Market Recap Week Ending December 4th
Monday – Dow (271) to 29,638 Nasdaq (7) to 12,198 and the S&P (16) to 3,622. November housing sales threw cold water all over the market early this morning, notching a down 1.1% number vs expected 1% growth. Housing stocks were hit fairly hard: D.R. Horton (DHI) down 1.95%, Lennar (LEN) down 2.38%, and Pulte Home (PHM) falling 1.65%. None of the indices were able to get up from the mat after that news hit at 10am EST although cyclicals obviously fared the worst considering the underperformance of the Dow vs the other indices today. Tech and Healthcare were the only two S&P sectors in the green today with energy down big again (5.37%)…Moderna (MRNA) applied for emergency FDA approval to use its Coronavirus vaccine. If approved, vaccines could be ready for the public as soon as December 21. The company’s CEO said that MRNA was “on track” to produce 20 million doses by the end of December, and from 500 million to a billion doses in 2021. Each person requires two doses, administered a month apart, thus 20 million doses will be enough for 10 million people…What a ride Nikola Motors (NKLA)has had this year! It became public via a SPAC transaction in June and traded up to $93.99. After the initial buzz wore off, the stock slowly bled down to the $35-$40 level. Then in early September an agreement with General Motors (GM), whereby GM would build NKLA’s truck, the Badger, and NKLA would supply GM with battery and fuel cell technologies, was announced and the stock popped to $50. Two days later, a short seller published a report alleging that NKLA was a fraud, that there was no technology and revealed that the semi-truck shown in their commercials had been towed up a hill and filmed while it was coasting down the incline. As a result of the report, the founder and CEO, Trevor Milton, resigned on September 21st amidst DOJ and SEC investigations. The stock bottomed out in the high teens until speculation that the GM deal was still on track pushed the stock up to $34.50 in late November. Today, GM announced that they were relinquishing their 11% equity stake that they had agreed to take in September and would not be building NKLA’s Badger truck. GM will keep their fuel cell partnership agreement intact. Shares plunged 26.92% to $20.41/share. 166 million shares come off of lockup tomorrow, of which only 91.6 million are owned by the former CEO Milton…Zoom (ZM) traded down 5% after hours despite blowing out their earning number; apparently investors were concerned with the company’s rate of revenue growth which is moderating (that being said revenue grew 357% in the 3rd quarter on an annualized basis!)….
Tuesday – Dow +185 to 29,823 Nasdaq +156 to 12,355 (record high) and the S&P +41 to 3,662 (record high). I don’t know if it was the fact that fiscal stimulus is back on the table that caused the rally today, but a bipartisan group of lawmakers announced a very modest $908 billion plan that Senate Leader McConell rejected later in the day. President-Elect Biden urged them to pass a relief bill during this lame duck session. Addressing Congress, Fed Chair Powell described the economic outlook as extraordinarily uncertain and expressed some support for the new “skinny” stimulus plan that had been announced during the session. Treasury Secretary Mnuchin added his voice to the cause when he called for $300 billion in aid for restaurants…MegaTech took back its leadership position today as the FANMAGs all rallied strongly; FB +3.46%, APPL +3.08%, NFLX +2.83%, MSFT +1%, AMZN +1.46%, GOOG +2.33%. Financials also did well today as the yield on the 10-year U.S. Treasury bill rallied to a 3-week high of 0.93%…Salesforce (CRM) made good on the rumors of buying Slack (WORK) that emerged last week and announced they had completed the purchase for $27.7 billion after the close today….
Wednesday – Dow +60 to 29,883 Nasdaq (6) to 12,349 and the S&P +7 to 3,669 (28th record high of 2020). The ADP jobs report put a damper on any thoughts of a continuation of yesterday’s strong rally. 307,000 jobs were gained in November vs expectations for 440k and vs October’s 404k number…Energy and Financials led the S&P sectors as oil rallied to $45/bbl and the yield curve held steady at 0.94%, a new three week high…The U.K. became the first country to grant approval to use the Pfizer and BioNTech Covid19 vaccine. The FDA will meet with PFE/BNTX on December 10th to decide the same issue…Calling it a “down payment” on future stimulus once he is elected, President-Elect Biden urged lawmakers to pass the “skinny” stimulus bill on which a group of bipartisan senators have been working. Speaker Pelosi and Minority Leader Schumer also endorsed the proposal as a starting point, marking a significant concession from their last know position of a plan of greater than $2 trillion. However, Majority Leader McConnell stated that any new stimulus should be around $500 billion. When I first heard of the new stimulus plan and McConnell’s reaction, I thought this was another case of Lucy urging Charlie Brown to kick the football. However, Citi economists stated today that they believe the most likely outcome is a $1 billion stimulus bill signed into law by December 11th…Shots Fired!: The House unanimously passed a bill that would require Chinese companies to adhere to U.S. auditing standards or be delisted from U.S. exchanges. The Senate has already passed the bill and now it goes to the President’s desk, where it is expected to be signed into law…NetApp traded up 9% on strong earnings after the bell…Snowflake (SNOW) dropped 4% after reporting its first quarterly results as a public company. Revenue growth slowed to only 119% vs last quarter’s 121% growth and this may explain why some investors took some profits after the report…CrowdStrike (CRWD) traded down 3.84% after beating their quarterly numbers…Tomorrow, jobless claims are expected to come in at 775,000 vs last week’s 778k number. As a reminder, claims bottomed at 709k on November 12th and have risen the last two weeks since that report.
