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Wednesday Market Sum

Wednesday’s Headlines

1. US markets march higher on vaccine news and bank earnings

2. Delta and American warn on future job cuts

3. Goldman Sachs crushes earnings estimates

4. Big bets on vaccine-related companies

5. US households are feeling the strain

Markets Today

U.S. markets marched higher again today behind positive data from Moderna’s recent vaccine trial (see below). When vaccine news is good, the stocks and sectors tied to the recovery jump with it, and today was no different. Oil, airline, hotel, and industrial stocks all rose in unison as investors search for the light at the end of the tunnel.

Big banks (except for Wells Fargo) continue to deliver upside surprises with their quarterly reports. Funny how they seem to do that every quarter. Goldman Sachs was no exception, as it set multi-year highs in its securities trading divisions. As we expected, Wall Street firms are making up for weakness in their classic banking divisions by cashing in on all the trading they are handling for individual and institutional investors.

Tech stocks, which were last month’s favorite flavor, continued to wane as other sectors of the market attempt to recover. It’s rare that the DJIA outperforms the Nasdaq over a several day period, as you can see below. Tech stocks aren’t going anywhere, and this type of sector rotation is healthy. It would be even healthier if it wasn’t solely based on preliminary vaccine data, but this is where we are right now.

 

 Headlines:

  • Delta Air Lines said it expects to take a charge of as much as $3.3 billion from voluntary separation agreements with staff as it seeks to slash its labor bill because of the coronavirus pandemic. Delta and other carriers are urging employees to take buyouts and early retirement packages to help it cut costs with little end in sight to the pandemic’s impact on air travel. They’re prohibited from laying off workers through Sept. 30 under the terms of a $25 billion federal aid package to support employee payroll.

  • American Airlines warned about 25,000 front-line employees—close to 20% of its workforce—about potential furloughs. The airline also urged employees to take new buyouts and early retirement packages to get as many people off payroll before making involuntary cuts. 

  • Apple won a major legal battle with the European Union when the bloc’s second-highest court sided with the company over a €13 billion ($14.8 billion) tax bill that EU antitrust officials had said the company owed to Ireland. The case stems from a 2016 decision by the European Commission, the EU’s executive branch, that mandated Ireland collect back taxes from Apple from the years 2013–14, which it deemed to be an illegal subsidy to a foreign company.

  • Goldman Sachs reported earnings that were far better than the most optimistic forecasts as revenue from trading padded its bottom line. The bank earned $6.26 a share in the second quarter on revenue of $13.3 billion, the second-highest ever for the firm and up 41% from a year ago. Fixed income trading revenue came in at $4.24 billion, the highest in nine years, while equities trading revenue was $2.94 billion, the best quarter in 11 years.

  • Google is investing $4.5 billion in Reliance Industries’ digital arm, Jio, for a 7.73% stake. The U.S. tech giant and Indian telecommunications giant have agreed to jointly develop an entry-level affordable smartphone with optimizations to the Android operating system and the Play Store. This is the first investment from the recently announced $10 billion Google for India Digitization Fund.

  • The maker of Red Bull energy drinks has replaced its top U.S. executives amid internal tensions over the closely held company’s response to the Black Lives Matter movement, according to the Business Insider. Red Bull GmbH, the Austrian company that makes the drink, said Stefan Kozak, its North America chief executive, and Amy Taylor, its North America president and chief marketing officer, have left the company.

  • Facebook and Sony are preparing to increase output of upcoming gaming devices during the pandemic, according to Nikkei Asian Review. Facebook will make 2 million units of its latest Oculus VR headset, a 50% jump from total production output last year. Sony has raised production orders for its upcoming PlayStation 5 to around 9 million units, from the roughly 6 million units it had planned in spring.

  • The Massachusetts Attorney General has joined the California AG in suing Uber and Lyft. The lawsuit says that drivers should be classified as employees under state law, a designation that provides access to critical labor rights and benefits, such as minimum wage, overtime, and earned sick time.

  • Over a dozen high-profile Twitter accounts, including Apple, Amazon CEO Jeff Bezos, Microsoft founder Bill Gates, Democratic presidential candidate Joe Biden, and former president Barack Obama, were apparently hacked on Wednesday and posted tweets telling followers to send bitcoin to a specific address. Tesla CEO Elon Musk was first high-profile account to be hacked, posting a tweet early Wednesday afternoon promising to double any payments sent to the bitcoin address.

  • Japan’s Nissan just unveiled its 100% electric SUV called Ariya. The vehicle, which will be available in North America next year, has up to 300 miles of range. “The Nissan Ariya opens a new chapter in our history as we begin our journey of transformation in our business, in our products, and in our culture,” said Nissan CEO Makoto Uchida. Not a bad looking vehicle…

Good Medicine

Good vaccine news catalyzed the stock market again today when Moderna released early data from its vaccine trials with humans. The company published preliminary results in The New England Journal of Medicine on Tuesday that expand on its press release from two months ago. Its mRNA-1273 vaccine induced anti-SARS-CoV-2 immune responses in all participants after two doses with no serious side effects. Neutralizing antibody levels were higher in trial volunteers than average recovered patients. 

It is still too early to celebrate, however. We still don’t know if antibodies prevent infection or how long the immunity lasts. Before approval, the FDA wants proof that a vaccine would prevent disease or decrease its severity in at least 50% of people who are vaccinated, and blood tests that show immune responses are not sufficient evidence.

The WHO says there are currently 23 vaccine candidates in the clinical stage of evaluation and over 100 in preclinical stages.

Here are some of the leaders:

  • University of Oxford/AstraZeneca: First to enter final stage of clinical trials (Phase 3). Expected to complete human trials in September.

  • Moderna: Phase 2 began in June, Phase 3 expected to commence July 27 with 30,000 patients.

  • BioNTech/Pfizer: Positive early data from ongoing Phase 1/2. Granted fast-track designation by U.S. FDA. Phase 2b/3 safety and efficacy study may begin this month.

  • Novavax: Phase 1/2 ongoing in Australia.

    Inovio Pharmaceuticals: Phase 1/2 ongoing. Positive clinical data reported from Phase 1. To begin U.S. Phase 2/3 efficacy study this summer.

Investors (including you), according to our recent reader survey, are very bullish on the healthcare and pharma industry these days. Stocks of the companies listed above have soared in 2020, especially the smaller caps like Inovio and Moderna. That’s what happens in speculative bubbles, but the uncertainty around this pandemic has amplified those reactions.

U.S Households Are Struggling

Outside of the stock market’s recovery is a very grim picture of the personal finances of U.S. households. The pandemic has impacted just about every person on the planet in every country, but the U.S. Census Bureau has been surveying households about how we have been coping with this crisis.

Far and away, the impact on education and childcare has been the most pronounced. The loss or expected loss in employment income is a concern for nearly half of Americans. Two areas that are particularly troubling are the rise in concerns about food scarcity and housing insecurity. Those have been growing or staying at elevated levels for several weeks, and they will become even more acute in two weeks. That’s when the additional $600 weekly additional unemployment insurance checks are due to end.

 

Where’s the Cargo?

One of our favorite economic indicators is not improving as expected. U.S. rail traffic is still at very depressed levels, and the past week was particularly soft. Cargo loads for nearly every commodity fell hard last week as big economies like California, Texas, and Florida were forced to slow down or revert their re-openings. Motor vehicles and parts was one of the lone areas of growth, but the decline in grain, metallic ores and metals, and petroleum belies any notion of a V-shaped recovery.

 

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