Moderna Stock Gains Ground As The Company Is Expected To Take A Big Share Of Vaccine Market In 2022
Shares of Moderna gained upside momentum after a Financial Times report indicated that Pfizer/BioNTech and Moderna will control 3/4 of non-China coronavirus vaccine market in the next year.
According to the report, Moderna is projected to make $38.7 billion in revenue due to demand for booster shots in developed countries.
Moderna stock has declined from all-time highs at $497.49 to the $300 level as traders questioned whether the company’s valuation is justified, but the stock managed to find buyers in recent weeks and is currently trying to settle above the $335 level.
What’s Next For Moderna Stock?
Earnings estimates for Moderna have slightly improved compared to the levels seen at the beginning of the month. Currently, analysts expect that Moderna will report a profit of $29.34 per share in 2021 and $27.28 per share in 2022, so the stock is trading at roughly 12 forward P/E which is cheap for the current market environment.
The sustainability of Moderna’s revenue remains the main question for traders and investors. If Moderna can generate strong earnings in the next few years and use its revenue to expand the business into other areas in order to ensure the firm’s financial health after the end of the coronavirus pandemic, its shares look attractive at current levels.
The report from Financial Times may serve as a significant catalyst for the stock which has found itself under material pressure after Merck announced positive results of its antiviral drug. Merck plans to produce at least 20 million courses of its drug in 2022, so the world will still have to rely on initial vaccination and booster doses which is bullish for Moderna. If the market stays focused on the recent revenue forecast from the Financial Times report, the stock will have a good chance to develop additional upside momentum in the upcoming trading sessions.
Merck shares jumped as much as 12.3% and hit their highest level since February 2020 after data showed the company’s pill molnupiravir could halve the chances of dying or being hospitalized for those most at risk of contracting severe COVID-19. Experts hailed the news as potentially a huge advance in the fight against COVID-19.
At the same time, shares of vaccine makers such as Moderna Inc, Pfizer Inc and partner BioNTech SE were hit, with some analysts saying the promise of an oral drug that can be taken at home could change the public perception of risks associated with COVID-19.
“We see modest perceived headwind to vaccine stocks such as MRNA (Moderna) if the market thinks people will be less afraid of COVID-19 and less inclined to get vaccines, if there is a simple pill that can treat COVID-19,” Jefferies analyst Michael Yee said in a client note.
Moderna shares tumbled 13% in midday trading, while Pfizer, which is developing a COVID-19 pill of its own, fell 1.3%. U.S. shares of BioNTech dropped 11%.
For Moderna investors, the Merck news presented an opportunity to lock in gains after an already stunning run. Shares of Moderna, which were added to the S&P 500 in mid July, remain up some 220% in 2021 despite Friday’s declines. BioNTech’s shares were also still up about 200% for the year, even with Friday’s fall. The Merck news is a “great reason for folks to be taking profits off the table” in Moderna and BioNTech shares, said Sahak Manuelian, head of equity trading at Wedbush Securities. “These moves can get exacerbated to the downside given the momentum they have had to the upside.”
Shares of other companies with COVID-19 vaccines also fell, with AstraZeneca down 2% and Novavax falling 16%.
Companies with other COVID-19 therapies that are administered intravenously or through injection also traded lower, with Regeneron Pharmaceuticals In down nearly 5% and Gilead Sciences Inc off about 2%.
Healthcare was the only one of the 11 S&P 500 sectors in negative territory in mid-day trading, falling 0.5%. “We see molnupiravir, with its oral format as a clear game changer that is likely to meaningfully impact not just the treatment paradigm for COVID-19 but also has potential utility in the prevention setting,” Piper Sandler analyst Christopher Raymond said in a research note.
Merck is conducting a late-stage trial to see if its antiviral pill can prevent COVID-19 infection, in addition to the study that showed it can significantly cut hospitalization and death in those already infected.
Merck, whose shares were last up about 9%, leads the race in developing the first oral antiviral medication for COVID-19. Rivals such as Pfizer and Swiss drugmaker Roche Holding AG with partner Atea Pharmaceuticals Inc are running late-stage trials of their pills. Atea shares were up 19%.
Merck, which discontinued its own COVID-19 vaccine program, had seen its shares fall about 4% for the year through Thursday, before they moved into positive territory for 2021 on Friday.
“Merck has kind of been dead in the water to investors for the past couple of quarters,” said Kevin Gade, portfolio manager with Bahl & Gaynor, which owns Merck shares. “This shows their R&D engine is not dead and they were first … in what could be a multi-billion dollar opportunity.”
Pfizer Inc. (PFE) and BioNTech SE (BNTX) released positive data on their COVID-19 vaccine for ages 5 to 11 on Monday but the stock is losing ground with the broad market, adding to a five-week slide that’s already relinquished more than 16%. The decline is roughly tracking the slow rollover of U.S. Delta infections and another slowdown in daily vaccinations. Last week’s FDA advisory meeting didn’t help, with the group declining to recommend broad-based booster shots.
Pulling Back from August Breakout
The pharmaceutical giant has gained 17% so far in 2021 despite the latest downturn, with a good portion of selling pressure generated by a rotation out of pandemic plays. However, the last six months have proved how difficult it will be to transition from pandemic to endemic, especially with billions around the world still unvaccinated. Taken together with Pfizer’s bullish breakout pattern, the current decline should offer a low risk buying opportunity.
Approval for ages 5 to 11 will open eligibility to more than 50 million new vaccinations in the EU and USA. As the business partners noted on Monday, “Pfizer and BioNTech plan to share these data with the FDA, European Medicines Agency (EMA) and other regulators as soon as possible. For the United States, the companies expect to include the data in a near-term submission for Emergency Use Authorization (EUA) as they continue to accumulate the safety and efficacy data required to file for full FDA approval in this age group.”
Wall Street and Technical Outlook
Wall Street consensus is surprisingly lukewarm, with a ‘Hold’ rating based upon 4 ‘Buy’, 15 ‘Hold’, and 1 ‘Underweight’ recommendation. No analysts are recommending that shareholders close positions. Price targets currently range from a low of $39 to a Street-high $61 while the stock is set to open Monday’s session on top of the median $44 target. While this placement indicates that Pfizer is fairly-valued, it’s also likely that analysts are underestimating the vaccine’s long-term revenue potential.
Pfizer topped out at 44.05 in 2018 and sold off to a six-year low during 2020’s pandemic decline. A volatile recovery finally reached the prior peak in August 2021, setting off an immediate breakout that posted an all-time high at 51.86 less than three weeks later. The pullback into September is now approaching a zone of strong support near 40, raising odds for a buy-the-dip wave that confirms the breakout and sets the stage for strong 2022 upside.
August was mostly positive for risky assets of the major developed economies with lower volatility in the background. On the other hand, safe assets such as investment grade bonds, were trading lower, with the benchmark 10-year Treasury yield starting the month below 1.20% and ending it above 1.30%.
Despite the fast spreading of the Delta variant and the vaccines’ declining efficiency against infection, global data continues to reflect optimism: consumption spending remains high, and we are witnessing a shift from goods to services lately. Two signals confirming that the recovery is on the right path. Also, since the Pfizer/BioNTech Covid-19 vaccine received FDA’s full approval, reopening is expected to accelerate further.
Two huge plans advanced in the US Congress during the summer: the infrastructure bill of $1 trillion, the largest federal investment into infrastructure projects ever made, and the reconciliation bill of $3.5 trillion, which is a social plan that Democrats will try to pass without Republicans’ support. This huge federal cash deployment will be highly supportive to sectors such as infrastructure, electric vehicles, cybersecurity and 5G.
