FAANG stocks pull the market higher on news of an FDA emergency greenlight on a COVID plasma treatment. After a week of jobless numbers cracking up once more, the market and the pandemic sent mixed signals to investors.
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Markets
Fear & Greed Index: [72: Greed] (as of Aug 24, 2020)
What’s Happening: Markets moved up on FDA emergency use authorization for Convalescent Plasma COVID–19 Treatment. Health and Human Services Secretary Alex Azar calls the news “a milestone achievement in President Trump’s efforts to save lives from COVID-19.”
A FANG-shaped recovery.
While the S&P is holding its all-time highs, without the top 5, the S&P is only up about 2% on the year. Whereas with the FAANG included, it’s up over 35%. It’s the most massive proportional valuation of the top 5 since the 1980s.
Doubling-down on Big Tech: Japanese holding company SoftBank dropped about $3.9 billion to buy shares in 25 Big Tech companies, including Amazon and Tesla.
According to Bank of America, the ratio of hedge fund short positions in FAANG stocks is at a record-setting low 1%.
Zoom in: Tesla closed over $2000 for the first time, pulling ahead of Walmart in market cap. The company became the world’s largest automaker earlier this year. The company’s preparing for a 5:1 stock split this month, along with rumors it’ll enter the S&P 500.
That’s huge: In the same club, Apple snagged first-place for a US company reaching $2 trillion in market cap.
They also have the liquid assets to offset this debt issuance many times over. They’ve issued debt at 2.6% interest over 40 years, which doesn’t even keep pace adjusted for actual inflation.
It’s a stout capital raise for a giant company that’s made all the difference in S&P returns this year.
How to interpret this: For the S&P index and FAANG, Apple’s foray into debt issuance is likely a bullish signal.
Given that the top 5 have the same dollar-for-dollar input as the bottom 380+ stocks in the S&P, perhaps none of this will materially impact the smaller caps in the index.
On the contrary: Warren Buffett, a man who needs no introduction, bought shares in a gold mining company last quarter. Buffett hasn’t been interested in gold for about 20 years, but perhaps these uncertain times have changed his mind. In current economic conditions, with gold breaching $2000 for a period, the legendary investor may see the writing on the wall for undervalued mining companies.
Throwback: Mr. Buffett also waved goodbye to the crippled airline industry earlier this year.
Economy
Where’s the relief? The Trump administration sees a path toward compromise with the Democratic leadership. The package would total $500 billion and would only include proposals that both parties could agree over. (Bloomberg)
An ugly future: Initial jobless claims climbed to 1.4 million as US recovery slows. The IRS projects that millions of jobs lost
will not return for several years. Many of those jobs, according to the IRS, will be replaced with gig workers.
Keep Calm and Eat Pizza: News from companies like Dominoes Pizza appear to agree with the IRS’s prediction of a spike in UberEats-style jobs. The pizza franchise plans to hire another 20,000 workers to feed the world’s insatiable appetite for pizza delivery.
Better than nothing: However, Trump’s executive order created a grant program offering up to $400 in unemployment benefits. Due to the program’s cost-sharing structure, many states opt not to pay their 25% of the deal, so some residents have only received $300.
Some good news: The Fed ended 1-week US Dollar swaps with central banks as economic conditions have improved. (Reuters)
Nevermind: On the other end, the Dollar’s purchasing power fell to a record low this month.
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No holiday in 2020…wait for it.
25% of hotels are at risk of foreclosure. Meanwhile, US airlines continue to cut back, printing a 46% reduction in domestic capacity and a 56% reduction overall. (Seeking Alpha)
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Housing boom-bust combo: Sales of existing homes jumped 24.7% from June to July as sales increased monthly, and the total supply on the market dropped a sheer 21.1% annually. As bidding wars ignite between urbanites flooding the suburbs as consumer desires shift in the wake of the pandemic, we may find ourselves in the next boom cycle of the housing market.
Coronavirus
Reports from India suggest the country may be fast-approaching herd immunity as Europe and South Korea face another spike in new cases.
Also, scientists see lasting immunity to COVID-19. If that’s the case, it may reduce pressure on what public health officials are coining as a ‘Twindemic‘ in which a severe flu season compounds with the lasting coronavirus pandemic.
China
Higher Ed. under pressure: The US State Department is warning universities to drop China stocks from their endowments on the risk of exchanges delisting Chinese companies. (Financial Post)
The multi-billion divestment would likely have significant repercussions for US-China relations. This year, US regulators urged American stock exchanges to change the rules for Chinese companies on suspicion of widespread fraudulent behavior.
TikTok, still a hot topic: Trump stated that tech heavyweight Oracle would be an exceptional choice for taking over TikTok’s US business. (BBC)
Earlier this month, the President ordered TikTok’s owner ByteDance to sell its US branch within 90 days or get booted out the door. Both Microsoft and Twitter are in talks with TikTik for a potential buyout.
For a bite-sized breakdown, read “The Great Tech Decoupling is Here.” (Axios)
The great wall between rich and poor: China faces a widening wealth gap during its recovery from COVID. Beijing’s focus has been on stimulating investment and development rather than putting that stimulus into consumers’ hands. (Financial Times)
Luxury car sales in China are on a tear. At the same time, unemployment remains high, and low to middle-income people are spending less.
Foreshadowing: As the country reels from record-breaking floods, more than 100,000 people are forced to evacuate. Many fear the Three Gorges Dam will fail to hold back the Yangtze.
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In Other News
Cali’s on fire: Thousands of households are at risk as wildfires in California send 60,000 residents packing. In the wake of one of the deadliest heat waves on record.
The Dems: Senator Kamala Harris accepted the Vice-Presidential nomination with the support of Barack Obama, Hillary Clinton, and Bernie Sanders. (NPR)
A colossal error: 40% of British students saw their grades drop after the government implemented an algorithm that disproportionately affected disadvantaged students. (CNBC)
The government withdrew the grades shortly after students protested because the algorithm replicated inequalities present in the UK education system.
Whoops: Citigroup filed its third lawsuit over a $1 billion mistake. The company is contesting a dozen firms after accidentally sending a cash pile to Revlon Inc. creditors (Reuters)
Surprise twist: AirBnB, valued at $18 billion, has formally filed for an IPO in the face of the travel industry in comatose. Revenue for the company was down 67% in Q2.
Everyone’s online: Speaking of surprises, Target reported one of its strongest quarters by several measures. The retail giant saw digital sales spike 195%, and same-day services jump 273%.
In the first six months of 2020, the company gained 10 million digital customers and another $5 billion in market share. Like Wal-Mart, Target benefited greatly from government stimulus checks, meaning the company’s growth is likely to taper off as the pandemic subsides.
Zoom out: E-commerce is booming, sales as a share of all US retail sales topped 16.1% in Q2, up from 11.8% in Q1 (@stlouisfed)
Watch the Show
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Bitcoin: Rocky week Ahead | Levels to Look Out for Shorts Vs. Longs
Why We’re Shorting Tech | Watchlist: XLK, AAPL, TSLA, XLV, MRVL, COUP, OKTA, TSM
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