After closing at record highs last week, stocks are falling for the second day in a row as corporate earnings—which lifted the market to new highs during the pandemic—start to show signs of weakness, all while speculative pockets of investor mania continue to rage on.
Shortly after the open, the Dow Jones Industrial Average fell 147 points, or 0.4%, while the S&P 500 also slipped 0.4%, and the tech-heavy Nasdaq, which underperformed Monday, shed 0.3%.
Far outperforming any other stock in the S&P, shares of railroad company Kansas City Southern are soaring 15% after Canada National proposed to acquire the company in a $33.7 billion deal—topping Canadian Pacific’s $25 billion bid from last month and setting the stage for a potential bidding war.
Heading up the S&P’s losses, Marlboro parent Altria Group’s stock is slumping 6% after reports that Joe Biden’s administration (which has not commented on the matter) is considering a reduction in the amount of nicotine allowed in tobacco products.
On the earnings front, shares of IBM are climbing 2.5% after the software giant surpassed first-quarter expectations with revenue of $5.4 billion—bolstered by ongoing growth in its enterprise cloud business—and adjusted earnings of $2.2 billion.
Meanwhile, medical device company Abbott, which makes Covid-19 test kits, reported worse-than-expected revenue of $10.5 billion Tuesday morning as Covid-related sales fell nearly 10% quarter to quarter, sending shares down about 3%.
Reflecting ongoing uncertainty over the economic recovery, epicenter stocks—or those belonging to companies hard-hit by the pandemic—are also driving losses Tuesday, with chemicals firms Dupont De Nemours, cruise-liner Carnival Corp. and Delta Air Lines all falling about 2%.
“The reopening news is directionally positive, but the big problem is that many epicenter stocks have already seen their enterprise values return to pre-Covid levels, while some are well beyond where they stood in 2019,” Vital Knowledge Media Founder Adam Crisafulli said in a Tuesday morning note.
In a break from tradition, the Bank of Japan revealed Tuesday that it opted out of buying exchange-traded funds despite weakness in Japanese stocks. Crisafulli says the move is “perhaps the most important piece of news today” because it signals the central bank is dialing back its economic support—at a time when central banks around the world, including the Federal Reserve, have revved up their accommodative policy to help the economy and usher in new stock-market highs. Japan’s Nikkei 225, the nation’s benchmark index, fell 2% Tuesday and is now down 4.5% from a February high.
Boosted by massive fiscal stimulus, an accelerating vaccine rollout and falling unemployment, stocks have had a strong start to the year, with the S&P pulling off 23 new all-time highs in 2021, according to LPL Financial Chief Market Strategist Ryan Detrick. “Many of our favorite sentiment gauges are becoming extremely bullish, which could be a near-term contrarian warning,” Detrick says of indicators like sentiment, at a three-year high, and low cash allocations from portfolio managers increasingly piling into stocks.
The price of dogecoin is soaring Tuesday, climbing back near record territory from last week, as retail traders around the world stage a rally around cannabis holiday 4/20. The cryptocurrency, modeled after a meme and originally developed as a joke, has climbed eight-fold over the past month, nabbing a staggering $49 billion market capitalization.
I’m a reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill, where I double-majored in business journalism and economics while working for UNC’s Kenan-Flagler Business School as a marketing and communications assistant. Before Forbes, I spent a summer reporting on the L.A. private sector for Los Angeles Business Journal and wrote about publicly traded North Carolina companies for NC Business News Wire. Reach out at email@example.com.
The Dow Jones Industrial Average closed at an all-time high on Wednesday and reached an intraday record on Thursday, despite pro-Trump insurrectionists violently storming the Capitol and disrupting the confirmation of President-elect Joe Biden’s victory.
The bullish mood on Wall Street has less to do with the riots and more to do with Democrats winning Georgia’s Senate runoff elections and taking control of Congress.
Stocks hinge on the prospects of corporate profit growth. The soft Democratic majority in the Senate lifts Biden’s chances of passing the fiscal stimulus that experts have urged Congress to enact for months.
A $1 trillion relief package could “easily” boost GDP expansion in 2021 by 1 point to 6%, Michelle Meyer, the head of US economics at Bank of America, said. That would all but certainly lift investors’ hopes for near-term profit growth.
While pro-Trump insurrectionists remained illegally perched on the steps of the US Capitol on Wednesday, the Dow Jones Industrial Average closed at a record high.
