Good morning everyone,
Analysts’ hopes that the Federal Reserve will step in with interest rate cuts and stabilise markets sent shares soaring yesterday, with the Dow Jones Industrial Average jumping 5.1% to deliver its best day since 2009. Stimulus hopes outweighed concerns about the continued spread of the coronavirus epidemic, which shows no sign of slowing. On Monday, the number of US diagnosed cases passed 40 with the death toll still at six, while around the world there continue to be reports of rising infection rates. Despite the gains on Monday, the Dow is still down 4.5% over the past five trading days due to last week’s record setting sell-off, and 6.4% year-to-date, but all 30 constituent stocks posted positive performance yesterday. Meanwhile, in the S&P 500, which closed the day 4.6% higher, the utilities, technology and consumer staples sectors were strongest, each gaining more than 5%. Apple, which suffered a 13% sell-off last week, gained 9.3% after analysts at Oppenheimer upgraded their rating on the stock and advised investors to take advantage of the opportunity to buy.
Nonetheless, the virus continues to drive markets, with Asian stocks in retreat overnight. Japan’s Nikkei closed down 1.22%, although the Hang Seng and China’s CSI 300 index managed to keep in positive territory, up 0.5% each. Ahead of an expected move by the Fed, Australia’s central bank has already acted to shore up its own economy – it cut rates by 25 basis points overnight to a record low of 0.5%.
The US Presidential election has become a sideshow to events around the world, but one thing worth keeping an eye on in the US today is Super Tuesday, when more than a dozen states will vote for the Democratic candidate they want to face off with President Trump in the Presidential election later this year. Around a third of all delegates are up for grabs, and markets could react strongly depending on where the votes fall. Senator Bernie Sanders has been building momentum and comes with a fear factor for Wall Street, given the war he has promised to wage on corporate greed if he succeeds in winning the presidency.
Chinese e-commerce firm JD.com delivers a big win amid virus chaos
While the Dow led the way on Monday, it also had the furthest to recover. The Nasdaq Composite’s 4.5% gain took it back to within touching distance of a positive price return year-to-date, with 5% plus gains from Microsoft, Tesla and Costco helping the index higher. Nasdaq-listed Chinese e-commerce firm JD.com was the biggest winner on the day, jumping 12.4% after delivering an expectation beating Q4 earnings update. JD.com management estimated that revenue growth for the first quarter, while slower due to the epidemic, will still be in the double digits and noted that user activities on its platform have been growing in recent weeks. They also commented that the firm’s role in assisting with logistics and technology in the response to the epidemic “was becoming more recognised by our consumer base.” Several pharmaceutical stocks were also among the biggest winners on Monday, with Gilead Sciences, Biogen and Amgen gaining 8.7%, 6.3% and 6.2% respectively. Gilead announced last week that it had begun two, phase three clinical studies to test the efficacy of an antiviral drug in combating the COVID-19 virus.
S&P 500: +4.6% Monday, -4.4% YTD
Dow Jones Industrial Average: +5.1% Monday, -6.4% YTD
Nasdaq Composite: +4.5% Monday, -0.2% YTD
Rocky day for UK shares, with pharma, supermarkets and oil all up
The muted daily gain/loss figures for the FTSE 100 and FTSE 250 masked what was in fact a turbulent day for investors. After opening marginally higher, the FTSE 100 climbed by around 3%, before sinking back to a loss for the day around lunchtime and then climbing to a 1.1% daily gain by the close of play. The FTSE 250 faced a similar trajectory but failed to cross back into positive territory for the day. On Monday, the number of coronavirus cases in the UK hit 39, with Prime Minister Boris Johnson warning that there is the possibility of “a very significant expansion” of coronavirus in the UK.
In the FTSE 100, it was a good day for supermarkets with Ocado Group, Morrisons and Sainsbury’s gaining 5.2%, 5.2% and 4.4% respectively. Oil firms fared well too, with Royal Dutch Shell and BP both up more than 3%. Holding the index back were travel names, with British Airways parent IAG the biggest loser by far, falling 8.2% and taking its loss since February 21st past 30%.
FTSE 100: +1.1% Monday, -11.8% YTD
FTSE 250: -0.2% Monday, -11.8% YTD
Stocks to watch
Target: $55bn market cap retailer, Target, fell broadly in line with the wider market last week, and even after a 5.9% pop on Monday finds itself around 15% below its all-time peak from November. Longer-term, the stock has been a top performer, climbing 50% over the past 12 months, even with the recent sell-off included. Similar to other bricks and mortar retailers that have been successful in the digital age, Target has matched up to online-only rivals with same-day delivery services and has rethought its store designs and footprint. The firm reports its latest set of quarterly earnings on Tuesday, having cancelled an in-person investor meeting in New York due to coronavirus concerns. One element that may feature on the call is how the firm is handling epidemic-linked panic buying which is beginning to be reported across the US.
AutoZone: Car parts retailer AutoZone has more than 6,000 locations in the US, Mexico and Brazil. It posted a 40% plus share price gain last year, largely due to differentiating itself with personalised service and a continued share buyback program. Given the firm’s dependence on making a huge variety of parts available to its customers, the company is exposed to manufacturing and supply chain disruptions in China, which will almost certainly be addressed when it reports earnings on Tuesday. Wall Street analysts are almost evenly split between buy and hold ratings on the stock.
Hewlett Packard Enterprise: Not to be confused with hostile takeover embroiled HP Inc, HPE is a business focused IT company with a $17bn market cap. The firm’s share price has been sinking steadily this year, falling more than 20% in 2020 so far, after a volatile 2019 that ended with a 20% gain. HPE reports earnings post-market close on Tuesday, where its progress in cloud computing services is likely to feature. At present, Wall Street analysts favour a hold rating on the stock, with seven rating it as a buy or overweight, 14 as a hold and two as a sell.
Crypto corner:
Bitcoin and its largest peers rallied off lows yesterday and have maintained firmer levels overnight, as the volatility playing out across markets continues to feed through to the asset class.
Bitcoin itself moved up off a low of $8,500 to close within touching distance of $9,000, before settling down at $8,720 this morning. Ethereum and XRP followed a similar pattern, rebounding off lows seen over the weekend. This morning Ethereum is off 2.4% at $225, while XRP is at $0.23, also weaker on the day.