11 Jan Capital 19 Catch-Up

Protestors Invade The Capital, Democrats Seize Full Control of The Federal Government, And the Major Indices Close Out The Week At All-Time Highs

So many crazy things have happened in the US over the last four years that Wall Street is becoming immune to any type of shocks. Take this week for example. We had angry and misguided Trump supporters storming past apathetic security to invade the Capital buildings. The Democrats winning both runoff elections in Georgia to take control of the Senate, to add to their hold on the House of Reps and the White House (single-party rule in the US government has only occurred six times since 1980 and is generally considered an anchor on the stock market). And the non-farm payrolls came out showing the US lost 140,000 jobs in December when economists were expecting them to add 50,000.

On top of all of that, nearly 4,000 Americans are dying every day from the coronavirus, and the UK has gone into a national lockdown. Yet all of the major indices closed out the week at record highs – and for good reason. Analysts correctly dismissed the “protests” as nothing more than a bit of drama and something that would have little to no effect on the markets. While the economic data showed a mix of results, but there was enough positivity to suggest that better times lay ahead. How could there not be?

The Dow was up 1% for the week and cleared the 31,000 mark for the first time. The S&P500 jumped above the 3,800 mark for the first time as it also made 1% for the week. While the Nasdaq, despite a terrible start to the week, fought back strongly to move past the 13,000 mark for the first time as it gained 1.4% over the five sessions. On Friday it was record closes all around.

Stocks can do no wrong at present. And there’s a reason for this of course. We’ve come through one of the bleakest years in history and there’s light at the end of the tunnel. Vaccines are being distributed and administered, which means economic shutdowns will soon be a thing of the past. And while the Democrats having full control of the Federal Government would normally be a concern for stock markets, it is a different story when you have an economy crying out for further stimulus following on from an economic crisis. Biden has already talked of a covid-19 stimulus package that will be in “the trillions of dollars”. Interest rates are low, the US dollar is cheap, and globalism is back on the US agenda.

The financial sector was the main beneficiary of the Democratic victories. All of the major banks had a massive week with Wells Fargo (WFC) up by more than 10%, JP Morgan (JPM) by 8%, and Bank of America (BAC) and Citibank (C) up by more than 6%. Three of these four will be reporting Q4 earnings at the end of this week and will be closely watched by economic pundits.

Renewables were also big winners, as a Democratic-led government is expected to make positive changes to climate change policy. The Invesco Solar ETF (TAN) was up more than 10% for the week, while our own picks in the industry, Renewable Energy Group (REGI) and Brookfield Renewable (BEP), were up 17% and 11% respectively. REGI is now up more than 280% since we recommended it back in June. Tesla (TSLA) retraced lost ground with a massive 18% jump, while Cannabis stocks also benefitted from the win with Canopy Growth (WEED) gaining 18%, and Tilray (TLRY) rising 30%.

Usually, when the renewables have a good week you’ll also find that oil will have a bad one, but not this week. On Tuesday US Crude jumped more than 5% to trade above $50 a barrel for the first time since February. The move higher was instigated by a drop in US Crude stockpiles, which fell by 8 million barrels, and Saudi Arabia announcing that they would voluntarily cut their own production by 1 million barrels per day in February and March. Dow component Chevron (CVX) closed out the week up 7%, while fellow oil baron Exxon Mobil (XOM) made 9%.

Walgreens Boots Alliance (WBA) was another that had an impressive week after it announced impressive earnings ahead of the official start of the season this week. The pharmacy giant reported a smaller loss than expected, and an increase in revenue, as pharmacy sales of prescriptions and flu shots rose despite lighter foot traffic through its retail outlets in the US and the UK.

There were still earnings concerns going forward, especially considering the UK is now in lockdown, but Walgreens expects to manage any future lockdowns thanks to the changes made in 2020. CFO James Kehoe advised they have added more healthcare services and expanded digital offerings through its new mobile app, while also offering curbside pickups within 30 minutes of an online order. WBA was up more than 13% for the week.

The official start of earnings season will begin this week as the big banks report on the final quarter of 2020. Before the financials, however, we’ll see Delta Airlines (DAL) kickoff earnings for the airline sector on Thursday, and we’ll get to see just how badly the industry has been suffering during the recent surge in US coronavirus cases. Delta will be followed by reports from Citibank, JP Morgan, PNC, and Wells Fargo on Friday. Other companies announcing earnings during the week will include KB Home (KBH), BlackRock (BLK), Charles Schwab (SCHW), and Taiwan Semiconductors (TSM).

The economic data for the week will focus on the Consumer Price index on Wednesday, followed by the retail sales figures for December on Friday which will, of course, include the Christmas sales. It will also be an interesting week for the social media stocks such as Facebook (FB), Twitter (TWTR) and Google (GOGL), who are coming under pressure from both sides of the political spectrum as they clamp down on the current President’s social media accounts for inciting violence. Are they going too far? Are they not going far enough? Will they lose users or will usage increase? Time will tell.

Have a great week.