The market uptick has little to do with violence on Capitol Hill. Instead of fearing the chaos and President Donald Trump’s rhetoric, investors kept their sights set on Georgia’s runoff outcomes.
Raphael Warnock and Jon Ossoff’s victories in the Senate races push Democrats’ seat count in the body to 50, allowing for Vice President-elect Kamala Harris to break any ties. The soft majority paves the way for President-elect Joe Biden to pass more progressive policy, including fiscal relief meant to drive the US out of the coronavirus recession.
Stocks move – and always have moved – on the prospects of expanding corporate profits. Experts on Wall Street, at universities, and in the Federal Reserve have spent months telling Congress that sweeping fiscal stimulus is necessary to drive a faster and more equitable economic recovery. Climbing stock prices reflect investors’ beliefs that following Democrats’ wins in Georgia, such a relief package is more likely to reach Biden’s desk.
Another round of stimulus would be a game changer for economic growth and accelerate the rebound to pre-pandemic levels of activity, Michelle Meyer, the head of US economics at Bank of America, said in a Thursday note. The package would likely prioritize another round of direct payments, an extension of federal unemployment benefits, funds for state and local governments, and relief for healthcare workers.
A $1 trillion relief package could “easily” boost gross domestic product growth in 2021 by 1 percentage point to roughly 6%, according to the bank. The positive economic effect could be even larger, as the estimates hinge on conservative spending multipliers, Meyer added.
Economists at Morgan Stanley and Goldman Sachs similarly linked optimistic GDP projections to Democrats’ wins in Georgia. Credit Suisse raised its S&P 500 forecast on Thursday, saying the increased likelihood of new stimulus in early 2021 could drive the index 12% higher through the year.
Concerns that the Washington riots would create a lasting risk were largely alleviated Thursday morning. Congress certified Biden’s victory after hours of debate and failed efforts to object to Electoral College vote counts. Trump pledged to conduct “an orderly transition” soon after, reversing from previous claims that he won the election and would remain in office.
The ensuring of a peaceful transition further augmented bullish sentiments. All three major stock indexes notched record intraday highs on Thursday as investors viewed the certification as a return to business as usual.
“With the political tensions easing, more stimulus expected to help boost the economy, and coronavirus vaccines helping bring a measure of calm to investors and traders, it seems that the market can now focus on earnings season,” JJ Kinahan, the chief market strategist at TD Ameritrade, said.
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Credit Suisse analyst Jonathan Golub introduced his 2021 price target for the S&P 500 (^GSPC) of 4,050, implying 12.2% upside from Tuesday’s closing levels. Underpinning this upbeat call is his assumption that two years from now, the post-virus economic recovery will have already hit a peak.
“Our 2021 forecasts are designed to answer a simple question: what will the future (2022) look like in the future (end of 2021),” Golub said in a new note Wednesday. “From this perspective, we are forced to de-emphasize the near-term, focusing instead on the return to a more normal world.”
“As we look toward 2022, the virus will be a fading memory, the economy robust, but decelerating, the yield curve steeper and volatility lower, and the rotation into cyclicals largely behind us,” he added.
Based on Golub’s analysis, economic activity as measured by GDP growth will renormalize at levels slightly above trend, or with quarterly annualized growth rates just over 3%, starting in the second half of 2021.
Since the stock market discounts future events, each of these prospects for further improvement down the line should translate into a higher S&P 500 as investors price in these events.
Analysts have already begun to account for an anticipated improvement in corporate profits, as S&P 500 earnings per share (EPS) have on aggregate sharply topped consensus expectations so far for each of second and third quarter results this year.
“We expect 2020 estimates to rise, 2021 to remain stable and 2022 to moderate,” Golub said.
His 2021 S&P 500 price target of 4,050 is based on earnings per share of $168 next year, for an improvement of 20% over the expected aggregate EPS this year. He expects EPS will then rise to $190 in 2022.
On a sector basis, Golub rates technology stocks as Overweight for 2021, given their “faster sales growth, superior margins, robust FCF [free cash flow], and low leverage. He also rated financials, one of the laggard sectors so far for the year-to-date, as Overweight, given their propensity to lead during recoveries.
“Consistent with a typical recovery, banks should benefit from improving credit conditions, increasing transaction volumes, and a steepening yield curve,” Golub said. “The group is adequately reserved, likely. resulting in a greater return of capital.”
