08 Mar Capital 19 Catch-Up
Wild Market Swings Continue As Potential Rate Rises Battle It Out Against Positive Vaccine News
Three strong down days in the middle of last week were bookended by two massive up days in the Monday and Friday sessions which saved the Dow and the S&P500 from suffering another losing week. The benchmark S&P500 just managed to eke out a 0.8% rise, while the Dow outperformed to gain 1.8% for the week. The Nasdaq was not as lucky, dropping 2% over the five sessions. A late rally on Friday saw it just sneak back into positive territory for 2021.
It was a new week, however, the story was very much the same as the last with investors keeping an eagle eye on the wild swings of the 10-year Treasury bond. Stockholders are concerned that an increase in interest rates will hamper companies who rely on borrowing, which is why the tech companies, lumped with already lofty valuations, are copping such rough treatment. Of course, it’s all just a sign of an expanding economy, which is great for companies in the long run. It’s a small case of “good news is bad news” which will sort itself out in the near term.
The Fed Chair Jerome Powell didn’t seem too concerned when he fronted the Wall Street Journal’s job summit on Thursday. He recognised that an impending economic reopening could “create some upward pressure on prices” however the Fed would remain patient before making any policy changes. The board have said many times recently that they want inflation above their targetted 2% mark before they will be willing to act. They are still very aware that jobs are still well down on pre-covid levels and are extremely wary of stepping on any momentum created by the recovery.
Hopes for such a rebound in the economy were lifted again this week as Johnson & Johnson’s (JNJ) new one-shot covid vaccine was approved by the Centers for Disease Control and Prevention advisory panel. Joe Biden, on the back of this, claimed that the US will have enough vaccine doses to innoculate the entire adult population by the end of May. Two months ahead of schedule. Merck (MRK) will join with Johnson & Johnson to manufacture the drug, with the initial shipment expected to be around 4 million doses. Now we just need to get the Americans interested in taking it, with only half currently saying they are willing to get the shot.
Tesla (TSLA) had a tough week of it, falling 11% over the five sessions. And with a PE of 934 and every car maker in existence claiming they are going electric in the near future I fear it’s got a lot further to fall. All of the big-name tech stocks struggled as money moved out of the sector and into the economic recovery sectors of finance, energy and materials. Covid favourites Peloton (PTON) and Zoom (ZOOM) lost 12% and 9% respectively while on the other side of the ledger the airlines and the cruise lines all experienced significant gains.
Hospitality stocks also received a boost when the non-farm payrolls for February came out on Friday. The economy added 379,000 new jobs in the month, well above the 210,000 expected. 355,000 of these were from the hospitality sector alone. Darden Restaurants (DRI) rose 2.94% on the news, beer providore Constellation Brands (STZ) was up 2.78%, Pepsi (PEP) was up 3.26%, and Coke (KO) rose 1.70%. All will benefit from economies reopening. The unemployment rate was also a surprise, dropping to 6.2% when analysts were expecting it to stay at 6.3%.
Reddit thread Wall Street Bets sent Hedge Funds ducking for cover again through the week as they attacked short positions held in mortgage provider Rocket Companies (RKT). Rocket is one of the most shorted stocks in the market, with more than 40% of its shares sold short. This made it ripe for a good old short squeeze and while it was shortlived it would have sent a fair shiver up some Wall Street spines.
On Tuesday the share price jumped more than 70% as retail investors piled in, and no doubt some hedge funds began covering their short positions. The fun didn’t last, however, as the share price fell back in the remaining days with the stock finishing the week up just 5%. Gamestop (GME), while not flying quite as high as it was a few weeks ago, is still managing to defy any logical evaluations, and is up at $137.74 after rising 33% last week. Clearly, the Reddit users aren’t quite finished with it yet.
In the week ahead we’ll be keeping an eye on congress as the $1.9 trillion stimulus bill goes to the House on Tuesday. It’s already been passed by the Senate over the weekend and will include $1400 stimulus checks, $300 per week jobless benefits, a child allowance of $3,600, $350 billion in state aid, $14 billion for vaccine distribution, and $34 billion to expand the Affordable Care act.
We’ll also be watching the Roblox (RBLX) IPO which will go public on Wednesday. My kids are addicted to the online platform which allows users to create and play video games. With the kids on board, it usually means it’s ripe to make wad loads of money. I won’t be investing however until I see how crazy the buying goes in the first week. Quite often the hype takes over and real value goes out the window. It’s a “watch and see” at this point.
There’s not much in the way of earnings, but we’ll see Dick’s Sporting Goods (DKS), Campbell Soup (CPB), and DocuSign (DOCU) all report. All of the big telecoms – Verizon (VZ), T-Mobile (TMUS), and AT&T (T) – will be holding investor events where they’ll be discussing their 5G take up, and how they are still managing to get those little coronavirus particles into the atmosphere. While recent Capital 19 tip Draft Kings will also be holding an investor day where they’ll be discussing the rise in sports betting across the US. Of the economic data, the CPI and Core CPI on Wednesday will be the big ones with any uptick in inflation bound to spook investors.
Have a great week.