Stocks slump to start week on pre-election stimulus doubts
House speaker Nancy Pelosi’s 48-hour deadline for lawmakers and the White House to agree on a new stimulus package before the election was met with a cold reception by investors on Monday. There was hope of a deal being reached imminently to help safeguard the US economic recovery, but that is becoming less likely as politicians continue to lock horns. The S&P 500 sank by 1.6% in response, with the energy, information technology and communication services sectors falling hardest.
Of the 30 stocks in the Dow Jones Industrial Average, which fell 1.4%, Intel was the only stock in the green after news that the firm has reached a deal to sell its flash-memory business for $9BN. Per The WSJ, the firm has been wanting out of the business for some time, as prices for flash memory have sunk.
Overnight, stock markets across Asia also headed south, with both the Japanese Nikkei and Hong Kong’s Hang Seng down 0.5% and 0.2% respectively, as nervous investors headed for the door. European markets have also opened in the red after record COVID-19 infection numbers were reported on the continent.
Despite yesterday’s sell off, US futures are up between 0.5% and 1% but the uncertainty over the election could keep a lid on gains as investors weigh up how much risk they want to leave on the table going into such a volatile event. That being said, we also have some big names reporting earnings which will undoubtedly garner some interest (more below).
Apple keeps slipping after last week’s iPhone release
All three of the major US stock indices suffered yesterday, with the Dow being pushed back into negative territory in terms of its year-to-date return. Eight stocks in the Dow fell by more than 2%, with Apple the biggest loser at -2.6%. The firm is now down 6.8% over the past five trading days, which includes the announcement of its latest iPhone models last week. Apple’s share price is still up 58% year-to-date, and 93% over the past 12 months.
In earnings news, IBM delivered a third straight quarter of revenue declines, which sent the firm’s share price tumbling 3% in after-hours trading. For new CEO Arvind Krishna, the decline is a continuation of the troubles under his predecessor Ginni Rometty. On the earnings call, Krishna declined to provide earnings guidance, and said that the firm would be booking charges of $2.3bn in Q4 to “simplify and streamline” the business. Also of note is the company reporting that revenue from its cloud business gained 19% year-over-year to account for 6% of the total.
UK stocks continue to head sideways
London-listed stocks started off the week in mixed fashion, with both the FTSE 100 and FTSE 250 continuing the journey sideways that they have been on since May. The FTSE 100 closed the day 0.6% down, while the FTSE 250 gained 0.2%. There were no major losers in either index, with gambling firm GVC falling furthest in the FTSE 100 at -2.4%.
In the FTSE 250, travel names enjoyed a positive day, with Tui, easyJet and Carnival up 6%, 4.8% and 4.5% respectively. Doorstep lender Provident Financial led the index however with a 6.7% gain, taking its rally over the past three months past the 25% mark. The company remains down more than 50% in 2020 overall, however.
In corporate news security firm G4S made headlines yesterday as a takeover battle between the firm and hostile suitor GardaWorld (a Canadian firm) continued. GardaWorld made a full offer for the firm valuing it at 190p per share, below the firm’s current market cap. At the same time, GardaWorld reportedly sent G4S shareholders a letter encouraging them to ignore G4S management and take the deal. G4S put out its own note, telling investors the bid “significantly undervalues the company.”
What to watch
Netflix: One of the success stories of the pandemic, Netflix’s share price has soared by 64% in 2020 as consumers stuck at home turned to streaming services. A challenge that is becoming more pressing as the COVID-19 pandemic has worn on is the company’s ability to create and serve up fresh content to its existing and newly won subscribers. How the company is tackling that, along with whether the firm has sustained its COVID-19 boosted new subscriber numbers, will be key points of focus when it reports its third quarter earnings today. Currently, 26 Wall Street analysts rate the stock as a buy or overweight, 12 as a hold, and five as an underweight or sell.
Philip Morris: Tobacco giant Philip Morris has, along with other tobacco names, seen its share price slip in 2020 – although that is not out of line with the headwinds the firm has faced for multiple years. The company delivers its latest earnings update today, following Q2 results in July where it brought back its full-year guidance. In July, the firm also won FDA approval to market a heat-not-burn product as a less harmful alternative to cigarettes; the rise of cigarette alternatives has been a substantial challenge to the firm. One thing to watch closely in the company’s results is any mention of its dividend. Currently, the company’s 6% plus dividend yield and track record of increases represents a significant attribute in a near-zero interest rate environment.
Snap: Social media platform Snap is another 2020 success story, as while the pandemic has posed a challenge to digital advertising, consumers with time on their hands have been driven to the firm’s service in droves and Snap has been innovative in developing new advertising features. The company delivers Q3 earnings this afternoon in the US, where investors will be watching for how the firm has tapped surging e-commerce businesses for advertising spend at a time when many other normally lucrative sectors – such as travel – remain under major pandemic pressure. Wall Street analysts lean towards a buy rating on the stock.
Crypto corner: Holders of 100+ bitcoin swells to six-month high
The number of investors who hold more than 100 bitcoin in their wallets has jumped to a six-month high, new data has shown.
According to analytics data provider Glassnode, there are now 16,159 bitcoin wallets which hold 100 or more bitcoin, beating the previous six-month high of 16,158, last seen in June. At current prices, any wallet holding more than 100 bitcoin has a market value well above $1m.
In a sign that many investors are content to sit out the current volatility and only contemplate selling back nearer record highs, Glassnode added that the number of non-zero bitcoin addresses reached an all-time high of 31,913,3555 on Monday; approximately 5,000 of these were recorded within the past 24 hours. A non-zero bitcoin address is one that contains some bitcoin.
Bitcoin’s price has surged in recent weeks, climbing around 15% off lows near $10,000 to trade at $11,699 today.
- The S&P 500 Index gained 0.5% as of 4 p.m. New York time.
- The Nasdaq 100 Index gained 0.3%.
- The Stoxx Europe 600 Index decreased 0.4%.
- The MSCI Asia Pacific Index was little changed.
- S&P/ASX200 Index fell 44.8 points, or 0.7 per cent, to 6184.6 points
All data, figures & charts are valid as of 21/10/2020. All trading carries risk. Only risk capital you can afford to lose