Golub designated cyclicals with a Neutral rating for next year, saying he is “positively inclined toward economically-sensitive groups and believe[s] their momentum should persist over the near-term.” But he added that he thinks the largest quarter-over-quarter improvements in economic activity have already come and gone, leaving more tepid further upside potential for stocks with profits closely tethered to economic growth.
He rated non-cylicals like consumer staples as underweight, while giving health care specifically an Overweight rating.
“Non-cylicals should lag in an improving economy as falling volatility supports higher P/Es (price-earnings multiples) for riskier assets, and rising rates make their high dividend yields less appealing,” he said. “The one exception is health care, which should outperform given a more robust earnings trend.”
Stocks sailed to record highs Monday before paring some gains as traders took in promising data on a leading COVID-19 vaccine candidate as well as President-elect Joe Biden’s victory in the U.S. presidential election, ending a days-long nail-biter over which candidate would prevail in winning the White House.
The S&P 500 jumped as much as 3.9% to more than 3,600 at session highs, topping its previous record intraday high of 3,588.11 from September, and its record closing high from that same day. The Dow gained as many as 1,610 points, or 5.7% to its own all-time high of more than 29,800. The Dow’s previous record intraday high was 29,568.57 from February. Both indices cut gains in the minutes leading up to market close, however.
The Nasdaq lagged and closed in negative territory, however, as hopes for a vaccine prompted traders to turn away from software stocks and other members of “stay-at-home” trade. Shares of Zoom Video Communications (ZM) and Peloton (PTON) each sold off on Monday. However, stocks poised to benefit from a broader economic reopening including airlines, cruise lines and lodging firms each surged.
Shares of Pfizer (PFE) jumped more than 7.5% after the company announced that their clinical trial showed that their vaccine candidate was more than 90% effective in preventing COVID-19 in participants with no evidence of a previous coronavirus infection. Shares of BioNTech (BNTX), which is working on the vaccine alongside Pfizer, also gained more than 16%.
Clarity around the results of the presidential election also helped fuel a market rally. Biden, alongside Vice President-elect Kamala Harris, is set to usher in a push for bigger fiscal stimulus, a public option in health care, investment in sustainability, and a more measured approach to foreign policy and trade, among other key issues. And in his victory speech Saturday, Biden promised to work toward these goals with an eye toward uniting a deeply divided nation, calling for an end of “this grim era of demonization in America” and underscoring that “if we can decide not to cooperate, then we can decide to cooperate.”
So far, traders have cast bets that some of the suspected “market negative” potential of a Biden presidency, such as a move to raise corporate taxes, would be tempered by a Senate that remained under Republican control. Two Senate races remain outstanding in Georgia and will not be decided until January, though prediction markets have so far given Democrats relatively slim odds of winning both seats needed for the party to claim a majority in the chamber.
“A divided government would constrain the Biden administration’s ability to implement plans for large-scale fiscal stimulus and public investment, tax, healthcare and climate related legislation,” analysts from BlackRock Investment Institute said in a note Saturday. “We see an increased focus on sustainability under a divided government, but through regulatory actions, rather than via tax policy or spending on green infrastructure. It also would likely signify a return to more predictable trade and foreign policy – even as U.S.-China rivalry is set to stay elevated due to bipartisan support for a more competitive stance.”
The analysts added that “some fiscal stimulus looks possible” during the lame-duck session in Congress, though the size and scope of any forthcoming package is likely to be much smaller than what a united Democratic government might have advanced.
“We’re monitoring the fiscal response closely, as a premature retrenchment could set back an economic restart that has so far surprised to the upside,” they said.
Other economists also expressed optimism that a stimulus package might get passed ahead of Inauguration Day, even after the months’ worth of discussions between Trump administration officials and congressional lawmakers fizzled out without an agreement.
“We are becoming increasingly hopeful that pressure from business leaders and vulnerable Republican Senators in 2022 will mean that something can pass before the end of the year, and very preferably before the end of the month,” Ian Shepherdson, chief economist for Pantheon Macroeconomics, said in a note Sunday.
And for the high-flying tech stocks that have driven the market higher for much of this year, a Biden presidential victory with a likely Republican Senate poses the “goldilocks Election outcome,” according to WedBush analyst Dan Ives.
“Investors should expect a ratcheting down of US/China tensions and the ‘decoupling path’ of the Cold Tech war, which is a bullish sign for Apple (AAPL) and semi [semiconductor] stocks looking ahead,” Ives said in a note Saturday. Concerns of a tougher antitrust environment for Big Tech companies have also likely eased, he added.