Last week, the Jackson Hole Symposium, the annual Fed members summit in Wyoming, was held virtually, for the second consecutive year. This meeting focused on inflation and unemployment. After Chairman Jerome Powell stated that the economic recovery from the pandemic has exceeded expectations, he confirmed that the time has come to tighten the Fed’s purchase program. Therefore, tapering is now highly likely before the end of the year, while a rate hike is still not expected before 2023.
According to Powell’s statement, the supply chain disruptions (shortages and bottlenecks) alongside wage increases are still the main source of inflation. The spike in some prices is impacting only goods and services affected by the pandemic yet, and this trend tends to disappear with time (for example used cars prices). As for wages, the increase is welcome because it supports a rising standard of living, and it is still consistent with the long-term inflation target.
After the summer break, September will see the return of Central Banks’ meetings. From the Fed we expect more details regarding the upcoming tapering: when exactly, what, how much etc. Of course, a huge focus will be put on the August jobs report, that needs to confirm the “substantial progress” made in the labor market in July. September will also mark the end of the enhanced unemployment benefits from Covid-19, and so we may well have a wave of people returning to work in the US. The ECB’s meeting may be focused on inflation, since the last data released this week showed an unexpected 3% inflation rate in Eurozone, the highest level since 2011.
News from China was less dramatic this month, but the momentum has not yet returned to Chinese stocks. Some investors are starting to think that the new regulatory measures are now coming to an end, but the vast majority still await concrete positive moves in order to build back a bullish sentiment and bring capital back to the world’s second largest economy.
In terms of earnings, it was another strong quarter: 87% of S&P 500 companies reported positive surprises for EPS (earnings per share) and revenue. However, in terms of future guidance, it was split: about half the companies warned of slowing growth for the coming quarters but that’s to be expected after the boom experienced in some sectors during the pandemic.
While closing a seventh straight winning month, it’s hard to remain in the skeptical zone. Also, since the Fed remains very transparent and tapering has been highly predictable for quite some time now, we don’t expect any “tapering tantrum”, as we experienced in 2013. We continue to see stocks more appealing than bonds, and the fact that major financial institutions recently increased their target for US equity indexes comforts us in our overweighting choice.
As always, risk-management combined with rigorous sector and geographical diversification will remain key factors for investment performance.
You are more than welcome to contact us to discuss our investment views or financial markets generally.
Zoom Video Communications Inc. (ZM) reports fiscal Q1 2022 earnings after Monday’s closing bell, with analysts looking for a profit of $1.16 per-share on $990.2 million in revenue. If met, earnings-per-share (EPS) will mark a 26% profit increase compared to the same quarter last year. The virtual meeting provider has beaten estimates every quarter since coming public in April 2019, posting a 191.4% year-over-year revenue increase in the quarter ending May 31st.
Growing Competition in a Post-Pandemic World
The company continues to diversify its product catalog after 2020’s historic uptrend, driven by pandemic lockdowns around the world. Meanwhile, multiple competitors are offering alternatives to the Zoom platform at the same time that lockdowns have drawn huge political opposition, despite the rise of the Delta variant. It’s been a race against time for Zoom, seeking to replace lost income to maintain its rich valuation and high stock price.
Morgan Stanley analyst Meta Marshall upgraded Zoom to ‘Overweight’ last week, noting “we think that enterprise momentum, combined with margin headwinds dissipating, creates a positive setup into FQ2. While revenue expectations are not low, we believe they are doable, which combined with upcoming Zoomtopia and FY23 guidance in a couple of quarters, leaves us more optimistic on the stock at current valuation”.
Wall Street and Technical Outlook
Wall Street consensus has improved in the last three months, now standing at an ‘Overweight’ rating based upon 14 ‘Buy’, 1 ‘Overweight’, 11 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $242 to a Street-high $525 while the stock ended Friday’s session more than $75 below the median $416 target. This low placement highlights investor apathy toward pandemic beneficiaries, most recently illustrated by Peloton Interactive Inc.’s (PTON) steep post-earnings slide.
Zoom broke out above the 2009 high at 107.34 in February 2020, entering an historic uptrend that hit an all-time high at 588.84 in October, just weeks before Pfizer Inc. (PFE) and BioNTech SE (BNTX) announced the success of their vaccine. The stock has posted a long series of lower highs and lower lows since that time, crisscrossing the 200-day moving average and 50% rally retracement repeatedly since March. Accumulation fell to an 8-month low last week, highlighting slow-motion profit-taking that could easily stretch into the fourth quarter.
Last week, both benchmarks notched their biggest weekly losses in more than nine months. On Monday, both jumped more than 5%, boosted by a weaker dollar.
A resurgent pandemic has fueled health system concerns; however, “economically harmful containment measures seem rather unlikely”, said Julius Baer analyst Norbert Rucker, citing the effectiveness of vaccines.
On Monday, the U.S. Food and Drug Administration issued full approval for the Pfizer/BioNTech two-dose vaccine, having authorized it for emergency use last December. Officials hope to convince unvaccinated Americans the shot is safe and effective.
Analysts said China’s apparent success in fighting the spread of the Delta variant of the coronavirus also boosted demand sentiment, with no cases of locally transmitted infections in the latest data.
“Concerns are easing that we will not see a global shutdown due to the Delta variant,” said Gary Cunningham, director of market research at Tradition Energy in Stamford, Connecticut.
Also supporting oil prices was a fire on an oil platform off Mexico on Sunday that has cut state-run Pemex’s oil production by about 25% since then. Five workers died and the fire halted 421,000 barrels per day of production.
Prices of heavy sour crude oil grades are rising on the U.S. Gulf Coast, traders said, as the market braces for a disruption of supplies from Mexico.
“The market is getting a tailwind from the PEMEX fire, which has greenlighted this rally,” said Bob Yawger, director of energy futures at Mizuho in New York.
Still, Yawger cautioned that the market could reverse course if U.S. government data on Wednesday shows gasoline inventories increased. Analysts polled by Reuters expect gasoline inventories to fall, but Yawger expects a gain, which could signal a demand lull.
Data from trade group the American Petroleum Institute is expected Tuesday at 4:30 p.m. ET (20:30 GMT), with official data from the Energy Information Administration released on Wednesday at 10:30 a.m. ET (14:30 GMT).
The U.S. Department of Energy on Monday said it would sell up to 20 million barrels of crude from the Strategic Petroleum Reserve (SPR) oil stocks to comply with legislation, with deliveries to take place between Oct. 1 and Dec. 15.
Meanwhile, Indian refiners’ crude throughput in July bounced to its highest in three months as fuel demand rebounded and buoyed prices.
Risk appetite in global markets strengthened after the U.S. Food and Drug Administration on Monday granted full approval to the COVID-19 vaccine developed by Pfizer and BioNTech in a move that could accelerate U.S. inoculations.
A bounce in China’s technology sector also contributed to risk-on sentiment that helped boost the Canadian, Australian and New Zealand dollars.
“The euro, Canada and Aussie currencies made new lows for the year last week, and so the dollar is consolidating and its upside momentum has stalled,” said Marc Chandler, a managing director at Bannockburn Global Forex.
The dollar index, which measures the greenback against a basket of six currencies, fell 0.091% to 92.903.
The euro was up 0.08% at $1.1752, while the yen traded down 0.01% at $109.6700.
Rising COVID-19 infections caused by the highly contagious Delta variant have fueled concerns about the recovery from the pandemic. But markets have largely overlooked that this week, with analysts citing thin liquidity as a factor driving apparent swings in risk appetite.
Market attention is focused on the Federal Reserve’s Jackson Hole conference on Friday, at which some investors expect Fed Chair Jerome Powell to hint on a possible timeline for tapering the U.S. central bank’s bond-buying monetary stimulus.
