Capital 19 Catch-Up

Wall Street Bounces Back From Losing Week With Five Straight Wins As Amazon and Alphabet Impress With Earnings

The major indices recovered from last weeks heavy sell-offs to register five straight consecutive gains this week, as the S&P500 and the Nasdaq also finished at all-time closing highs. The Reddit dramas of last week seemed to abate for the most part, as investors focussed on some impressive earnings results and the impending stimulus injection that Biden’s democrats are attempting to push through.

The Nasdaq led the way with a 6% rise as the big tech stocks continued to report earnings beats. The S&P500 gained 4.7% while the Dow managed a 3.9% gain in what was its best week since November. For the small caps, the Russel 2000 had its best week since June, rising 7.7%.

The party ended early for GameStop (GME) and the other so-called “meme stocks” that had been artificially boosted by retail punters just last week. Brokers resumed letting traders invest in the stocks as liquidity issues subsided but that still wasn’t enough to keep the party going. By the end of the week, GameStop had lost more than 80% of its value from last Friday. AMC Entertainment (AMC) also fell in half over the five sessions.

There were still some shenanigans, however, as Reddit users decided to have a crack at the price of silver as well. On Monday silver had its best day in more than 11 years as it jumped 9.3%. The joy was shortlived though, as it dropped 10% on Tuesday, wiping out most of the previous day’s gains. While the hedge funds will need to keep one eye on retailers when they decide to start working in union the issue isn’t a game-breaker. The funds just aren’t there for the retailers to spread themselves over multiple stocks and commodities. The more they stick to the one cause the better off they will be. It’s been great fun to watch though.

Alphabet (GOOGL) the parent company of Google led the earnings wins for the week as they saw revenue increase by 23% up to $56.90 billion in the final quarter of 2020. The result was $3 billion above analyst expectations. Profits also smashed expectations coming in at $22.30 per share above the $15.90 estimates. Advertising revenue, Google’s core business, was up 22% for the quarter and a strong comeback after advertisers held back during the first few quarters of the pandemic.

YouTube, also owned by Alphabet, saw its revenue jump an impressive 46%, while also seeing a lift in viewers and time spent watching videos. There was a distinct increase in “direct-response” advertisements, which encourage users to download apps or make a purchase from websites. Google’s Chief Business officer Phillip Schindler remarked: “Our direct-response business on YouTube was practically non-existent three years ago. Now, it’s one of our largest and fastest-growing ad offerings on YouTube”. Googles cloud revenue also grew 46% year on year. Its share price bounced 7.3% in the Wednesday session.

Amazon (AMZN) also saw a blowout quarter. It brought in a new revenue record of $125.56 billion when analysts were expecting $119.7 billion. Profits of $14.09 per share almost doubled expectations of $7.23 as costs associated with the coronavirus pandemic decelerated. The surprise to the upside was said to have been delivered by a “record-breaking holiday season” in which more than 1 billion products were shipped to consumers worldwide.

Despite the record-breaking result, the Amazon share price dropped 2% as CEO gazillionaire Jeff Bezos announced he was stepping down from the CEO role. He will be replaced by the head of Amazon Web Services Andy Jassy. Bezos will still stay involved in all of the big issues, however, as he takes his seat as executive chairman of the Amazon board. The changes will be made permanent in the third quarter of 2021.

Catch Up favourites eBay (EBAY) and PayPal (PYPL) also had earnings wins. The sister companies continue to go from strength to strength as they jumped 5% and 7% respectively. Another of our stock picks Ford (F) also impressed investors with a beat on profits and coming even on revenue. The carmaker also announced a $29 billion investment in electric and autonomous self-driving vehicles through to 2025. Ford rose 1.23% on Friday.

The economic data also continues to improve, however, the jobs numbers were a mixed bag during the week. The private payroll ADP numbers were better than expected, adding 174,000 above the estimated 50,000. The weekly jobless claims were also improved, coming in at 779,000 when analysts were expecting 830,000 to lose their jobs. The nonfarm payrolls, however, were slightly smaller than expected with 49,000 jobs being added, 1,000 less then estimates. But the unemployment rate dropped to 6.3%, better than the 6.7% expected. The December numbers were revised down from 227,000 to 140,000. The disappointing results meant investors saw a stronger argument for an increased stimulus injection.

In the week ahead we will focus on more big-name earnings results. Reports will be submitted by the likes of Take-Two Interactive (TTWO), Canopy Growth (CGC), Twitter (TWTR), Under Armour (UA), Coke (KO), Pepsi (PEP), Uber (UBER), and Walt Disney (DIS). Online dating stock Bumble will also have its long-awaited IPO, while Wall Street will also keep an eye on the increasing vaccination numbers and its impact on the economy.

Have a great week!