Biden is also set to strike a more serious tone on combatting the coronavirus pandemic, with the outbreak having already taken the lives of more than 230,000 Americans, sickened more than 9.8 million and dragged U.S. economic activity to a historic nadir. And while vote counts were under way last week, coronavirus cases hit a grim milestone in the United States: A record more than 120,000 new cases reported on Friday alone. Biden announced a new 13-person coronavirus task force on Monday, as one of his first major acts during his presidential transition.
4:04 p.m. ET: Dow climbs 835 points, or 3%, to pare some gains after soaring to a record intraday high
Here were the main moves in markets as of 4:04 p.m. ET:
U.S. West Texas intermediate crude oil prices (CL=F) jumped 8.5%, or $3.15 per barrel, to settle at $40.29 per barrel Monday afternoon, as hopes of a vaccine and broader economic reopening drove optimism over heightened energy demand. The energy sector far and away led gains in the S&P 500 Monday afternoon, surging more than 15% versus the broader market’s gain of just over 2.6%.
Still, crude oil prices remain lower by more than 30% for the year to date, with futures at one point having turned negative this spring before recovering.
11:45 a.m. ET: Why Pfizer’s promising vaccine data is bullish for Moderna: Morgan Stanley
Pfizer’s upbeat vaccine trial data, showing a more than 90% efficacy in preventing COVID-19 in patients without prior history of infection, points to potentially promising results for Moderna’s (MRNA) own vaccine candidate, according to Morgan Stanley equity analyst Matthew Harrison. Shares of Moderna were up more than 7.5% intraday on Monday.
Moderna’s candidate, like Pfizer’s, is based on messenger RNA (mRNA) technology, which produces a synthetic version of the mRNA a virus uses to build its proteins to teach cells how to create their own and eventually build immunity. Moderna calls its vaccine candidate mRNA-1273.
“Pfizer’s strong data should translate to mRNA-1273 since the level of neutralizing antibodies for mRNA-1273 is the same or better than Pfizer in earlier stage studies,” Harrison said in a note Monday. “We await potential differentiation in patient sub-groups or secondary endpoints (such as non-symptomatic infections).”
Harrison added that Modern’s vaccine candidate, if successful, will likely be easier to transport and thereby distribute en masse, since it does not require the same ultra-cold temperatures for storage.
“Moderna requires transport at -20C (vs. -80C for Pfizer), and can be stored at regular refrigeration for a week (vs. 24 hours for Pfizer) and requires no one-site dilution (vs. dilution required for Pfizer),” he said. “We see these factors as helping to maintain a commercial edge even with similar efficacy.”
9:54 a.m. ET: Stay-at-home trade comes unwound after promising vaccine data, while reopening stocks rally
Shares of companies that comprised the “stay-at-home” trade, or those viewed as beneficiaries of widespread social distancing and working and schooling from home, tumbled Monday morning after Pfizer and BioNTech released promising data around the efficacy of their COVID-19 vaccine candidate.
A vaccine has been viewed by many market pundits, business executives and policymakers as the key tenet of a sustained rebound in economic activity and corporate profitability, since without one, consumers would likely remain to some extent on the sidelines on returning to previous spending behaviors.
“The strong results from the Pfizer vaccine were better than most expected and means we could be opening back up sooner than expected,” Ryan Detrick, chief market strategist for LPL Financial, said in an email to Yahoo Finance Monday morning. “Coupled with an economy that continues to surprise to the upside and the stock market is now pricing in the prospects of a much better economy in ’21.”
Software stocks including Zoom Video Communications (ZM), Netflix (NFLX), Peloton (PTON), Etsy (ETSY), eBay (EBAY), Chewy (CHWY), Slack (WORK) and Amazon (AMZN) each sank shortly after market open.
The “reopening trade,” meanwhile, came roaring back to life. These included stocks like American Airlines (AAL), Delta Airlines (DAL), Southwest Airlines (LUV), Carnival (CCL), Norwegian Cruise Line Holdings (NCLH), Wynn Resorts (WYNN), Planet Fitness (PLNT), which each gained by double-digit percentages Monday morning. Each of these stocks stand – among many others – stand to benefit from a pick-up in travel and leisure spending, which had been weighed down by the pandemic.