“We think investors will want to wait to hear on this subject from Jerome Powell on Friday before pushing ahead with another major round of risk-buying, dollar-selling,” ING strategists wrote in a note to clients.
COVID-19 case counts are also being watched closely, particularly in China and New Zealand. Outbreaks in China appear to be coming under control while in New Zealand, where monetary policy was put on hold last week due to measures to contain the Delta variant, the lockdown remains in effect.
The Australian dollar, viewed as a liquid proxy for risk appetite, was up 0.7% at $0.7264.
The New Zealand dollar was up 0.9% at a one-week high of $0.6954, boosted by comments from the Reserve Bank of New Zealand’s assistant governor, who said policymakers had actively considered raising rates last week.
The RBNZ left rates on hold at a record low 0.25% but flagged a tightening before the end of the year.
The Norwegian currency was up 0.9% against the euro, with the pair changing hands at 10.3796, while the Canadian dollar was up 0.4% against the U.S. dollar.
Oil prices extended a rally on Monday, driven by a bullish demand outlook after the full approval of the Pfizer-BioNTech vaccine and Mexico suffered a large production outage.
Brent crude oil futures rose 3.2% to $70.94 a barrel.
The rise in oil prices has washed out some of the excessive bearishness towards Canada, Chandler said.
The Canadian dollar hit eight-month lows last week. Out of the major trading currencies, Canada is among the most sensitive to the equity market, Chandler said.
Elsewhere, bitcoin edged back below $50,000, which was breached for the first time since May on Monday. The digital currency was down 2.2% at about $48,456.
(Reporting by Elizabeth HowcroftEditing by David Goodman and Bernadette Baum)
The pan-European STOXX 600 index closed 0.7% higher after losing nearly 1.5% last week. Oil and mining were the best performing sectors, rising about 2.1% and 1.5% respectively.
Sentiment appeared to have improved after growing uncertainty over when the U.S. Federal Reserve would begin tightening policy, which sparked a broad selloff across global markets last week.
Focus now turns to the Fed’s annual Jackson Hole Economic Policy Symposium beginning later in the week.
“With the Jackson Hole meeting beginning on Thursday, investors may be reluctant to make big new commitments in the next couple of sessions,” Ian Williams, economics & strategy research analyst at Peel Hunt, said.
Data in Europe suggested that business activity remained strong in August, albeit at a slightly slower growth pace than the two-decade peak seen in July.
With a nearly 18% rise so far this year, the STOXX 600 hit a record high earlier this month, but has stumbled recently on concerns over the Delta variant of COVID-19 stalling economic growth.
Among individual stocks, Britain’s second-largest grocer Sainsbury’s jumped 15.4% and was the best performer on the STOXX 600, following a report that private equity firms were circling the company with a view of possibly launching bids of more than 7 billion pounds ($9.5 billion).
Last week, smaller rival Morrisons backed a 7 billion pounds offer from U.S. private equity group Clayton, Dubilier & Rice.
Germany’s BioNTech surged 7.6% after the U.S. Food and Drug Administration granted full approval to the Pfizer Inc/BioNTech COVID-19 vaccine.
Luxury stocks including LVMH, Kering and Moncler clawed back some of last week’s losses after being sold off on China’s wealth redistribution plans.
Switzerland-based Cembra Money Bank plunged 30.9% to the bottom of the STOXX 600 after it terminated its credit card partnership with Swiss retailer Migros.
French lottery operator La Francaise des Jeux fell 1.7% after Goldman Sachs downgraded the stock to “sell”.
For several months, the companies have said they expect that fully inoculated people will need an extra dose of their vaccines to maintain protection over time and to fend off new coronavirus variants.
Now a growing list of governments, including Chile, Germany and Israel, have decided to offer booster doses to older citizens or people with weak immune systems in the face of the fast-spreading Delta variant.
Late on Thursday, the U.S. Food and Drug Administration authorized a booster dose of vaccines from Pfizer Inc and Moderna Inc for people with compromised immune systems.
Pfizer, along with its German partner BioNTech, and Moderna have together locked up over $60 billion in sales of the shots just in 2021 and 2022. The agreements include supply of the initial two doses of their vaccines as well as billions of dollars in potential boosters for wealthy nations.
Going forward, analysts have forecast revenue of over $6.6 billion for the Pfizer/BioNTech shot and $7.6 billion for Moderna in 2023, mostly from booster sales. They eventually see the annual market settling at around $5 billion or higher, with additional drugmakers competing for those sales.
The vaccine makers say that evidence of waning antibody levels in vaccinated people after six months, as well as an increasing rate of breakthrough infections in countries hit by the Delta variant, support the need for booster shots.
Some early data suggests that the Moderna vaccine, which delivers a higher dose at the outset, may be more durable than Pfizer’s shot, but more research is needed to determine whether that is influenced by the age or underlying health of the people vaccinated.
As a result, it is far from clear how many people will need boosters, and how often. The profit potential of booster shots may be limited by the number of competitors who enter the market. In addition, some scientists question whether there is enough evidence that boosters are needed, particularly for younger, healthy people. The World Health Organization has asked governments to hold off on booster shots until more people worldwide receive their initial doses.
“We don’t know what the market forces will be,” Moderna President Stephen Hoge said in an interview last week. “At some point, this will become a more traditional market – we’ll look at what are the populations at risk, what value are we creating, and what are the number of products that serve that value. That will ultimately impact price.”
Pfizer declined to comment for the story. During the company’s second-quarter earnings call, executives said they believe a third dose will be necessary 6 to 8 months after vaccination, and regularly afterward.
A MODEL IN FLU SHOTS
If regular COVID-19 boosters are needed among the general population, the market would most resemble the flu shot business, which distributes more than 600 million doses per year. Four competitors split the U.S. flu market, which is the most lucrative and accounts for around half the global revenue, according to Dave Ross, an executive at CSL’s flu vaccine unit Seqirus.
Flu vaccination rates in developed countries have settled at around 50% of the population, and COVID boosters would likely follow a similar pattern if approved widely, said Atlantic Equities analyst Steve Chesney.
Flu shots cost around $18 to $25 a dose, according to U.S. government data and competition has kept price increases in check, with producers raising prices 4 or 5 percent in 2021.
Pfizer and Moderna may have greater pricing power for their boosters, at least at the outset, until competitors arrive. Pfizer initially charged $19.50 per dose for its vaccine in the United States and 19.50 euros for the European Union, but has already raised those prices 24% and 25%, respectively, in subsequent supply deals.
AstraZeneca Plc and Johnson & Johnson are both gathering additional data on boosters of their vaccines. Novavax, Curevac, and Sanofi could also potentially be used as boosters, though their vaccines have yet to receive any regulatory authorization.
“A lot of these firms aren’t even in the market yet. I think within a year’s time, all these companies will have booster strategies,” said Morningstar analyst Damien Conover, who covers Pfizer.
Mizuho Securities analyst Vamil Divan expects at least 5 players in the COVID-19 booster market within a few years.
There’s still a lot of uncertainty around how boosters would be rolled out in the United States. Still, it is possible or even likely that people will be boosted with different vaccines than they were originally vaccinated with. The National Institute of Allergy and Infectious Diseases is already testing mixed boosting, and other countries that have used so-called mix and match vaccination have not had problems with that strategy.
One factor that could curb prices is if the U.S. government continues paying for most or all of the shots administered in the country, rather than leave it in the hands of private health insurers. In that scenario, the government would still be negotiating prices directly with vaccine makers, and could use its buying power to stave off price increases.
Bijan Salehizadeh, managing director at healthcare investment firm Navimed Capital, said the U.S. government is likely going to want to keep paying in order to keep vaccination rates high and prevent new COVID surges, particularly if a Democratic administration is still in power.
