361 Capital Market Commentary | November 23rd, 2020
Another Monday, another vaccine announcement, and another surge higher in the stock market. Let’s never get tired of this trifecta. Today, it was Astra Zeneca and Oxford’s turn to put their trial results up on stage. While the initial results were not as positive in efficacy as the Pfizer and Moderna results, they did show that a tweak in the trial would achieve 90% efficacy. And more importantly for those warmer-weather climates along the equator, the vaccine does not need to be kept at super-negative refrigerated temperatures and requires only normal refrigeration. So, we now have three vaccines going into mega production, with even more to be announced before year end. We should even have 10-20m doses of vaccine to inject into American arms before year end; and hopefully 50m made in January/February, and 150m+ for Q2. This is all good news.
That said, our state of Colorado is moving to Code Red as our testing positivity rate has moved into the double digits and they think that 2% of the population is currently carrying the virus. After seeing Anderson Cooper’s segment on long haul COVID survivors last night on 60 Minutes, I am considering wearing two masks at a time in addition to my Monsters Inc. CDA bio-hazard suit. I got my MMR booster shot and will be early in line for when any cocktail of COVID vaccines becomes available to the general public. Stick it to me doc.
In the meantime, the market continues to be forward-looking, jumping on both the progress in vaccines and the success at COVID tamp downs in other countries. And, while Biden’s transition period has had some bumps, he has pleased the markets with some early announcements, especially with the announcement that Janet Yellen will take over for Steve Mnuchin at the Treasury. Remember that Janet likes stocks and the market. Expect investors to cheer her with higher prices in the short term. Plus, it’s the end of the year the markets love the holidays. Thanksgiving is typically the start of the lift in prices into year end, so we will take it along with our turkey breast and sweet potatoes.
Have a great Thanksgiving week everyone and be safe.
We have been waiting for the Astra/Oxford results…
The coronavirus vaccine developed by the University of Oxford is highly effective at stopping people developing Covid-19 symptoms, a large trial shows.
Interim data suggests 70% protection, but the researchers say the figure may be as high as 90% by tweaking the dose.
The results will be seen as a triumph, but come after Pfizer and Moderna vaccines showed 95% protection.
However, the Oxford jab is far cheaper, and is easier to store and get to every corner of the world than the other two.
So the vaccine will play a significant role in tackling the pandemic, if it is approved for use by regulators.
“We are encouraged by the 90% efficacy in the half dose – full dose regimen. While the efficacy is numerically below that of PFE/BNTX (95%) and Moderna (94.5%), we underscore the need for multiple vaccines and see the 90% efficacy as encouraging. More importantly, the AZN/Oxford vaccine candidate, given its far-reaching supply agreements, addresses the requirement in several low to middle income countries. From a capacity perspective, AZN’s current 3bn doses capacity is based on a full dose-full dose regimen, which would translate to 1.5bn people being vaccinated. However, if the half dose-full dose regimen were to be approved and implemented, there would be an increase in the number of people receiving vaccination”
Will Johnson and Johnson’s vaccine be next?
Again, to size up the number of shots that we need in the U.S…
Europe has done well in slowing the virus this month. Now, can the U.S. follow and also reopen in December?
@ScottGottliebMD: Mobility trends are largely unchanged in the U.S., suggesting we’re unlikely to see a significant change in Covid transmission dynamics. In Europe, where Covid cases are declining, mobility has shown sharp drops, but mostly as a result of stricter mitigation countries adopted.
It was a big week of retail earnings last week…
As we wrote in our retail blog last week, the two brick and mortar giants did well. Walmart and Target are in a perfect spot to grow market share due to their one-stop shop destination and their success at growing their online biz.
“Walmart U.S. had another strong quarter. Comp sales increased 6.4%…Consistent with the second quarter, we saw customers consolidate shopping trips with larger baskets and fewer transactions.” – Walmart (WMT) CEO Doug McMillon
“Third quarter comparable sales increased 20.7%, reflecting a 4.5% traffic growth, combined with an increase in average ticket of more than 15%. Since the pandemic began in March, we’ve experienced a meaningful acceleration in basket growth, both in stores and online as guests have consolidated their shopping into much larger trips. Across channels, our store comps grew nearly 10%, while our digital comp sales grew 155%, contributing nearly 11 percentage points to the Company comp.” – Target (TGT) CEO Brian Cornell
A large part of the consumer economy remains flush as their lack of 2020 spending has allowed them to pay down their credit cards significantly…
Growth in online shopping in the U.S. is leading to a surge of container imports from Asia, which has led to increased demand for trucking diesel fuel…
The pandemic-driven surge in online shopping continues to sustain diesel as a bright spot in an otherwise devastated U.S. fuel market.
The latest signs are coming from ship containers arriving on the West Coast at unprecedented rates, with goods then being trucked from Los Angeles to as far as Atlanta a lot more frequently than a year ago.
