25 Jan Capital 19 Catch-Up

Big Tech Leads Majors Higher As Inauguration of Joe Biden Goes Off Without a Hitch

Last week stocks continued their march higher in what was a shortened week due to the Martin Luther King Jnr Public holiday on Monday. The move was led by big-tech as Netflix (NFLX) outperformed analyst expectations and dragged most of the Nasdaq up with it. Earnings were at the forefront, as was the nervous anticipation of the Biden inauguration, with all of the major indices closing at all-time highs at different stages throughout the week.

The Nasdaq finished out Friday at a record high of 13,543.06, also hitting an intraday high during the session. It closed out the four-session week with a 4.2% gain, while the S&P500 also impressed with a 1.9% rise. The Dow’s performance wasn’t quite as strong but it still managed to make 0.6% for the week, finishing just below the 31,000 mark.

With talk of more protests, riots and coups going about in Washington DC during the week, Wall Street was hoping for a seamless transition into the Presidency of Joe Biden. And that was exactly what it got. The goons that invaded the Capitol last week were either in prison, on no-fly lists, or hiding out from the FBI in their mother’s basements, and posed no problems on inauguration day. Biden officially became the 46th President of the United States on Wednesday, ending four years of (let’s put it as politely as we can) somewhat erratic behaviour coming out of the White House.

In the two months between election day and Wednesday, the stock market has shaken off the political chaos with ease. In the 11 weeks between November 3, 2020, and January 20, 2021, the S&P500 has gained 14.3%, making it the largest post-election gain in stock market history. The previous record being held by incoming President Herbert Hoover way back in 1928. In the Wednesday session, the Dow and the S&P500 notched up their biggest inauguration day gains since 1985, while the Nasdaq’s 2% gain was its best ever.

Investors are now focussed on the massive Covid-19 relief bill being touted by Biden and the majority of Democrats. The $1.9 trillion stimulus package will provide additional $1400 cheques to all, additional unemployment benefits, as well as state and local government aid. Former Fed Chair and Biden’s nominee for Treasury Secretary, Janet Yellen, appearing before the Senate Finance Committee this week stated, “Neither the president-elect nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big, I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time.” More free money is on its way and the stock market is rightly excited.

There is also strong hopes that a vaccination rollout under a Biden Presidency will be more successful than the shambles we have seen so far. The goal of vaccinating 20 million people by the end of 2020 fell well short, and while 31.1 million doses have been made and delivered only 12.3 million have been administered. Biden’s plan, which was enacted on day one of his Presidency, will play a crucial role in getting the economy back on track and increase confidence on Wall Street.

Netflix helped boost market confidence for the week as it ripped past earnings expectations on the top and bottom line as well as subscriber growth. The streaming service now has more than 200 million paid viewers, finishing the quarter at 203.7 million, with Europe, the Middle East and Africa set to become its biggest market in the next year. But the biggest news for investors was the expectation for Netflix to breakeven on cash flow this year, well ahead of its previous 2023 schedule. The fact that it will no longer need to go into further debt to produce content is a massive win. A self-funded production schedule is crucial given the company’s huge valuation.

The optimism around Netflix helped boost the other big technology names who flew upwards in the streamers tailwind. Apple made a juicy 9.4% for the week with a leading analyst expecting a blowout earnings result next week due to 5G adoption, work/learn from home sales, and “sustained” app store engagement. Facebook (FB) rose by 9.2%, and Microsoft (MSFT) gained 6.3%, with both expecting to smash imminent earnings reports as stay at home stocks continue to benefit from lockdowns.

The big financial companies had a rougher time of it despite mostly impressing on the earnings front. Goldman Sachs (GS) started the week with a massive beat on the top and bottom lines, with revenue of $11.74 billion easily beating the $1.75 billion expected, and earnings of $12.08 per share when analysts expected $7.47. The stock still fell 2.3% regardless. Rival Morgan Stanley (MS) also beat estimates on both profit and revenue and also fell 0.2%. While Bank Of America (BAC) beat profit estimates but fell short on revenue and lost 0.7%.

United Airlines (UAL) suffered its fourth losing quarter in a row as it continued to be plagued by global shutdowns. It lost a further $1.9 billion in the fourth quarter to bring its 2021 loss to $7.07 billion, its largest since 2005. The airline is burning through up to $33 million in cash a day, around 4% million less than the previous quarter. There is no industry more desperate for a successful vaccine rollout than the airlines. Once the planes get back in the air I expect big things from the share prices of all of them. It’s not too late to get long at discount prices right now.

In the week ahead all eyes will be focussed on some of the biggest names on Wall Street. Johnson & Johnson (JNJ), General Electric (GE), American Express (AXP), Microsoft (MSFT), Facebook (FB), Apple (AAPL), Boeing (BA), McDonald’s (MCD), Mastercard (MA) and Visa (V) will all be reporting. Tesla (TSLA) will also be announcing their numbers with EV watchers looking for 825,000 to 875,000 new car deliveries. With a valuation as high as Tesla’s a miss could be a torpedo for the share price.

The FOMC will meet this week to discuss the economy and all things interest rates which will undoubtedly stay at record lows. While Johnson and Johnson will be hoping to receive positive data for its single-shot vaccine which could halve vaccination times. It could also be a big week for sports betting, including our own tip DraftKings (DKNG) with Michigan set to launch on Friday and other states such as Texas, and New York set to possibly announce their own green lights on the industry in the next week or so.

Have a great week.