“It’s going to be paid for until the virus disappears or mutates to be less virulent,” Salehizadeh said.
The supply tally, up from more than 700 million doses announced by the biotech firm in June, compares with AstraZeneca saying late last month that it and manufacturing partner Serum Institute of India had supplied a billion doses to 170 countries at the time.
Based on delivery contracts for over 2.2 billion doses so far, BioNTech said in a statement it expects to accrue 15.9 billion euros ($18.7 billion) in revenue from the vaccine this year, up from a May forecast of 12.4 billion euros.
That includes sales, milestone payments from partners and a share of gross profit in its partners’ territories, the company added.
Pfizer late last month raised its forecast for its share of 2021 vaccine sales to $33.5 billion.
BioNTech added on Monday that it and Pfizer believe a third dose, following the established two-shot regimen, “has the potential to preserve the highest levels of protective efficacy against all currently tested variants, including Delta”, underscoring similar remarks made by its partner.
Still, it reiterated plans to start testing a vaccine adjusted to the highly infectious Delta variant of the virus on humans this month, part of a “comprehensive strategy to address variants, should the need arise in the future”.
For the week, all three of the major stock market indices finished in the green. Investors were feeling confident amid an employment report that showed the economic recovery is humming along.
The July labor market report showed that 943K jobs were added to the U.S. economy last month, which was more than economists had predicted. The unemployment rate now hovers at 5.4% vs. estimates of 5.7%.
As the economy grows stronger, policymakers could decide to step back from their bond-buying activity. As long as investors are focused on corporate America’s robust profits, however, the markets have been in the clear.
Stock index futures are taking a breather on Sunday evening ahead of Monday’s open with a downward slant. Meanwhile, lawmakers continue to debate the infrastructure bill on Capitol Hill.
Stocks to Watch
Meme stock AMC Entertainment is poised to release its Q2 earnings results on Monday. AMC shares have been trading cautiously so far in August. The company’s management team will be fielding questions from individual investors on the earnings call. Investors will have to wait until after the market closes for AMC’s results.
BioNTech, the company that is behind one of the COVID-19 vaccines with partner Pfizer, will also report its quarterly results on Monday.
Gaming stock Zynga fell more than 18% on Friday. The company, which is behind the FarmVille brand, suffered an exodus of gamers in Q2 amid the reopening of the economy as consumers venture out more. TakeTwo Interactive and Activision Blizzard spotted similar behaviors.
Shares of commission-free trading app Robinhood advanced 8% on Friday to USD 55 per share, well above the USD 38 IPO price. While Robinhood does not have meme-stock status, investors are bracing for it to continue trading like one for a while.
On the economic front, investors will be looking ahead to Wednesday when the Consumer Price Index (CPI) for July will be released. On Friday, investors will further be able to gauge consumer confidence when the University of Michigan Consumer Sentiment data comes out.
CABLE ONE: The U.S.-based broadband communications provider is expected to report earnings of $11.19 per share for the second quarter, representing a year-on-year increase of over 5% from a year earlier, up from 10.63 per share seen in the same period a year ago.
The Phoenix-based company would post revenue growth of over 17% to $385 million, up from $328.3 million posted a year ago. The company has beaten earnings per share (EPS) estimates in three of the last four quarters, according to ZACKS Research.
BIONTECH: The biotechnology company BioNTech is expected to report earnings of $8.35 per share for the second quarter, representing a year-on-year increase of over 2,000% from a year earlier.
The e-commerce leader for physical and digital merchandise eBay is expected to report its second-quarter earnings of $0.96 per share, which represents a year-over-year decline of over 11% from $1.08 per share seen in the same quarter a year ago.
The San Jose, California-based e-commerce giant would post revenue growth of about 4% to $2.97 billion. The company has beaten earnings per share (EPS) estimates all times in the last four quarters, according to ZACKS Research.
WALT DISNEY: The world’s leading producers and providers of entertainment and information is expected to report its fiscal third-quarter earnings of $0.55 per share, which represents year-over-year growth of over 580% from $0.08 per share seen in the same quarter a year ago.
The family entertainment company would post over 42% to $16.82 billion. The company has beaten earnings per share (EPS) estimates all times in last four quarters, according to ZACKS Research.
“Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long term content monetization opportunities,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.
“During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak US Parks revenues in FY23”
The Chinese tech giant will report full-year earnings of $8.60 per share for the current financial year, with EPS estimates ranging from $8.28 to $9.09, according to ZACKS Research.
“Baidu has provided better disclosure and has struck a constructive tone on its AI initiatives. We find it well-positioned in certain industrial applications. We also like its rich cash position and strategic investments,” noted Gary Yu, equity analyst at Morgan Stanley.
“Our price target reflects materialization of AI investments, but we highlight milder near-term growth vs. peers amid risks from competition. The company appears well-positioned to ride the next Internet wave, but patience is needed. Our price target implies 16x 2022e non-GAAP P/E, vs. the 10-30x trading band since 2018.”
The company said the raised sales forecast of the vaccine is based on signed deals for 2.1 billion doses this year, and that it could increase if it signs additional contracts. Pfizer and BioNTech expect to produce 3 billion doses of the vaccine this year.
Pfizer gained a head start in December with the first U.S. emergency authorization of a COVID-19 vaccine, and has since jumped ahead of rivals that have faced manufacturing hurdles. Johnson & Johnson’s vaccine has also been under scrutiny over safety concerns.
J&J last week estimated full-year COVID-19 vaccine sales of $2.5 billion, while Moderna has forecast $19.2 billion.
Pfizer has said it believes a third “booster” dose of its vaccine will be needed in the future, which could help it bring in more sales in 2022. The company said on Wednesday it could file for an emergency use authorization for a potential booster dose as early as August.
Top infectious disease official Anthony Fauci said on Sunday that Americans who are immune compromised may end up needing booster shots as the United States deals with increasing cases from the Delta variant of the coronavirus.
The United States purchased 200 million more doses of the Pfizer/BioNTech vaccine last week to help with pediatric vaccination as well as possible booster shots – if they are needed.
Pfizer’s previous forecast in May of $26 billion was based on deals signed for 1.6 billion doses. Wall Street was broadly in line with that forecast at $28.51 billion, according to nine analysts polled by Refinitiv.
Expenses and profit from the vaccine are split 50-50 between Pfizer and BioNTech.
(Reporting by Manas Mishra in Bengaluru; Editing by Sriraj Kalluvila)
In interviews with Reuters, more than a dozen influential infectious disease and vaccine development experts said there is growing evidence that a first round of global vaccinations may offer enduring protection against the coronavirus and its most worrisome variants discovered to date.
Some of these scientists expressed concern that public expectations around COVID-19 boosters are being set by pharmaceutical executives rather than health specialists, although many agreed that preparing for such a need as a precaution was prudent.
They fear a push by wealthy nations for repeat vaccination as early as this year will deepen the divide with poorer countries that are struggling to buy vaccines and may take years to inoculate their citizens even once.
“We don’t see the data yet that would inform a decision about whether or not booster doses are needed,” said Kate O’Brien, director of the Department of Immunization, Vaccines and Biologicals at the World Health Organization (WHO).
O’Brien said the WHO is forming a panel of experts to assess all variant and vaccine efficacy data and recommend changes to vaccination programs as needed.
Pfizer Inc Chief Executive Albert Bourla has said people will “likely” need a booster dose of the company’s vaccine every 12 months – similar to an annual flu shot – to maintain high levels of immunity against the original SARS-CoV-2 virus and its variants.
“There is zero, and I mean zero, evidence to suggest that that is the case,” countered Dr. Tom Frieden, former director of the U.S. Centers for Disease Control and Prevention.
