01 Nov Capital 19 Catch-Up
October Finishes At Record Highs After A Tough September
Wall Street bounced hard in October following a tough September, with all of the major indices closing out the month at record highs. Earnings season has proven to be the saviour, as supply chain issues and staff shortages don’t appear to be having as much of an impact as first suspected. Even a disappointing GDP result couldn’t stop the market this week as share prices powered on regardless. Could a strong October be setting us up for an and of year Santa rally to close out 2021?
The Nasdaq was the standout for the week, making 2.7% over the five sessions. This was despite some tech-heavy hitters missing earnings estimates. The benchmark S&P500 came in second, locking in 1.3% gains for the week, while the Dow could only manage a 0.4% rise.
The S&P500 had its biggest month since November 2020, bouncing back from a 4.8% fall in September to rise 6.9% in October. The Nasdaq managed to slightly outperform the benchmark, gaining 7.2% for the month. While the headlining Dow index again came in third, locking in a rise of 5.8%.
All the talk early in the week was about Tesla (TSLA) as it finally crashed the $1 Trillion market cap club. On Monday the share price gained 12%, continuing to rise throughout the week to finish with a $1.119 Trillion market cap by the Friday session, and increasing owner Elon Musk’s lead as the world’s richest man. The stock was boosted by a decision from car hire company Hertz (HTZZ) to purchase 100,000 Tesla vehicles valued at several billion dollars worth. Tesla now joins Alphabet (GOOGL), Amazon (AMZN), and Facebook (FB) to hit the $1 trillion mark, with the latter since falling from that level. With Apple (AAPL) and Microsoft (MSFT) already at $2 trillion.
Speaking of Microsoft and Apple, the two technology giants switched positions on the most valuable companies list this week, with Microsoft surpassing Apple during the Friday session. The switch came about after both reported earnings during the week to differing fortunes. Microsoft saw its fastest growth since 2018, with revenue climbing by 22% YoY as it beat on both the top and bottom lines. This was despite PC supply constraints affecting sales of its Windows products. Microsoft jumped 4.2% in response.
Supply issues also affected Apple which saw it miss revenue expectations for the first time since May 2017. It wasn’t all bad news though. Revenue was still up by 29% on an annual basis with each of its product categories growing revenue. CEO Tim Cook stated “we had a very strong performance despite larger than expected supply constraints, which we estimate to be around $6 billion. The supply constraints were driven by the industry-wide chip shortages that have been talked about a lot, and COVID-related manufacturing disruptions in Southeast Asia.” Apple says the December quarter will be the largest revenue maker in its history despite still being impacted by the same supply constraints as the last quarter. Apple dropped 1.8% in the Friday session, falling to be the second most valuable company in the world.
Successful earnings results came from courier service UPS (UPS) who beat estimates and raised guidance and jumped 6.9%, and game maker Hasbro (HAS) who also beat estimates and gained 3.2%. Google parent Alphabet (GOOGL) also jumped 4.9% after beating on the top and bottom lines, with advertising revenue increasing by 43% to $53.13 billion. Soft drink maker Coke (KO) also beat estimates rising 1.9%, citing the covid recovery in many of its important markets as the main influence.
It was also more good news for Ford (F) who was mentioned in last week’s Catch Up as a major winner amongst our stock picks for last year. It’s already up 240% for us so far, and it added another 8.7% in the Thursday session as it almost doubled earnings expectations and raised its annual guidance. Ford said the increase in availability of semiconductor chips helped it boost sales of its new Bronco SUV and Mustang Mach-E products which could reach 200,000 units this year. Ford rival General Motors (GM) also beat estimates earlier in the week but dropped 5.4% after lowering cash flow guidance.
Twitter (TWTR) had a tough time of it after its earnings despite beating on both the top and bottom line and increasing revenue by 37%. Ad revenue rose by 41% to $1.14 billion, even as Apple’s new privacy rules impacted on sales. The social media giant dropped 10.7% after expense guidance missed estimates. Other earnings losses came from Amazon who fell 2.1% after missing estimates, Texas Instruments (TXN) who dropped 5%, Facebook (FB) (now to be known as Meta Platforms) who beat on profit but missed on revenue and fell 3.9%, and eBay (EBAY) who beat estimates but missed guidance and fell 5.3% after-hours.
In data news, GDP grew at 2% in the third quarter, less than the 2.8% economists were expecting. That was down from 6.7% in the second quarter and takes into account the impact of the delta variant which hampered reopening measures in the quarter. The weekly jobless claims were slightly better than expected, coming in at 281,000 when the market was looking for 289,000. Earlier in the week consumer confidence hit 113.8 in October, up from 109.8 in September and higher than the 108 expected.
In the week ahead earnings results will continue unabated with the likes of Pfizer (PFE), Under Armour (UA), CVS Health (CVS), Electronic Arts (EA), Take-Two Interactive (TTWO), Uber (UBER), Airbnb (ABNB), Canopy Growth (CGC), and DraftKings (DKNG). The Fed Reserve will also meet to decide on interest rates and are likely to recommend reducing its monthly treasury purchases. We’ll also have the non-farm payrolls on Friday which are expected to have improved from the Covid impacted August and September months.
Have a great week.