Daily Markets: Major Positive Covid-19 Progress Buoy Markets

Today’s Big Picture

Shares in Asia closed trading today mostly higher, led by the 0.5% increase in Hong Kong’s Hang Seng and Australia’s S&P/ASX 200. China’s Shanghai Composite rose 0.2% while Japan’s Nikkei finished the day down 1.1%. By midday, European markets were higher across the board and U.S. equity futures point to a positive opening later this morning.

Helping equities rebound from yesterday’s sell-off is the additional positive coronavirus vaccine news from Pfizer (PFE) and BioNTech (BNTX) that their BNT162b2 vaccine was found to be 95% effective in preventing Covid-19, rather than the 90% reported last week and is its effectiveness was consistent across all ages, races, and ethnicities. The vaccine requires two doses, but the data so far indicates a high rate of protection 29 days after the first dose. Pfizer plans to apply for emergency use authorization to the FDA within days.

This follows similar news from Moderna (MRNA) on its vaccine’s 94.5% effectiveness from earlier this week, offering hopeful signs that an end is in sight for the pandemic. Amid that hope, however, questions are starting to crop up over the timing, production, and logistics associated with these and other potential vaccines when it comes to reaching a global population of ~7 billion people. Fueling those questions is the continued surge in not only fresh COVID-19 cases counts but also the rising death rate that is leading to tighter restrictions. While the stock market’s view is some 6-9 months into the future, odds are there will be another COVID-19 led economic and earnings shoe to drop before then.

Data Download

International Economy

Japan’s exports fell 0.2% YoY in October while Exports declined 13.3%, both were improvements from the prior -4.9%and -17.4% respectively.

UK Core Inflation Rate rose 0.7% YoY October and was unchanged MoM. The Retail Price Index for October rose 1.3% YoY and was also flat on a MoM basis. Output PPI fell 1.4% YoY, up from the prior -1.7% while PPI Input fell 1.3%, up from the prior -2.2%.

The final reading for the October Inflation Rate in the Eurozone remained at -0.3% vs. a year ago as expected. The Eurozone’s October Core Inflation Rate, which excludes volatile prices of energy, food, alcohol & tobacco and at which the European Central Bank looks to for its policy decisions, remained at 0.2%, as expected.

New car registrations in the Eurozone fell 7.8% YoY in October after rising 3.1% in September. Demand dropped by 21% in Spain, 9.5% in France, and 3.6% in Germany. Only Ireland and Romania posted gains, at 5.4% and 17.6% respectively.

Domestic Economy

There continues to be no progress on either fiscal stimulus talks or government funding, with the December 11 deadline looming, at which point the government (once again) runs out of money. But hey, what 2020 really needs at this point is some 11th-hour drama on Capitol Hill to close out what has been a rotten year for most.

Yesterday’s Retail Sales report for October revealed that while sales grew for the sixth consecutive month, the pace was less than expected for both topline and core sales. On top of that disappointment, the September better-than-expected pace was revised lower by 0.3%. Breadth for October was also negative for the first time since April, with only five of the thirteen sectors showing growth. The other eight declined. Online sales growth remains the bright spot, growing at the fastest pace at 3.1%, not exactly great news for brick-and-mortar as restrictions are being imposed around the nation in light of accelerating daily cases. Online sales now account for nearly 16% of total sales. Electronics and Appliances were the second strongest at 1.2% with Building Materials third at 0.9%. The weakest category was Clothing at -4.2%with Sporting Goods the next weakest. Who needs new clothes when we are all stuck at home?

On the other end of the spectrum, as folks are stuck at home, homebuilders are loving life. Yesterday’s NAHB Homebuilder Sentiment Index rose to 90 from its prior record high of 85, where it was expected to remain. Not only is this a new record high, but the 5-point move is in the top 10% of all month-over-month changes. Just about every sub-index was higher this month and at or near new record highs. That said, shares of homebuilders aren’t enjoying the same level of enthusiasm. The S&P 1500 Homebuilders index hasn’t made a new high in a month and is trending sideways around its 50-day moving average. When stocks don’t enjoy a bounce on good news, that’s a warning sign for shares.