“It’s completely inappropriate to say that we’re likely to need an annual booster, because we have no idea what the likelihood of that is,” Frieden, who now leads the global public health initiative Resolve to Save Lives, said of Pfizer’s assertions on boosters.
Pfizer, responding to the criticism, said it expects a need for boosters while the virus is still circulating widely. That could change once the pandemic is more firmly under control, a company spokeswoman said.
Moderna Inc CEO Stephane Bancel aims to produce a vaccine by the fall that targets a variant first identified in South Africa and expects regular boosters will be needed.
The United States is preparing to have such doses on hand for Americans, while the European Union, Britain and Israel have ordered new supplies of COVID-19 vaccines to deploy as protective boosters.
Some health experts, including Richard Hatchett, chief executive of the Coalition for Epidemic Preparedness Innovations (CEPI) that has funded many vaccine projects, say vaccine makers are right to plan ahead for boosters given the uncertainty over what will be needed in the long run.
Governments can then decide for themselves whether to buy the products, he said.
“A LITTLE EVIDENCE”
Pfizer and German partner BioNTech SE have so far found that their shot remains more than 91% effective for six months after people received their second dose, compared with nearly 95% demonstrated in their clinical trial. The companies will track how robust the protection remains over time.
Dr. William Gruber, Pfizer’s senior vice president of vaccine clinical research and development, told Reuters earlier this month the prediction for yearly boosters was based on “a little evidence” of a decline in immunity over those six months.
Pfizer expects the COVID-19 vaccine to be a major revenue contributor for years, and has forecast sales of $26 billion from the shot in 2021. Global spending on COVID-19 vaccines and booster shots could total $157 billion through 2025, according to U.S. health data firm IQVIA Holdings.
Moderna President Stephen Hoge expects boosters will be needed to keep immunity levels high, due in part to vaccine hesitancy, as an estimated 30% of the U.S. population may not agree to be vaccinated. As long as the virus is circulating widely, people at high risk of severe illness may need to boost their immune protection, Hoge said.
“All governments are in conversations with (Moderna) and other companies about boosters,” he said.
Late last year, scientists were optimistic that highly effective vaccines could quickly curb the global pandemic that has battered economies and killed more than 3.4 million people.
Those hopes dimmed by February with evidence that mutant versions of the virus might evade protection offered by vaccines. Laboratory studies showed that the South African variant could produce six to eight-fold reductions in antibody levels among people vaccinated with the Pfizer or Moderna vaccines.
Clinical trial data also showed that vaccines from AstraZeneca Plc, Johnson & Johnson and Novavax Inc were less effective at preventing infections in South Africa, where the variant is widespread.
These studies spurred drug companies to start testing booster doses of their vaccines and to develop shots that target specific variants of the virus.
However, more recent research suggests that the Moderna and Pfizer/BioNTech vaccines produce high levels of protective antibodies to create a “cushion effect” against the known variants, said Dr. Anthony Fauci, head of the National Institutes of Allergy and Infectious Diseases (NIAID) and a top White House adviser.
And antibodies – which block the coronavirus from attaching to human cells – do not tell the whole story. Several studies suggest that T cells – a type of white blood cell that can target and destroy already infected cells – may help prevent severe COVID-19 and hospitalization.
NIAID researchers found that T cells in the blood of people who recovered from the original virus could still fight off infections caused by the concerning variants found in the UK, South Africa and Brazil.
“It’s quite possible” that boosters would not be needed, Fauci told Reuters. “It is conceivable that the variants will not be as much a problem with a really good vaccine as we might have anticipated.”
Nevertheless, health authorities in the United States, Britain and Europe are assuring their populations that a new round of shots will be available if needed, with many nations still desperate for vaccine supplies.
“It’s a huge concern that … wealthy countries would begin administering booster doses and further constraining supply of people’s first dose of vaccine,” said Rajeev Venkayya, head of global vaccines for Takeda Pharmaceutical Co.
Dr. Monica Gandhi, an infectious disease doctor at the University of California, San Francisco, said ultimately, decisions on whether boosters will be needed “will best be made by public health experts, rather than CEOs of a company who may benefit financially.”
(Reporting by Julie Steenhuysen in Chicago and Kate Kelland in London; Additional reporting by Michael Erman in Maplewood, N.J.; Editing by Michele Gershberg and Bill Berkrot)
The biotech company said the Singapore production facility will have an estimated annual capacity of several hundred million doses of mRNA-based vaccines depending on the specific type, once it is operational in 2023.
BioNTech said its expansion plans were supported by the Singapore Economic Development Board and would increase the global supply of mRNA-based vaccines and establish a production facility in south east Asia to respond rapidly to future pandemics.
“Having multiple nodes in our production network is an important strategic step in building out our global footprint and capabilities,” said Ugur Sahin, CEO and Co-founder of BioNTech.
Governments around the world are looking to build up local vaccine production to secure access to supplies after manufacturing setbacks have slowed the rollout of COVID-19 doses in some countries.
BioNTech plans to open the Singapore office in 2021 and expects the manufacturing site to be operational by 2023, creating up to 80 jobs in Singapore.
The establishment of a southeast Asia regional hub comes after BioNTech, based in Mainz, Germany, set up a U.S. headquarters in Cambridge, Massachusetts in 2020.
(Reporting by Caroline Copley; Editing by Maria Sheahan and Louise Heavens)
Revenue from the vaccine – developed with German partner BioNTech SE – is expected to account for more than one third of Pfizer’s full-year sales this year.
The forecast is based on already signed contracts for 1.6 billion vaccine doses to be delivered this year. The company said it expects to sign more deals for this year and is in supply talks with several countries for 2022 and beyond.
“Based on what we’ve seen, we believe that a durable demand for our COVID-19 vaccine – similar to that of the flu vaccines – is a likely outcome,” Chief Executive Albert Bourla said.
The two-shot vaccine was Pfizer’s top-selling product in the first quarter. Expenses and profit from the vaccine are split 50-50 between Pfizer and BioNTech.
Given persistent infections globally and ongoing discussions with governments, Mizuho analyst Vamil Divan said the 2021 forecast could increase further and also spill over to latter years.
Pfizer and BioNTech aim to produce up to 2.5 billion COVID-19 vaccine doses this year, 900 million of which are not yet included in the New York-based drugmaker’s sales forecast.
If Pfizer sells that number of doses at similar prices, the vaccine’s sales in 2021 could be more than 50% above the projected $26 billion.
Moderna In has forecast $18.4 billion in 2021 sales of its similar COVID-19 vaccine.
Pfizer has said it expects to profit from the vaccine, while some drugmakers including Johnson & Johnson have said their vaccine will be sold on a not-for-profit basis until the end of the pandemic.
Pfizer aims to manufacture at least 3 billion doses of the vaccine next year. It generated $3.5 billion in revenue in the first quarter, exceeding analysts’ estimates of $3.28 billion, according to IBES data from Refinitiv.
Total revenue for the quarter of $14.6 billion, topped analyst forecasts of $13.5 billion.
Pfizer could use the vaccine profit to invest in research and development of other treatments and on deals to spur future growth, said Edward Jones analyst Ashtyn Evans.
The company already said it is boosting R&D spending to fuel drug discovery using the messenger RNA technology in the COVID-19 vaccine. The company is developing two flu vaccines that are expected to enter clinical trials in the third quarter.
Pfizer shares were about flat in early trading.
(Reporting by Manas Mishra in Bengaluru and Michael Erman in Maplewood, N.J; Editing by Arun Koyyur and Bill Berkrot)
S&P 500 futures are up by about 1% in premarket trading as traders look ready to buy stocks after the recent sell-off.
