08 Nov Capital 19 Catch-Up

Stocks Fly As Fed Begins To Taper, Earnings Impress, And Jobs Improve

The Dow was the only major index to experience a negative session last week, as earnings results, Fed announcements, and jobs data combined to send Wall Street higher. Its Thursday session was lower by just 0.09% and was the only blip as the Nasdaq and the S&P500 rose for every session and all three finished at all-time highs. It was a week of continual good news as the economic recovery continues to take hold and the number of covid cases continues to abate.

The Nasdaq led the way, gaining 3.1% over the five sessions and having its best week since April. The S&P500 stretched its unbeaten winning streak to seven sessions in a row on Friday and picked up 2% for the week. While the Dow brought up the rear, held back by the likes of JP Morgan (JPM) and Goldman Sachs (GS), but still gaining 1.4% over the five sessions.

The markets have been firing since a disappointing September halted momentum. The gains for the August to October period were actually above average for the S&P500, which Bank of America (BAC) analysts suggest then bodes well for the November to April period where it is up 75% of the time for an average gain of 4.08%. The next two months are generally good ones regardless of what has preceded it. November has average gains of 1.1%, while December has average gains of 2.3% dating back to 1936. The odds for a Santa rally are good.

While earnings season continued to impress, the week was really all about the monthly Fed meeting and what they would do about bond tapering and interest rates. As expected they announced the tapering of bond purchases would begin by the end of the month. The Fed is currently purchasing $120 billion of treasury bonds per month and will reduce the amount by $15 billion per month until it reaches $0 around June 2022. Fed Chair Jerome Powell also clarified that they would adjust these numbers accordingly if circumstances changed and alterations to the plan were needed.

Importantly, the Fed gave every indication that interest rates would be staying where they are for the foreseeable future. Powell admitted that inflation had been rising faster than they had predicted but still considered the situation a “transitory” one as the world continues its pandemic recovery. In a post-meeting news conference, Powell stated “our decision today to begin tapering our asset purchases does not imply any direct signal regarding our interest rate policy. We continue to articulate a different and more stringent test for the economic conditions that would need to be met before raising the federal funds rate.” It was exactly what the market wanted to hear.

Earnings season keeps on rolling on and there were some great numbers coming out from some big names during the week. Pfizer (PFE) rose 4.1% after it topped expectations and raised its guidance. It also jumped 10.8% later in the week as it announced its new Covid-19 pill when combined with its HIV drug cut the risk of hospitalisation from covid by 89%. Sporting retailer Under Armour (UA) also impressed by beating estimates and increasing its 2020 revenue guidance up to 25%. CEO Patrick Fisk pointed to improved marketing boosting its brand image as the share price jumped 16.4% on the news.

Other winners came from Estee Lauder (EL) who rose 4%, Du Pont De Nemours who gained 8.7%, and CVS Health (CVS) who made 4.7%. Rideshare provider Lyft (LYFT) also beat estimates and rose 8.2%, while semiconductor Qualcomm (QCOM) saw a 56% surge in chip sales and jumped 12.7% in response. Travel website Expedia (EXPE) said renewed travel demand saw a surge in sales which boosted their top and bottom lines. They jumped 15.6% in the final session of the week.

It wasn’t all beer and skittles, however. Heavy losses came from Moderna (MRNA) who cut its Covid-19 vaccine revenue outlook and dropped 17.8%. Digital real estate company Zillow (Z) also had a tough time of it after it missed estimates. They also announced they would be shutting down its business that buys and flip homes “Offers” and would be cutting their workforce by 25%. Zillow dropped 24.8% in response. Other losses came from Roku (ROKU) who fell 7% after disappointing numbers, and Activision who dropped 14.1%. Fitness equipment maker Peleton (PTON) showed it has been struggling since the pandemic subsided as its customers headed back to the gyms. It suffered a 35% fall after badly missing expectations.

On the economic data front jobs numbers look to be regaining strength. The weekly jobless claims came in at a pandemic era low of 269,000 when the market was expecting 275,000. While the non-farm payrolls jumped to 531,000 in October, much better than the 450,000 economists had been wanting to see. The unemployment rate also fell to a 19 month low of 4.6% from 4.8% in September. Earlier in the week, the ISM manufacturing index for October was also better than expected, coming in at 60.8 down from 61.1 in September.

In the week ahead we’ll see earnings season continue at a slower pace but still with a few big names announcing. These include PayPal (PYPL), Wendy’s (WEN), Walt Disney (DIS), Beyond Meat (BYND), AstraZeneca (AZN), Alibaba (BABA) and recent stock report subject Coupang (CPNG). Electric car maker Rivian will go to market with an IPO expected to be worth around $64 billion. They will attempt to sell 135 million shares at $72-$74. There will also be plenty of interest rate talk as many of the Fed board have speeches during the week.

Also, a reminder that daylight saving time ended in the US on Sunday which means the markets will open up an hour later than they have been. That will mean a 1:30 am open time for those in AEDT and a close of the session at 8:00 am. In Queensland it’s an hour earlier, In WA it’s three hours earlier, in NT it’s 1.5 hours earlier and in SA it’s half an hour earlier.

Have a great week.