Elsewhere in risk assets, West Texas intermediate crude oil prices (CL=F) and Brent crude (BZ=F) also each jumped by more than 9% Monday morning, with an increase in travel poised to drive a pick-up in demand for energy.
9:37 a.m. ET: Stocks soar to record levels, Dow adds more than 1,450 points
The Dow and S&P 500 each surged Monday morning as markets opened for trading.
Here were the main moves in markets, as of 9:37 a.m. ET:
S&P 500 (^GSPC): +132.72 points (+3.78%) to 3,642.16
Dow (^DJI): +1,486.64 points (+5.25%) to 29,810.04
Nasdaq (^IXIC): +110.27 points (+0.92%) to 11,998.57
Gold (GC=F): -$69.20 (-3.55%) to $1,882.50 per ounce
10-year Treasury (^TNX): +10.9 bps to yield 0.929%
9:20 a.m. ET: Biden announces 13 health experts will comprise his Transition COVID-19 Advisory Board
Confirming reports from over the weekend, Biden on Monday announced 13 health experts would be part of his Transition COVID-19 Advisory Board to help inform his approach to combatting the pandemic in the U.S.
“The advisory board will help shape my approach to managing the surge in reported infections; ensuring vaccines are safe, effective, and distributed efficiently, equitably, and free; and protecting at-risk populations,” Biden said in a statement.
The board will be co-chaired by three individuals, including Dr. David Kessler, who served as FDA Commissioner from 1990 to 1997, Dr. Vivek Murthy, who served as U.S. Surgeon General from 2014 to 2017, and Dr. Marcella Nunez-Smith, whose work at Yale University focuses on promoting health-care for structurally marginalized populations.
8:28 a.m. ET: Biden applauds Pfizer’s vaccine progress, but warns ‘end of the battle against COVID-19 is still months away”
Biden, in a statement Monday morning, congratulated Pfizer for its work on its COVID-19 vaccine, but urged Americans to remain vigilant in wearing masks and social distancing to keep the spread of the virus under control.
“The end of the battle against COVID-19 is still months away,” Biden said in the statement. “This news follows a previously announced timeline by industry officials that forecast vaccine approval by late November. Even if that is achieved, and some Americans are vaccinated later this year, it will be many more months before there is widespread vaccination in this country.”
“This is why the head of the CDC warned this fall that for the foreseeable future, a mask remains a more potent weapon against the virus than the vaccine,” he added. “Today’s news does not change this urgent reality. Americans will have to rely on masking, distancing, contact tracing, hand washing, and other measures to keep themselves safe well into next year. Today’s news is great news, but it doesn’t change that fact.”
7:16 a.m. ET: Dow futures surge more than 1,400 points after upbeat vaccine data, Biden victory
Here were the main moves in equity markets, as of 7:16 a.m. ET:
S&P 500 futures (ES=F): 3,629.40, up 119.5 points or 3.4%
Dow futures (YM=F): 29,737.00, up 1,456 points or 5.15%
Nasdaq 100 futures (NQ=F): 12,144.25, up 98.25 points or 0.8%
7:10 a.m. ET Monday: Pfizer, BioNTech, say their COVID-19 vaccine candidate is more than 90% effective
Shares of Pfizer and German drug-maker BioNTech each soared Monday morning after the companies announced that their Phase 3 clinical trials showed their COVID-19 vaccine candidate was more than 90% effective in preventing the coronavirus in participants with no evidence of a previous infection.
The trial’s analysis assessed 94 confirmed COVID-19 infections among nearly 44,000 participants.
“The case split between vaccinated individuals and those who received the placebo indicates a vaccine efficacy rate above 90%, at 7 days after the second dose,” the companies said in a statement. “This means that protection is achieved 28 days after the initiation of the vaccination, which consists of a 2-dose schedule.”
The companies added that they planned to submit a request for Emergency Use Authorization of their vaccine candidate to the U.S. Food and Drug Administration after they have a total of two months’ worth of data to achieve the agency’s safety requirements. This is expected to take place in the third week of November.
6:01 p.m. ET Sunday: Stock futures open higher after Biden named winner of presidential election
Here were the main moves in markets, as of 6:01 p.m. ET Sunday evening:
S&P 500 futures (ES=F): 3,517.00, up 16.25 points or 0.46%
Dow futures (YM=F): 28,334.00, up 130 points or 0.46%
Nasdaq futures (NQ=F): 12,141.5, up 66.5 points or 0.55%