The U.S. House of Representatives has approved Biden’s $1.9 trillion coronavirus aid package which will now go to the U.S. Senate. The package includes $1,400 stimulus checks which are expected to boost consumer spending and push prices higher.
The yields of U.S. government bonds began to move higher after the recent pullback as traders remained focused on the threat of higher inflation. That said, inflation expectations have failed to put any material pressure on the stock market today. Tech stocks like Tesla or Amazon look ready to rebound after the recent weakness, and the market’s mood is clearly bullish at the start of this month.
Oil Gains Ground On Vaccine Optimism
WTI oil is currently trying to settle back above the $62 level as traders bet that Johnson & Johnson vaccine will provide additional support to recovery in the longer-term.
FDA has recently approved the company’s coronavirus vaccine which is the first one that requires just one shot. This is the third vaccine which has been approved in the U.S. since the beginning of the pandemic. Pfizer/BioNTech and Moderna vaccines are distributed in two doses.
At this point, the supply of Johnson & Johnson vaccine is limited, but it will significantly increase in the upcoming months which is bullish for oil.
Manufacturing PMI Reports Show That The Manufacturing Segment Continues To Recover
Today, traders will have a chance to take a look at the final reading of U.S. Manufacturing PMI report. Analysts expect that Manufacturing PMI declined from 59.2 in January to 58.5 in February.
Other countries have already published their PMI reports which indicated that the recovery in the manufacturing segment was stronger than expected. Euro Area Manufacturing PMI grew from 54.8 to 57.9 compared to analyst consensus of 57.7. In the UK, Manufacturing PMI increased from 54.1 to 55.1 compared to analyst consensus of 54.9.
If U.S. Manufacturing PMI exceeds analyst expectations, the market may get additional support.
As we head into the holiday season, investors remain focused on COVID-19 pandemic which has forcefully plunged the world into a “New Normal”. The alarming speed of the spread of the virus across the world has transformed and reshaped the world in a short amount of time but with longer-lasting impact. As everyday life has been impacted, investors have also reassessed and realigned their investment strategies to face the new world.
Quarter 1 – A Trio of Crises & the Great Lockdown
The markets tumbled like dominoes hit by various headwinds at once ranging from geopolitical tensions between the US and China, Hong Kong and Iran, extreme weather conditions, an oil price war, and the novel coronavirus which forced various forms of lockdowns and social distancing across the globe. Faced by an unprecedented health crisis, and an oil crisis, the world was bracing for an unexpected economic crisis.
Volatility soared in the markets to decades high from an average of 20 to a high above 80 around mid-March causing several circuit breakers and trading halts on some stock exchanges. The stock market bottomed down, and major equity indices dropped in bear market territory ending an 11-year bull-run in the stock market. Global stocks experienced the worst week since the global financial markets.
Central banks and governments rushed in to intervene and cushion the freefall in the financial markets and support their economies which brought some degree of calm in the stock market.
Quarter 2 – The Grand Reopening & Roadmap to Recovery in a Pandemic
The government and central banks have absorbed nearly all the shocks of the virus on the financial markets by injecting massive liquidity in the economy, keeping credit flowing and supporting their economy with huge fiscal stimulus plan among many others unconventional plans. On the reassurance that the intervention measures are not going to fizzle out anytime soon, investors have pushed global stocks higher:
Major US equity indices rallied and record new highs.
European stocks were flaring better. Even though the Eurozone was not economically strong pre-COVID-19 crisis, the better containment of the virus compared to the US and the historic unity European countries have shown during the coronavirus crisis has boosted confidence for European stocks
Australian shares also rebounded significantly and reclaimed the 6,000 level to mark the best quarter in over a decade.
Quarter 3 – Vaccine Optimism, Presidential Election, and Tech Rally
While the vaccine updates and the US Presidential elections campaigns were at the forefront of the markets in the third quarter, global stimulus improving economic data, a better-than-expected earnings season and the resilience of the technology sector have lifted risk sentiment. Global equities have been on a staggering rally at the beginning of the quarter allowing the major equity indices to recover the losses made in the first quarter.
However, geopolitical risks – US/China tech war and the ending of the US pact on Hong Kong extradition and reciprocal tax treatment, the US stimulus gridlock, the rising number of coronavirus cases and the uncertainty around the pace of recovery created an environment of caution.
Investors were monitoring closely the interventions by central banks and governments to push stocks higher at the risk of the global economic backdrop and the stimulus-fueled economy. The month of September again lived up to its reputation of being the typical scary month for investors which saw major corrections in the stock market as investors were navigating in a highly uncertain environment.
Once the volatility around the US elections faded, investors were focused on the prospects of another round of national lockdowns and the lack of timely US stimulus support. The tech sector was at the centre of attention as the big tech leaders outshined when the world went into virtual reality mode. The industry biggest players: Amazon, Apple, Facebook, Alphabet, and Microsoftwere somewhat well-equipped to rise to the challenges. The resilience and performance of the tech sector year-to-date stood out this year – mega-caps tech companies have tackled the pandemic relatively unscathed by its impact compared to the economic malaise other industries are facing.
The Reshuffling of the Dow Jones Industrial Average
Another notable event was the reshuffling of the Dow – Amgen (AMGN), Salesforce.com (CRM) and Honeywell International (HON) were added to the index while Pfizer (PFE), Raytheon Technologies (RTX) and Exxon Mobil (XOM) were removed. The moves were spurred by Apple’s decision to split its stock which will reduce the Information Technology index weight.
If immediate attention generally was on the FAANG group, Sea Ltd, the leading internet platform in Southeast Asia and Taiwan drew attention as well. The company outshines Tesla and the FAANG group of companies and emerged as the world’s best performing large-cap stock.
The Last Quarter – First Vaccinations
Amid the election mayhem and a probable contested election, the gridlock in Congress, another wave of hard lockdowns, and Brexit chaos, investors had a breather with promising vaccine updates. The back and forth on the US stimulus coronavirus relief package and Brexit negotiations took the markets on a wild ride in the last quarter. Throughout the last few months, Pfizerand BioNTech, Moderna and AstraZeneca issued convincing statements of the progress of the vaccine trials.
The emergency vaccine approvals and the first vaccinations across major countries like the US and the UK brought some relief following the ongoing surge in coronavirus cases in certain economies. Overall, there was enough optimism in the last few weeks for global equities to recover from October’s plunge.
US Share Market
Despite a contested election, the lack of timely fiscal support and the raging spread on the virus in the US, the share market was supported by the vaccine updates and first immunizations which took place earlier this month.
Similarly, the encouraging vaccine news was the bullish trigger for the European markets despite the further lockdowns in major European countries, tough Brexit negotiations and a slower economic recovery compared to its peers. As of writing, a new variant of the virus in the UK triggered a sell-off in the European markets. The CBOE Volatility Index jumped to the highest in a month above the 30 mark.
The new COVID mutation was mainly detected in the UK but the WHO confirmed its presence so far in Denmark, the Netherlands and Australia as well. Investors are closely monitoring statements on whether the new variant is more easily transmissible than the original strain of the disease.
The Australian Share Market – Back in Black
After the release of the Federal Budget, Australian shares started to decouple from US and European stocks as investors endorsed the government blitz which boosted confidence. During the month of November, the Australian share market has rallied significantly on the back of:
The easing of lockdown restrictions in the second most populated state and the second’s largest city in the country.
The positive vaccine updates coming from Pfizer and BioNTech, Moderna and AstraZeneca.
The confidence in the Australian economy as compared to other major countries. Consumer confidence reached a 10-year high.
Historically low-interest rates. Even though the RBA slashed interest rates to a historic low, there is a level of reassurance that the lower level of interest rates will stay for a longer period which means that the central bank is not expecting a deterioration in the Australian economy fuelling investors’ confidence.
