Daily Markets: Stocks Surge on Biden Win and Covid Vaccine News

Today’s Big Picture

Equities in Asia started the week off on a bullish note with all the major market indices for the region finishing the day higher. Japan’s Nikkei led the way closing up 2.1%, closely followed by the 1.9% increase in China’s Shanghai Composite with the Hong Kong Hang Seng rising 1.2%. By mid-day trading in Europe, equities were noticeably higher and U.S. futures point to an opening surge later this morning. Catalysts explaining those sharp moves include the results of the 2020 U.S. presidential race that point to Joe Biden being the next President, and trial data from Pfizer (PFE) and BioNtech SE (BNTX) indicating their Covid-19 vaccine is 90% effective.

Barring anything exceptional -- since it is 2020, we can’t rule that out -- following his projected win in Pennsylvania as well as Nevada, Joe Biden defeated Donald Trump to become president-elect. A Biden win with a Republican-controlled Senate (the most likely outcome at this juncture) and Democratic-controlled house mean drastic policy changes are less likely. This probably includes:

• No major tax hikes
• The GOP tax cuts are unlikely to get rolled back for at least two more years
• No more trade wars, at least nothing like what we have seen under the current administration, which is a tailwind to emerging markets
• Less likely to see major regulatory hits to the major tech players such as Facebook (FB), Amazon (AMZN), Apple (AAPL), and Microsoft (MSFT)

Data Download

Coronavirus

The U.S. reported nearly 106,000 new coronavirus cases yesterday and the total reported number of cases worldwide hit 50.4 million, according to Johns Hopkins University. The U.S. hit a new record high for daily cases on November 7, of 128,402, and the 7-day average of new cases is above the 14-day in every state (data not available for South Dakota). The 7-day average has increased by 58.1% over the past two weeks. More than 237,000 Americans have lost their lives due to Covid-19 so far in 2020, making the coronavirus the U.S.’s third-leading cause of death, following heart disease and cancer, according to the Center for Disease Control and Prevention.

International Economy

This is a massively important week for the UK as its Prime Minister, Boris Johnson, seeks to deliver a trade deal with the European Union before Brexit finally happens at the end of this year. If he fails, the economic damage to a nation that is already being hit hard by the pandemic could be profound.

Building permits in Australia rose 15.4% MoM in September after falling 2.3% in August, the biggest MoM increase since February.

Japan’s Leading Economic Index rose to 92.9 from 88.5 while the Coincident Index rose to 80.8 from 79.4.

Germany’s imports fell 0.1% MoM (seasonally adjusted) in September after a 5.8% increase in the prior month, well below the 2.1% expected increase. Exports rose 2.3% Mom (seasonally adjusted), down slightly from the prior 2.4%, but besting expectations for a 2.0% increase. Speaking of imports: Germany is looking to delay EU tariffs on about $4 billion of American products in light of the presidential election results. The region’s largest economy is expected to raise the issue at today’s meeting of EU ministers.

Domestic Economy

The economy added 638k jobs in October, better than consensus estimate for 600k, but less than the prior month’s 672k addition. Through the end of September, 11.4 million of the 22 million jobs lost in March and April have been recovered. Service industries, which account for the bulk of the economy, nearly halted hiring in October, according to the Institute for Supply Management and small-business payrolls declined in the second half of October according to Homebase. The bad news here is that 3.6 million Americans have been unemployed for at least 27 weeks versus less than 1 million before the pandemic. On top of that, another roughly four million have left the workforce since February.

Later today we will get updated data on Consumer Inflation Expectations in October.

Markets

Friday the markets finished relatively flat, closing out one of the best weeks for equities since April. Who would have guessed that with stimulus off the table until 2021 and extended political uncertainty, the Nasdaq would gain 9.4% last week, the S&P 500 7.3%, and the Dow 6.9%? Talk about volatility, that S&P 500 bump comes after losing more than 5% last week! Hat tip to Bespoke Investment Company for this analysis - there have been only ten prior instances in which the S&P 500 fell 5% or more one week and rallied 5% or more the next.

Treasuries yields fell across the board as well as prices for everything just went up. Except that is the dollar, which saw the Invesco DB US Dollar Bullish ETF (UUP) fall 1.9% on the week, a tailwind to emerging market currencies, equities, and cryptocurrencies. The global stock of nominally negative-yielding debt is now over $17 trillion and has surpassed the previous high-water mark from August 2019. This set of subzero debt includes over 25% of all worldwide investment-grade debt.

Gold rose to $1,952 an ounce while WTI crude fell to $37 a barrel and the VIX dropped below 25 for the first time since August.

So far this earnings season, results have come in better-than-expected with Consumer Staples, Technology, and Industrials seeing the strongest beat rate at 884.%, 87.4%, and 87.3% respectively. On the other end of the spectrum, Energy, Real Estate, and Communication Services have had the worst beat rates of 65.4%, 67.9%, and 70.5% respectively. For top-line sales, Technology, Communication Services, and Industrials seeing the biggest beats at 90.0%, 79.5%, and 79.1%. Utilities, Energy, and Materials have the lowest beat rates for sales at 28.6%, 43.3%, and 69.8%. While Consumer Staples enjoyed the highest earnings beat rate, it has the fifth-worst sales beat rate at 74.4%. High expectations were already priced in though, as evidenced by the average 0.1% one-day gain for Technology stocks on their earnings reaction day, despite having the highest sales and second-highest earnings beat rates.