Demand for everything from medical equipment to home-office supplies to gardening tools is soaring as spending patterns shift. Retailers are also making up for products they couldn’t source earlier this year and preparing for the holiday rush. All that means more consumption of the stuff that makes trucks move: ultra-low sulfur diesel, or ULSD.
“The trucking industry is the one shining light for the crude oil complex since Covid hit,” said Kyle Lintner, managing director of freight consultant K-Ratio. Refining margins have “shifted dramatically in ULSD favor since trucking demand is actually up while gasoline consumption is down.”
And when consumers are not shopping online, they are looking to buy a home…
In another sign that housing continues to lead the economy forward, builder confidence in the market for newly-built single-family homes increased five points to 90 in November, shattering the previous all-time of 85 recorded in October, according to the latest NAHB/Wells Fargo Housing Market Index (HMI) released today. Builder confidence levels have hit successive all-time highs over the past three months.“Historically low mortgage rates, favorable demographics and an ongoing suburban shift for home buyer preferences have spurred demand and increased new home sales by nearly 17% in 2020 on a year-to-date basis,” said NAHB Chairman Chuck Fowke. “Though builders continue to sign sales contracts at a solid pace, lot and material availability is holding back some building activity. Looking ahead to next year, regulatory policy risk will be a key concern given these supply-side constraints.”
“If you said tomorrow that there was a vaccine with 100 per cent efficacy, and everyone gets it, do people want to live on a cul-de-sac or in a city? They’d rush back and realise there was a reason they weren’t living in a cul-de-sac before” – Expedia (EXPE) CEO Peter Kern
What is a short?
The smart money covered all of their shorts the day after the election and then have been cheering along each new vaccine announcement. Maybe there will be an opportunity to layer on a new list of hedges if the Senate races in Georgia continue to tighten.
Cyclicals are breaking out again versus defensive sectors…
Speaking of cyclicals, remember for the last three years how everyone hated energy stocks?
A higher low has been set. Will a higher high follow? A 5% dividend yield to sit back and watch.
When Tesla gets added, there is going to be a lot of selling in the other 499 names to make room…
Completely agree with this Barron’s interview stock pick…
Just as Southwest Airlines will grow market share through COVID in the U.S., Ryanair will do the same in Europe.
What are some other businesses that represent good value and are poised to emerge even stronger after the pandemic?
Davis: Ryanair Holdings [RYAAY] is a fantastic example. There are 96 airlines in Europe; 90 of them make less than one euro of profit per seat. The other six make the 95% of the industry’s earnings before interest and taxes, or Ebit. A load of those smaller airlines are going to go bust. That gives Ryanair the ability to take market share. It raised capital pre-emptively and is expanding capacity, with plans for 200 planes on order for the next couple of years. It’s investing in a crisis, rather than retrenching. That’s exactly what you want to see from a business to make sure it can emerge stronger on the other side. We see a fair amount of upside. We’re going to have to get through the next couple of years before we can start seeing that play out. That’s where the balance sheet can be a competitive advantage.
Speaking of travel, Airbnb is another company that grew its domestic market share through COVID…
The election could not have gone more poorly for gold…
Even if the Dems took both of the Georgia Senate runoff seats and gained control of Congress, it would not be enough of a majority to push through $4-5 trillion in spending over the next year.
Gold investors are running elsewhere…
Several interesting travel comments made last week…
“We will go to the office somewhat, we’ll do some business travel, but dramatically less…My prediction would be that over 50% of business travel and over 30% of days in the office will go away” – Microsoft (MSFT) Co-Founder Bill Gates
“I personally think that there’s going to be a pretty big bounce back in terms of leisure travel because it’s kind of pent-up demand, business travel may take longer to come back.” – Uber (UBER) CEO Dara Khosrowshahi
“I think all of us, as business leaders, have realized that perhaps we had people taking trips that might not have been necessary, or we sent too many people on a trip, or we sent somebody to give a presentation for an hour and a half and sent them around the world, and that cost money and it cost time, which is money, and now realize that, boy, a lot of that stuff can be done on any one of these video platforms that work darned well” – Visa (V) Chairman & CEO Alfred Kelly
“I’m not going to do as many long haul trips that I’m meeting just with one person. I mean, it’s just incredible use of — hard use of time and money. Why would I do that when I can have really good video communication with one person or one company. And I think a lot of other people are thinking about that too in terms of the costs of travel for corporate – corporations; will that be something that people look are going to look at very closely, going to reduce the number of trips and not do as many, certainly there is still going to be corporate travel, it’s not going away but I think as a share, it will be lower.” – Booking (BKNG) CEO Glenn Fogel
U.S. grain farmers looking at a greener Christmas this year as foreign supply/demand for soybeans has gotten out of whack…
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Disclosure: The author has current equity ownership in: Netflix Inc., Microsoft Inc., Walmart Inc., Target Corp, Southwest Airlines, and Ryanair Holdings.
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