European markets have continued their momentum from last week and are up across the board this morning. The reaction of markets last week to Pfizer’s announcement that its vaccine has proved 90% effective in trials gave investors a taste of the potential recovery to come. UK stocks – which have dramatically underperformed their US counterparts – delivered their best week since April, with the FTSE 100 gaining 6.9% and the FTSE 250 up 7.6%.
In corporate news, telecoms giant Vodafone is up 4% after adjusting up its forward guidance for 2021, taking its shares to their highest level since July.
In the US futures are also signalling a positive open, with the Dow Jones leading the way up just under 1%. Last week, some of 2020’s hardest-hit sectors bounced back sharply. The S&P 500’s energy, financials and industrials sectors gained 16.5%, 8.3% and 5.3% respectively. By comparison the information technology sector, which has gained more than 30% in 2020, was marginally in the red last week. Of note, however, is the fact that technology stocks pared their losses as the week wore on. While investors are eyeing a bounce back in demand for energy, international travel and more, many are taking the view that some of the pandemic-induced trends that tech firms have benefited from in 2020 will not fall back to their pre-Covid 19 state once a vaccine is widely available.
Yield on 10-year Treasuries hits highest level since March
The main three US stock indices last week reflected a substantial week of outperformance for value stocks. In the top spot was the Dow Jones Industrial Average, with a 4.1% gain, while the technology-heavy Nasdaq Composite fell by 0.6%. Funds tilted towards the growth and value factors provide a more direct view. Last week, the iShares S&P 500 Value ETF added close to 6%, versus a flat result for the iShares S&P 500 Growth ETF. Small-cap stocks also handily outpaced large last week, with the Russell 2000 (a small-cap benchmark) up 6%.
Another point of interest last week was found in bond markets. The 10-year US treasury yield hit its highest level since March, as investors buoyed by vaccine news sold out of safe-haven government debt. The Cboe Volatility Index, sometimes known as the “fear gauge”, fell back for the second week in a row, to its lowest level since August.
S&P 500: +1.4% Friday, +11% YTD (+2.2% last week)
Dow Jones Industrial Average: +1.4% Friday, +3.3% YTD (+4.1% last week)
Nasdaq Composite: +1% Friday, +31.8% YTD (-0.6% last week)
Hardest hit FTSE 100 names are still in a deep hole
Around a dozen FTSE 100 names rallied by more than 20% last week, while there were only a handful of double-digit fallers. Some of those companies still have deep holes to dig themselves out of. International Consolidated Airlines Group (IAG) led the index with a near 40% gain but is down 66% year-to-date. Similarly, Rolls-Royce gained 35% and Lloyds Bank added 27%, but they are still down 60% and 44% respectively in 2020 so far. There were some names whose rally last week has taken them back within striking distance of a positive year. Insurer Legal & General and housebuilder Taylor Wimpey both added more than 20%, and are both now down by around 20% in 2020 so far. In the FTSE 250, catering firm SSP, outsourcing specialist Capita, and Cineworld all gained more than 50%.
FTSE 100: -0.4% Friday, -16.3% YTD (+6.9% last week)
FTSE 250: -0.2% Friday, -11.9% YTD (+7.6% last week)
What to watch
Palo Alto Networks: Cybersecurity has been an industry in the spotlight this year, as mass working from home and companies shifting to the cloud has necessitated an overhaul of security systems. Palo Alto Networks has gained 12% this year, taking its market cap close to the $25bn mark. The company delivers its latest set of quarterly earnings today as US markets open, with investors watching for insight into what a vaccine and return to more normal working conditions would mean for cybersecurity product demand. Analysts are expecting the firm to deliver an earnings-per-share figure of $1.33 for the quarter, up from the $1.18 they were expecting for the quarter three months ago.
JD.com: Chinese e-commerce giant JD.com, which has a US listing on the Nasdaq exchange, delivers its Q3 earnings report this morning New York time. The company has delivered a 160% plus return to investors in 2020. According to Zacks Equity Research, points to watch on the company’s earnings call will be a progress update on the expansion of its 24-hour delivery service, growth in the company’s warehouse network and investments into technology. Currently, Wall Street analysts lean heavily towards a buy rating on the stock.
Imperial Brands: UK-listed tobacco giant Imperial Brands delivers its latest quarterly earnings on Tuesday, after an 11% rally in its share price last week. Year-to-date, the stock remains down more than 27%. A key point of focus on its earnings call will be what management plans to do with the firm’s dividend, which currently offers a huge double-digit dividend yield. With investors starved of yield sources in bond markets, reliable sources of equity income are hugely valuable. Analysts lean towards a buy rating on the stock.
US consumer sentiment
On Friday, the University of Michigan’s consumer sentiment index reading for November unexpectedly fell, its first decline in four months. The preliminary reading came in at 77, versus October’s final reading of 81.8. Economists had been anticipating a figure of 82, according to Reuters. While markets still posted a positive day on Friday when the reading came out, it is one to keep an eye on. The US economy is heavily reliant on consumer spending, and if surging Covid-19 cases dent confidence significantly going into the holiday season, it could have ramifications for the pace of economic recovery from the pandemic.
Crypto corner: bitcoin mining pool refuses to process blacklisted wallets
A change in the way bitcoin functions could be set in motion after a bitcoin mining pool launched by analytics platform Blockseer, says it will refuse to process transactions from blacklisted wallets, according to Techradar.
The new mining pool will refuse to process transactions from blacklisted wallets in an effort to avoid facilitating any illegal activity. The mining pool will use Blockseer and Walletscore forensics data, as well as the United States OFAC blacklist for crypto to screen its transactions.
While some observers may cheer the idea of filtering out transactions that are likely related to the activity of criminals and criminal enterprises, it raises questions over the independence of blockchain from regulator influence. Bitcoin was founded on the principle of decentralised transactions and some believe the Blockseer project undermines this, says Techradar.
All data, figures & charts are valid as of 16/11/2020. All trading carries risk. Only risk capital you can afford to lose