Yesterday also brought updated quarterly consumer credit data from the Federal Reserve which found that credit card debt has declined at the fastest pace over the past two quarters, going back to when the data began in the early 2000s. Other non-mortgage forms of debt are shrinking, while the only area not changing much is mortgages which have seen record gross originations and strong home purchase demand. Mortgage debt as a percent of total household debt is now at the highest level since Q1 of 2015. That said, the 10th percentile, median, and 25th percentile FICO scores of new loans are all at record highs with less than 30% of mortgage origination in Q3 for those with FICO scores less than 780. Delinquency rates have dropped sharply, but that is thanks to COVID forbearance so that growing pool hidden underneath will have to be addressed at some point.

The one exception concerning delinquency is credit cards, which have hit the highest level since the early 2010s even though balances have plunged. Putting this all together, more evidence that the “haves” can take advantage of the ultra-low rates and weather the Covid-19 storm, while the “have-nots” are living off credit cards and are unable to make ends meet.

Manufacturing output rose 1% MoM in October, leaving real manufacturing output nearly 5% below February’s levels. Total Industrial Production also remains 5.6% below February’s levels. Similarly, manufacturing capacity utilization remains 3.3% below pre-Covid levels. Coal production is down to levels not seen since the 1980s as mines are rapidly shutting down and coal production is falling faster than mining capacity.

At a virtual event yesterday organized by the Bay Area Council Hall of Fame, Federal Reserve Chair Powell warned, “The concern is that people will lose confidence in efforts to control the pandemic, and...we're seeing signs of that already.” He reiterated that the Fed has no plans to tighten monetary policy anytime soon and that Congress needs to pass another fiscal stimulus package soon.

Following yesterday’s data-rich news that included a miss on October Retail Sales and a MoM uptick in October Industrial Production, investors will be parsing through today’s U.S. October US Housing Starts & Building Permits, as well as the weekly MBA Mortgage Applications Index and EIA Crude Oil Inventories, reports.

Markets

Stocks gave back some of the previous session's rally yesterday with the S&P 500 falling 0.5%, the Nasdaq off 0.2%, and the Dow Jones Industrial Average down 0.6% while the Russell 2000 rose 0.4% to close at its third consecutive record high, having gained over 16% in November alone. Real Estate and Energy outperformed while Utilities were the weakest. The U.S. dollar fell again, dropping 0.2% with Treasury yields falling. Walgreens Boots Alliance (WBA), CVS Health (CVS), and other drug store stocks sold off following the launch of Amazon's (AMZN) online pharmacy business.

Stocks to Watch

Pfizer and BioNTech shared a final data analysis found their coronavirus vaccine, BNT162b2, was 95% effective in preventing Covid-19 and, in addition, appeared to fend off severe disease. Pfizer plans to apply for emergency use authorization to the Food and Drug Administration “within days.”

Target (TGT) crushed consensus revenue and EPS expectations for its October quarter. Total comparable sales grew 20.7% in the quarter, with comparable-store sales growth of 9.9% and digital sales growth of 155%. Comparable traffic rose 4.5% during the quarter and average ticket grew 15.6%. Target also announced expects to resume the use of the $4.5 billion remaining under its current share repurchase program beginning in 2021.

Lowe’s (LOW) reported October quarter results that came in modestly ahead of consensus expectations and guided current quarter EPS to $1.10-$1.20 vs. the $1.15 consensus. For the October quarter, Lowe’s reported its comparable sales rose 30.1% vs. the consensus of +22.8%. For the current quarter, the company sees total and comparable sales growth of 15%-20%.

Cloud service company Kingsoft Cloud (KC) issued September quarter results of RMB -0.03 per share vs. the RMB -1.10 consensus. Revenue for the quarter rose 72.6% YoY to RMB 1.73 billion, matching the consensus forecast. For the current quarter, Kingsoft sees revenue in the range of RMB1.88-1.95 billion vs. the RMB 1.98 billion consensus

Apple (AAPL) announced it will reduce its App Store commission to 15% on January 1 for small businesses earning up to $1 million per year.

Aaron's Holdings Company (AAN) announced its Board of Directors established November 27, 2020, as the record date and November 30, 2020, as the anticipated closing date for the distribution of the Aaron's Business segment to the Company's shareholders. Following the spin-off transaction, the company will be renamed PROG Holdings, Inc and will trade under the new symbol "PRG." The spun-off company that will hold the Aaron's Business segment will be named The Aaron's Company, and its common stock will trade under the symbol "AAN."