Thursday – Dow +85 to 29,969 Nasdaq +28 to 12,377 (record high) and the S&P (3) to 3,666. Jobless claims surprised the Street today at 712,000, the lowest number in 3 weeks and beat expectations by 63k. However, last week’s claims were revised higher by 75,000. The indices couldn’t really gain any momentum after Pfizer (PFE) announced that they would only be able to ship half as many Covid19 vaccine doses as they originally planned this year due to supply chain issues. The company did say however, that they are still on track to ship 1.3 billion doses in 2021…Speaker Pelosi and Majority Leader McConnell spoke for the first time since at least the Presidential election regarding stimulus negotiations. Momentum is building for a $1 billion package which at the time of this writing would not include stimulus checks. $300 billion would go to small business aid, $160 billion to state and local governments, federal unemployment benefits of $300/week would be reinstated and the bill would include a temporary liability shield to protect companies from coronavirus related litigation…AT&T (T) shocked the entertainment industry today by announcing that all 17 of their 2021 feature films would be released simultaneously in theaters as well as their streaming service HBO Max….
Friday – Dow +249 to 30,218 (record high) Nasdaq +87 to 12,464 (record high) and the S&P +32 to 3,699 (record high). Despite a disappointing November jobs report of 245,000 additions vs expectations of 440,000, all three indices steamed ahead and closed at new all-time highs. The unemployment rate dipped from 6.9% and now sits at 6.7%. This can be explained by a lower sum of jobless claims in November vs October and/or job seekers dropping out of the labor force. Total November jobless claims were 2.9 million vs October’s 4.1 million so that most likely accounts for the decrease in the overall unemployment rate. In the wacky world of Wall Street, the bad news can be good news, the conventional wisdom was that market observers cheered the lackluster jobs number and bid stocks higher as they believed it will give impetus to the nascent stimulus talks in Congress. President-Elect Biden called for an additional round of stimulus checks in any future bill and while Speaker Pelosi was quoted as saying that the talks are gaining momentum, no new details were forthcoming. The bond market certainly acts as if more stimulus is coming; the yield on the 10-year U.S. Treasury note reached a post pandemic high of 0.98%. In turn, bank stocks continued their rally with the S&P Bank ETF (KBE) rallying 2% today and up 46% since September 23rd…Energy (+5.43%) led 9 of the 11 S&P sectors higher as crude oil prices surged to $46/bbl on news of another OPEC agreement, this time to raise production by 500k/bbl/day. Though counterintuitive, the agreement is bullish as it signals renewed and increased demand….
The week in review…Dow +308 or +1% Nasdaq +259 or +2.1% and the S&P +61 or +1.7%. Last week’s questions…will the rotation out of tech and into the value/cyclical plays continue? What will Friday’s November employment report tell us and what insights, if any, will Fed Chair Powell and Secretary Treasury Mnuchin reveal when they testify before the Senate Banking Committee on Tuesday?
The answer to the rotation question was yes, but only to an extent. Big Tech did not go down without a fight. In fact, the Nasdaq, which is far more tech oriented, outperformed both the Dow and the S&P this week, signaling that there is still plenty of appetite to own those names. I would expect to see further strength in what we have been calling the stay-at-home trade next week, as California will be subject to new, stricter, “stay at home” orders and 5 Bay Area counties have already gone ahead and declared the new order in effect this Sunday night. Bars, restaurants (take out only), salons, barbershops, and nail salons will all be ordered to shutter. Retail will be allowed to stay open but to reduce capacity to only 20%. Today’s jobs report while extremely disappointing seems to have given the market increased confidence that a lame duck Congress will finally pass a new stimulus bill. Finally, Fed Chairman Powell and Secretary Treasury Mnuchin testimony before the Senate Banking Committee revealed nothing other than the fact that the Secretary was woefully unprepared to face Congresswoman Katie Porter (D-CA45th). A visibly flustered Secretary answered the Representative Porter’s question as to whether he was an attorney by turning the question around on the Congresswoman. The answer was no, Secretary Mnuchin does not have a law degree, and yes, Congresswoman Porter does (Harvard by the way). Do your homework Secretary Mnuchin.
Notable events next week…On Monday, Toll Brothers (TOL), the suburban home builder, reports earnings and Salesforce has an investor day…On Wednesday, Lowe’s (LOW) and Starbucks (SBUX) have investor days and Adobe Software (ADBE) reports post close…Disney (DIS) has an investor day and Costco (COST) and Broadcom (BRCM) report earnings on Thursday…Speaking of Thursday, December 10th marks two weeks since Thanksgiving. Look for Covid-19 infections to spike again as the repercussions of 1 million people travelling over the holiday begin to take effect…
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Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities…AMZN, AAPL, Bitcoin (physical), GBTC, GOOGL, MSFT, NFLX, and TSLA.