The Asia-Pacific Free Trade Agreement has provided another level of confidence at a time of global trade uncertainty. It has also elevated expectations that both countries might initiate some sort of dialogue after the Chinese Communist Party has frozen all communications with Australian ministers.
In November, the ASX recorded their best month in decades and briefly erased its 2020 losses before retreating lower. As of writing, the index is currently trading at around 6,601.
Forex Market: The King Dollar?
The US dollar went on a roller coaster ride throughout the year. In a classic reaction to an unpredictable and uncertain event like the pandemic, the demand for haven assets triggered a rally in the US dollar. As panic gripped markets, dollar funding pressures drove the US dollar index to a 3-year high above the 102 level. Even though policymakers stepped in to enhance flows, the greenback remained in elevated levels.
A significantly bigger stimulus package compared to its peers at the beginning fuelled hopes that the US economy would probably recover faster than other major economies. The US dollar was unable to maintain the bullish momentum over the following quarters as risk sentiment improved and the US was still battling hard the spread of the virus with no signs of slowing down and stimulus packages were not flowing in as required.
Major currencies remained stronger than the US dollar in the following quarters. Major central banks like the RBA had to tap into QE for the first time this year and many even contemplate or left the door open for negative interest rates if warranted.
The Euro gathered strength on the historic unity, some economic recovery, the ECB stimulus program and EU budget. The renewed lockdowns and Brexit woes remain the factors that may drove further volatility in the EUR pairs. The EURUSD pair is trading at a high above the 1.22 level.
The Antipodean currencies were among the top gainers lifted by the additional funding from the central banks, governments, renewed confidence, economic data and the better containment of the virus as compared to other major economies. The AUDUSD pair is trading nearly three-year high around the 0.750 level.
As the Brexit deadline looms, the Pound swung between gains and losses driven by contradictory headlines and statements from both the EU and the UK. Traders grew more hopeful in the last few days when both parties appear committed to seeing a deal through despite significant differences on three critical issues: level playing field, governance and fisheries. Investors were taken on a roller-coaster ride following intensifying deal negotiations and on-and-off positive and negative announcements.
Brexit hopes drove the GBPUSD pair to an intraday high of 1.3624 last week. The Pound plummeted on the news of a new variant of the virus and as of writing, the pair retreating lower to the 1.33 level.
At the start of the year, the US dollar and Gold were moving in tandem due to the prevailing uncertainties – QE, low-interest rates, trade frictions, geopolitical tensions, global debt and growth uncertainties, gold hoarding by central banks have driven the gold price higher just below the $1,700 mark.
However, Gold was initially liquidated due to the wider and rapid spread of the coronavirus across the globe. The precious metal is viewed as a highly liquid asset and investors were in a need of cash due to margin calls and other liquidity requirements. COVID-19-induced liquidity issues caused the yellow metal to plunge to a low of $1,451.55.
The yellow metal rallied at the start of the third quarter to a high of $2,075 in the month of July but traded within a narrow range as investors digested some positive vaccines updates, improving economic data and easing lockdown restrictions. The XAUUSD pair plunged below a key psychological level below the $1,900 mark but held on to elevated levels.
From the health crisis point of view, the vaccine updates are fuelling the hopes of a quicker recovery and providing reassurance to investors. However, the amount of stimulus injected into the global economy over the last couple of months is evidence that the economic and financial recovery might take some time. Gold is still trading at a decade-high around the $1,880 mark.
An oil price war and the ongoing pandemic struck the crude oil market at a time where the industry was already faced with a simultaneous demand and supply shock. As the world grapples with the ongoing pandemic, different forms of lockdowns across the globe have severely impacted key industries of consumers of oil. Global activities have slowed down on a massive scale with empty roads, grounded aircraft, plunging car sales and disrupted supply chains abruptly sapping oil demand.
The extent of the disruptions in the energy market caused by the pandemic will probably leave a lasting impact on the oil market which may take years to overcome. Traders are analysing whether the impact of the pandemic will either accelerate the pace in using renewables or delay that process.
Crude oil prices have mostly remained stuck within a range below the $50 after the big plunge earlier this year. With a dire demand outlook from as per the October reports, there are increasing pressure from OPEC members and its allies to balance the supply side and avoid flooding the oil market with extra supply.
In a pandemic-induced environment, investors are navigating a new normal with COVID-19. Despite the painful year on the health front, the stock market had a great year driven by the prompt interventions in the financial markets by central banks and governments around the globe.
While a vaccine provided a sense of relief, we are ending the year with much uncertainty on the geopolitical, economical and health front.
By Deepta Bolaky
Disclaimer: The articles are from GO Markets analysts, based on their independent analysis or personal experiences. Views or opinions or trading styles expressed are of their own; should not be taken as either representative of or shared by GO Markets. Advice (if any), are of a ‘general’ nature and not based on your personal objectives, financial situation or needs. You should therefore consider how appropriate the advice (if any) is to your objectives, financial situation and needs, before acting on the advice. If the advice relates to acquiring a particular financial product, you should obtain and consider the Product Disclosure Statement (PDS) and Financial Services Guide (FSG) for that product before making any decisions.
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Fed Chair Jerome Powell sounded dovish during his press conference on December 16, where he gave a market update after the Fed’s monetary policy meeting. The Fed will remain accommodative for a long time, which should support gold prices.
Last week was full of important events. First, both the Pfizer/BioNTech and Moderna vaccines received emergency-use authorization from the U.S. Food and Drug Administration . In consequence, the first COVID-19 vaccination in the United States has already taken place, which is great news for America, as it marks the beginning of the end of the pandemic .
It’s high time for that! As the chart below shows, the U.S. has already lost about 314,000 people to the coronavirus.
And what is disturbing, the current wave of infections doesn’t look like it’s going to end quickly. As one can see in the chart below, the number of new daily official cases is still above 200,000 – actually, it has recently jumped to about 250,000.
So, the beginning of vaccine distribution is the light at the end of the pandemic tunnel that brings hope for a return to normalcy in 2021. It’s important to note that, contrary to the groundbreaking November news about the efficacy of the vaccines, the approval of vaccines and first injections didn’t plunge gold prices. This suggests that the bridge to normalcy built by the vaccines has already been priced in. That’s good news for the gold bulls .
Second, there was renewed optimism about the fresh fiscal support . Indeed, there are higher odds now than at least about $750 billion in aid will be passed and implemented by the end of 2020. Theoretically, the fiscal stimulus is considered to be helpful for the economy, so it should be negative for gold, however, the price of the yellow metal may actually go up amid concerns about rising fiscal deficits , public debt , and inflation .
Powell’s Press Conference and Gold
Third, the last FOMC meeting took place this year. I’ve already analyzed it in last Thursday’s (Dec. 17) edition of the Fundamental Gold Report , but then I focused on the monetary policy statement and the fresh dot-plot . As a reminder, the Fed tied tapering in its quantitative easing to the progress toward reaching full employment and inflation at two percent, while the economic projections were more optimistic, but they nevertheless didn’t see any interest rate hikes until the end of 2023.
However, it was Powell’s press conference that was really crucial, so let’s take a closer look at it. The Fed Chair sounded dovish, as he emphasized the U.S. central bank’s commitment to maintaining its very accommodative stance. In particular, Powell reiterated that the Fed will not hike interest rates or reduce its asset purchase program anytime soon. Actually, Powell said that the bank will normalize its monetary policy only after reaching the maximum employment and price stability:
“our guidance for both interest rates and asset purchases will keep monetary policy accommodative until our maximum employment and price stability goals are achieved. And that’s a powerful message. So substantial further progress means what it says. It means we’ll be looking for employment to be substantially closer to assessments of its maximum level, and inflation to be substantially closer to our 2 percent longer run goal, before we start making adjustments to our purchases.”