Boeing (BA) announced it anticipates demand for 2,945 new airplanes in the Middle East valued at $685 billion over the next two decades, as the industry recovers from the COVID-19 pandemic in the medium and long term. FAA Administrator Steve Dickson is expected to sign an order today lifting the flight ban on Boeing’s 737 MAX as well as an airworthiness directive requiring new pilot training and software upgrades. Key suppliers for the 737 Max include Spirit AeroSystems (SPR), Triumph Group (TGI), Hexcel Structures (HXL), and BAE Systems Platform Solutions (BAESY).

K12 Inc. (LRN) will change its corporate name to Stride, Inc effective December 16 to reflects its emphasis on lifelong learning, regardless of a student's age or location. The company has entered into a definitive agreement to acquire both MedCerts, a leader in online career certification training, and Tech Elevator, an innovator in supporting individuals and companies seeking to develop in-demand coding skills and talent. Stride now sees fiscal 2021 revenue of $1.457-1.458 billion, up from its previous outlook for $1.445-1.470 billion. The company is scheduled to hold a Virtual Investor Day today.

Reuters reports Roche Holding AG (RO:SW) completed early tests of its ability to produce large quantities of Regeneron Pharmaceuticals Inc’s (REGN) COVID-19 antibody treatment, putting it on track to begin manufacturing the drug once it is authorized by regulators.

Johnson & Johnson's (JNJ) shared it is recruiting 1,000+ people per day for the late-stage trial of its COVID-19 vaccine candidate (JNJ-78436735) and expects to have the required data to seek U.S. authorization latest by February.

Chinese electric vehicle (EV) company Nio Inc. (NIO) reported September quarter results that topped consensus expectations and issued upside guidance for the current quarter. Vehicle deliveries totaled 12,206 in the quarter compared to 4,799 vehicles in the year-ago quarter and 10,331 in the June 2020 quarter. Nio sees current-quarter revenue in the range of RMB 6,258.7-6,435.8 million vs. the RMB 5.36 billion consensus with vehicle deliveries between 16,500-17,000 units.

Hyundai Motor (005385:KS) is being sued over a string of battery fires in its electric vehicles (EVs), just as General Motors (GM) recalls nearly 70,000 EVs with batteries from the same maker, LG Chem (051910:KS).

The Financial Times reports Unilever (UL) is aiming to increase its annual sales of plant-based meat and dairy alternatives to €1 billion in five to seven years.

Mars, the company behind M&M’s and Snickers, is acquiring the maker of Kind bars, the snacks that celebrate their lack of artificial flavors and preservatives.

Bloomberg reports trading platform Robinhood Markets has asked investment banks to pitch for roles in its IPO that is targeted for 1Q 2021.

Reuters reports Britain will ban the sale of new petrol and diesel cars and vans from 2030, five years earlier than previously planned, as part of what Prime Minister Boris Johnson is casting as a “green revolution” to cut emissions to net-zero by 2050. Under the plan, the sale of hybrid cars and vans will be banned from 2035.

After today’s market close Jack in the Box (JACK), L Brands (LB), Nuance Communications (NUAN), Nvidia (NVDA), Shoe Carnival (SCVL), and Sonos (SONO) will report their quarterly results. Investors looking to get a jump on those reports and others to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

• November 19: Weekly jobless report, Philly Fed Outlook, Bloomberg Comfort, Leading Index, Existing Home Sales, Kansas City Fed Activity
• November 20: Options Expiration
• November 23: Chicago Fed National Activity, Preliminary Markit PMIs
• November 24: FHFA Home Prices, Case-Shiller Home Prices, Consumer Confidence, Richmond Fed Manufacturing
• November 25: Personal Income/Spending, PCE, Retail Inventories, GDP, Durable Goods, University of Michigan Sentiment, New Home Sales
• November 26: Markets Closed for Thanksgiving

Thought for the Day

“The first step that leads to our identity in life is usually not ‘I know who I am,’ but rather ‘I know who I am not’ - the process of elimination.” – Matthew McConaughey

Disclosures

• Nvidia (NVDA) is a constituent in the Tematica BITA Digital Infrastructure and Connectivity Index.
• Aaron's Holdings Company (AAN), CVS Health (CVS), Target (TGT), Walgreens Boots (WBA) are constituents in Tematica Research's Thematic Dividend All-Stars Index.
• Nio Inc. (NIO) is a constituent in Tematica Research’s Cleaner Living Index.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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