Markets Prepare for Election Week
November 2 2020 - Team Stockal
It was a tough week for traders on Wall Street as tech stocks led the slide. As earnings season ended, all eyes are now on the results of the U.S. Presidential elections. With the results season behind them, voters will be mindful of the recent spike in the number of fresh coronavirus cases with several states reporting a new record high. A good holiday season ahead with consumers loosening their purse strings could provide some succour.
Top stories this week
Q3 earnings done, Street readies for Presidential elections
Wall Street had a reality check as Q3 earning season ended last week, with the indices registering a sharp decline. The Street also heads for election week expecting choppy markets. The leading indices registered the biggest weekly fall for the week since March as tech stocks led the selling pressure. Dow fell 1833.97 points while the S&P 500 slipped 195.43 points for the week. It was the biggest ever loss for S&P 500 ahead of the Presidential election. The Nasdaq 100 declined over 2.6 percent after Apple sales missed sales forecast and Twitter disappointed on subscriber additions. With the pandemic’s growth worrying the markets, last week saw over 89,000 new coronavirus cases in the U.S., registering the highest single-day rise.
The earnings season is not being seen as a disappointment for the markets with three of four companies meeting expectations. But with global markets also declining, the sentiment has been weak. Several countries have announced a fresh lockdown, leading to uncertainty around the green shoots of a global economic recovery.
Tech reports strong advertising rebound
Secular growth in advertising revenues drove Google’s parent Alphabet to strong gains for the week. Its revenue and profit beat market expectations by a wide margin, driven by YouTube and cloud revenues. Strong advertising growth was also reported by Snapchat and Pinterest earlier. With a sharp fall in sales, Apple disappointed the markets as its China revenues dropped 29 percent to a six-year low. Its services revenue, however, surged to an all time high at $14.5 billion. Twitter disappointed the markets with lower than expected customer addition, plunging the stock over 21 percent for the day. It reported only one million customer additions during Q3 against the expectations of nine million.
Tech companies across the board have seen a strong rally after the selling pressure seen during February and March. Stocks of the global tech companies have led the bull charge. So strong has been the tech rally for the year that despite the steep fall, Twitter is still up 88 percent for the year.
Exxon to keep dividend flat for Q4
The largest U.S. oil company will keep a flat dividend for the fourth quarter of 2020. It will be the first time that it will not raise the shareholder payout. It has posted its third consecutive quarterly loss and is expected to report a $2 billion loss for the year.
Some analysts expect that even if U.S. oil prices are hovering around $45/barrel, the company’s dividend will deplete its cash balance by the end of 2021. During the last financial year, the dividend for shareholders from the company was $14.7 billion. Exxon planned to spend $33 billion in capital expenditure during 2020 but has spent only $16.6 billion up to Q3.
Oil prices have plunged since the beginning of 2020 and the demand had fallen by nearly 30 percent as nearly half the world was under a lockdown. BP and Royal Dutch Shell have cut dividends for their shareholders. Exxon’s stock is at its lowest in two decades.
Bitcoin gains as digital currency finds more takers
Last week, for the first time ever, a JPMorgan Chase’s JPM Coin was to be used by a customer to make payments. That caused another frenzy for Bitcoin, which has been hit in recent weeks. It has been close to the levels seen around the cryptocurrency bubble seen three years ago.
Several other companies like Paypal, Fidelity, Square have announced their association with digital currencies. Central banks across the world are now more open to the idea of an era where digital currency will spread. The European Central Bank has said that it will start experimenting with a digital version of the euro.
Bitcoin is the world’s largest digital token by market value and has seen its value surge 85 percent during 2020. During October, it surged almost 30 percent. Such wild swings are not unusual for Bitcoin which has seen a peak of $16,932 in January 2018 before falling to $3136 in December 2018.
U.S. consumer spend continues upward spiral as GDP recovers
Consumers in the U.S. increased their spending for the fifth consecutive month, supporting the economy to recover from the virus-induced slowdown. The Commerce Department said that household spending on goods and services rose 1.4 percent during September. Consumer spending increased on automobiles, clothing, and footwear. The rise in spending, which registered a sharp spike in South Carolina, Mississippi, and Alabama, is also being attributed to the unemployment benefits that gave $300/week extra in consumers’ pockets. Meanwhile, easing of lockdown and other restrictions led the U.S. GDP to rise by a record 7.4 percent during the quarter.
The services sector continues to stay below the pre-pandemic levels. A measure of credit and debit card spend, tracked by JPMorgan, shows that it is down 5.2 percent compared to last year for the week ended October 25. All eyes are now on the impact of the second wave of the coronavirus.