Last week’s rally pushed nearly every sector into overbought territory, with Materials and Healthcare even hitting new 52-week highs with Communication Services, Consumer Discretionary, and Industrials close behind.

Stocks to Watch

McDonald’s (MCD) reported September quarter EPS of $2.22 vs. the $1.90 consensus forecast as revenue for the quarter fell revenues fell 1.5% YoY to $5.42 billion vs the $5.37 billion consensus. Global comparable sales declined 2.2% during the quarter and the company shared its monthly comparable sales improved sequentially for all segments throughout the quarter. Systemwide sales were flat with the prior year (decreased 1% in constant currencies). Also, McDonald’s upped its quarterly dividend by 3% to $1.29 per share.

United Microelectronics (UMC) reported October sales increased 4.8% YoY to NT$15.28 billion. YTD sales reached NT$146.81B, an increase of 21.39% YoY.

Acer (ASIFY) reported a 43.2% YoY jump in October revenue with revenue for notebook PCs up 70.3% YoY, October revenue for monitors up 43.3%, gaming-related revenue rose 62.0% YoY, Chromebook related revenue grew by 71.2% YTD.

Tyson Foods (TSN) announced the European launch of its plant-based protein brand, Raised & Rooted ( the first expansion outside the US. The plant-based products are packaged in a recyclable 60 percent bio-based plastic material.

Amazon’s Amazon Web Services, the top seller of cloud-computing services, is investing 207.6 billion rupees ($2.8 billion) to set up multiple data centers in the southern Indian state of Telangana, K.T. Rama Rao.

Microsoft is expected to debut the Xbox Series X console tomorrow with availability at Amazon, Best Buy (BBY), Walmart (WMT), and other retailers.

Investors in airlines companies such as United Airlines (UAL), Delta Air Lines (DAL), and American Airlines (AAL) will want to take note of CAE Inc.’s (CAE) 2020-2029 Pilot Demand Outlook, retirement and attrition are expected to continue to be a challenge for the civil aviation industry as air travel recovers progressively. This is expected to drive an acute demand for pilots, resulting in an estimated short-term need for approximately 27,000 new professional pilots starting in late 2021.

Navistar (NAV) and Volkswagen's (VWAGY) TRATON confirmed they reached a definitive agreement for the acquisition of Navistar at $44.50 per share in cash. TRATON currently owns 16.7% of the outstanding shares of common stock of Navistar.

Activist investor Elliott Management Corp. has taken a stake in F5 Networks (FFIV). The company also previewed its upcoming November 18 analyst and investor meeting sharing long-term (circa 2025) targets that include total revenue growth between 8% to 9%; Software revenue growth of more than 20%; Software representing at least 75% of product revenue; Non-GAAP operating margin in the mid-30s%; Sustained double-digit non-GAAP EPS growth.

M&A activity in the podcasting space continues to heat up with reports Apple and Sony (SNE) have each held talks about potentially acquiring Wondery, an independent podcasting studio, and network that according to Podtrac reaches a monthly audience of more than 8 million people.

After today’s market close, Air Lease (AL), International Flavors & Fragrances (IFF), Hain Celestial (HAIN), Simon Properties (SPG), Taubman Centers (TCO), Tilray (TLRY), Zix Corp (ZIX) a few dozen other companies will report their quarterly results. Readers looking to prepare for those and other corporate earnings reports this week should visit Nasdaq’s earnings calendar page.

On the Horizon

• November 10: Apple (AAPL) event, NFIB Small Business report, JOLTS Report
• November 11: MBA Mortgage Apps
• November 12: CPI, Weekly Jobless Report, Real Hourly Earnings, Bloomberg Comfort, Budget Statement
• November 13: PPI and University of Michigan Sentiment
• November 16: Empire State Manufacturing
• November 17: October Retail Sales, Import/Export Prices, Industrial Production, Business Inventories, Capacity Utilization, Homebuilder Sentiment, TIC Flows, Facebook (FB) CEO Mark Zuckerberg and Twitter CEO Jack Dorsey appear before the Senate Judiciary Committee.
• November 18: US October Housing Starts, Building Permits, MBA Mortgage Apps
• 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

“If only one of the presidential candidates would make it part of his platform to do something about making Monday part of the weekend. I think he would get a lot of votes.” - Thomas Wayne

Disclosures

• F5 Networks (FFIV) is a constituent in the Tematica BITA Digital Infrastructure and Connectivity Index.
• International Flavors & Fragrances (IFF) is a constituent in the Foxberry Tematica Research Sustainable Future of Food Index
• Best Buy (BBY), McDonald’s (MCD), Microsoft (MSFT), Walmart (WMT) are constituents in Tematica Research's Thematic Dividend All-Stars Index.
• Hain Celestial (HAIN) 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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