine news during the week. However, cases of infection are now out of control, with the rolling seven-day average hitting 163,000 by the end of the week and states having to close down schools and roll back on reopening plans for their respective economies. The race is on to get everybody immunised before any more damage is done.

Moderna (MRNA) came out early in the week and told markets their vaccine was coming in at a 94% efficacy rate. Its share price jumped 9.5% and dragged the banks, airlines, and cruise lines up with it. Pfizer (PFE) also confirmed its final results came in at 95% efficacy, which was even better than the initial numbers. There was also positive news out of the UK where pharmaceutical giant AstraZeneca (AZN) and the University of Oxford announced their early trials had also been successful in immunising people of all ages.

On the flip side, we had JPMorgan predicting that US GDP in the first quarter would fall by 1%. A statement from their stable of economists stated “this winter will be grim, and we believe the economy will contract again in 1Q. One thing that is unlikely to change between 2020 and 2021 is that the virus will continue to dominate the economic outlook. … Case counts in the latest wave are easily surpassing the March and July waves.”

The announcement came on the same day as Pfizer and Moderna both requested “emergency use authorization” for their respective vaccines with hopes the first vaccinations could occur by the 11th of December. So while we may be in for some short term pain the future is looking a lot brighter. If we do experience any market dips leading into the new year, or even early in the first quarter, we now know that it will be brief and you can confidently pick up new stocks at a discount.

We also may see an unwinding of the “stay at home” trade, so make sure you take the time to adjust your portfolios accordingly. Take a look at our stock reports section on our website and you’ll be able to find lots of examples of stocks that have been beaten down over the last nine months but have a lot of potential to rise again. You can check them all out here: https://capital19.com/category/stock-report/

Amazon (AMZN) threw a cat amongst the pigeons in the pharmacy sector during the week as it announced its entrance into the online pharmacy market. US customers will now be able to order prescription drugs and have them delivered to their homes via the Amazon Prime network. It’s just the latest sector that Amazon is planning to invade over the next decade. Competitors CVS Health (CVS) and Walgreens Boots (WBA) dropped 8.6% and 9.6% respectively.

Boeing (BA) also had some positive news as the FAA lifted flight restrictions on its embattled 737 Max aircraft. But after winning over the regulators it will now have to win over the people who will be reluctant to fly on a plane that crashed twice and killed a total of 346 people. American Airlines (AAL) plans to bring their Max’s back in December, while United (UAL), Alaska (ALK), and Southwest (LUV) will do further testing and start again in early 2020. The Boeing share price jumped 4% on the news but ended lower by 3% at session close. It was still up 1.8% for the week.

On the earnings front, we had Home Depot (HD) and Walmart (WMT) start the week with both profit and revenue beats however both finished lower for the day. Target (TGT) gained 2% after it beat estimates and showed a big improvement in digital sales, while home improvement retailer Lowes (LOW) lost 8% after not doing as well as expected and missing estimates on guidance.

Catch Up favourite Nvidia (NVDA) reported record revenue that increased by 57% year on year, and also comfortably beat estimates on profit. Revenue hit $4.73 billion versus the $4.41 billion expected while earnings per share were at $2.91 compared to analyst expectations of $2.57. The share price stayed virtually flat however as the chipmaker stated that its data segment sector would decline in the current quarter.

Tesla (TSLA) also got another boost during the week as it was finally added to the S&P500 index. A company needs to be profitable for at least 12 months before it can be considered for the benchmark index, and while this occurred for Tesla back in September it was initially rejected by the committee that oversees the index. It’s big business for a company who is added to the S&P500 as the index itself has $11 trillion benchmarked to it. That means tens of billions of dollars of TSLA stock that needs to be purchased.

Tesla was up 20.15% for the week and is up an outrageous 421% for the year to date. With a PE ratio of 936.16, there’s a lot of goodwill priced into this stock. And with many recent announcements from countries planning to move to EV vehicles entirely by 2035, including the UK, there’s going to be plenty of competition coming from the more established car makers that Tesla will have to fight off. I’ve been a big fan of Tesla over the years but these valuations are just too lofty for me.

The week ahead will be a shortened one for the markets as Wall Street pauses for the Thanksgiving holiday on Thursday and only comes back for half a session on the Friday. Earnings will continue to have a retail bent, with Urban Outfitters (URBN), Best Buy (BBY), Gap (GPS), Dick’s Sporting Goods (DKS), Deere (DE) and Abercrombie & Fitch (ANF) all reporting. With many places in lockdown, the Black Friday-Cyber Monday sales that coincide with Thanksgiving will have an online bent that will no doubt advantage the likes of Amazon as well as courier companies such as FedEx (FDX) and UPS (UPS).

Have a great week everybody.