In other words, Powell clearly stated that he will keep his foot on the gas until at least 2023, and that he won’t pull the brakes even if inflation increases. This is because Powell believes that although inflation may rebound in 2021, it will be a temporary increase, and the Fed now has a flexible average inflation targeting framework, so it wants inflation to overshoot the target:
“What we’re saying is we’re going to keep policy highly accommodative until the expansion is well down the tracks. And we’re not going to preemptively raise rates until we see inflation actually reaching 2 percent and being on track to exceed 2 percent. That’s a very strong commitment. And we think that’s the right place to be”
This means that in 2021 the Fed is likely to be behind the curve. Higher inflation with the nominal interest rates unchanged imply lower real interest rates – further declines in these rates should push the gold prices up . Moreover, Powell will announce in advance when he wants to take his foot off the gas pedal and start reducing the amount of monetary accommodation. The Fed clearly doesn’t want the replay of the 2013 taper tantrum :
“And when we see ourselves on a path to achieve that goal, then we will say so undoubtedly well in advance of any time when we would actually consider gradually tapering the pace of purchases.”
Implications for Gold
What does it all mean for gold prices? Well, although the Fed did not expand its monetary accommodation in December, Powell was really dovish and he pointed out that the U.S. central bank would continue its current easy stance “as long as it takes until the job is well and truly done.” Gold welcomed Powell’s remarks and gained nearly $40 on Thursday, as the chart below shows.
It makes sense – after all, the Fed promised that its monetary policy would remain highly accommodative for a long time. So, although the potential for further accommodation and, thus, a great rally in gold prices is limited (at least until we see a further weakening in the US dollar or an increases in inflation and decrease in the real interest rates), the risk of a sudden tightening in the Fed’s monetary policy , that could plunge the gold prices, has diminished. Therefore, gold could shine again – at least until the markets start to worry about the normalization of monetary policy and start to forecast increases in the interest rates.
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The major indices closed mixed on Wednesday (Dec. 16), as the Nasdaq hit yet another record close amidst stimulus optimism and the Fed’s dovish tone.
Although the Dow Jones closed lower by 44.77 points, or 0.15%, the S&P 500 gained for the second day in a row and rose by 0.18%. The Nasdaq closed once again at a record high and gained 0.5%.
Sentiment for the day started negatively after the Commerce Department reported a steeper-than-expected drop in U.S. retail sales. The department stated that retail sales fell by 1.1% in November compared to estimates of 0.3%.
Cautious optimism that some sort of stimulus could be passed before the end of the year encouraged investors.
According to Politico , Congress was on the brink of a $900 billion stimulus deal that would include a new round of direct payments to consumers. However, that package would exclude the more contentious areas of liability shields for businesses and state and local aid.
We have reached the deadliest weeks of the COVID-19 pandemic. More than 300,000 total COVID-19 related deaths have now been confirmed in the U.S., with over 16 million confirmed cases. Additionally, US officials reported 3,400 new COVID-19 deaths – a daily record.
After an FDA panel officially endorsed Moderna (MRNA) – following a review which confirmed safety and efficacy earlier in the week – the big day is finally here. On Thursday (Dec. 17), the FDA will officially vote on Moderna’s vaccine. This will strongly complement the mass deployment of Pfizer (PFE) and BioNTech’s (BNTX) vaccine.
The Federal Reserve ’s announcement on monetary policy was largely as dovish as expected. The Fed vowed to continue its asset purchase program at the current rate, “until substantial further progress has been made toward the committee’s maximum employment and price stability goals.”
Microsoft (MSFT) and Salesforce (CRM) led the Dow with gains of 2.4% and 1.6%, respectively, while Walgreens (WBA) was the laggard and declined 2.15%.
Moderna (MRNA), despite its big week ahead, dropped 6.9%.
While there is some short-term uncertainty and mixed sentiment, there is some general consensus: While the short-term may see some pain and/or mixed sentiment, it may be worth it for the medium-term and long-term optimism.
The overwhelming majority of market strategists are bullish on equities for 2021- despite near-term risks. Outside of the pandemic raging to out of control levels, another near-term risk that has been largely overlooked is the Senate runoff election in Georgia. Investors have largely already priced in a divided government – however, if Republicans end up losing both seats in Georgia, this could potentially upend everything.
According to Jimmy Lee, CEO of the Wealth Consulting Group ,
“I think that we can get a little bit of consolidation before year-end just due to normal selling at the year-end for rebalancing or tax loss harvesting. Also, depending on where the pulse is for the Senate race in Georgia, investors might want to get ahead of that if they think that capital gains taxes may go up in the future…So that could cause some additional selling before year-end and we could get a little bit of a pullback. But I am very bullish on equities at this point. And I do think we may get a little bit more of a rotation into the economy-opening sectors.”
Meanwhile, progress on the stimulus package appears to be more optimistic than many expected in the near-term.
“The odds of a fiscal deal before year’s end have been improving,” Goldman Sachs economists led by Jan Hatzius wrote in a note Tuesday (Dec. 15). “While we had expected a smaller package to pass now with a larger package waiting until early 2021, it appears increasingly likely that most of this could pass this week.”
While markets for the rest of 2020 (and perhaps early 2021), will wrestle with the negative reality on the ground and optimism for an economic rebound, the general consensus appears to be looking past the short-term painful realities, and focusing more on the longer-term – a world where COVID-19 is expected to be a thing of the past and we are back to normal.
In the short-term, there will be some optimistic and pessimistic days. On other days, such as Wednesday (Dec. 16) (and in my opinion this will be most trading days), markets will trade largely mixed, sideways, and reflect uncertainty. Therefore, it is truly hard to say with conviction what will happen with markets in the next 1-3 months. However, if a stimulus deal passes within the next week, it could mean very good things for short-term market gains.
In the mid-term and long-term, there is certainly a light at the end of the tunnel. Once this pandemic is finally brought under control and vaccines are mass deployed to the general public, volatility will stabilize, and optimism and relief will permeate the markets. Stocks especially dependent on a rapid recovery and reopening such as small-caps should thrive.
Due to this tug of war between sentiments, it is truly hard to say with any degree of certainty whether another crash or bear market will come.
Therefore, to sum it up:
While there is long-term optimism, there is short-term pessimism. A short-term correction is very possible. But it is hard to say with conviction that a big correction will happen.
Nasdaq Hits Another Record Close – Too Good to Be True?
Is the Nasdaq’s performance since its sharp sell-off last Wednesday (Dec. 9) too good to be true? Truthfully, I don’t know. But it’s very possible – especially if shut down measurements become harsher and stricter and investors return to the “stay-at-home” trade that led markets from April through the end of October.
Additionally, I still have many concerns about tech valuations and their astoundingly inflated levels. Last week’s IPOs of DoorDash (DASH) and AirBnB (ABNB) reflect this and invoke traumatic memories of the dotcom bubble era. I believe that more pullbacks along the lines of last Wednesday (Dec. 9) could inevitably come in the short-term. Frankly, it would make me feel far more confident about initiating tech positions as well for the long-term.
Pay close attention to the RSI. While an overbought RSI does not automatically mean a trend reversal, I called keeping a very close eye on this for the Nasdaq. Last Wednesday’s (Dec. 9th) Nasdaq pullback after it exceeded a 70 RSI reflects that.
The Nasdaq has sharply rallied in the week since then. But its RSI is nearly 69. Monitor this . If the index goes on another bull-run and hits more record closes, it could surely exceed an RSI of 70 by the end of market close on Thursday (Dec. 17). I did not make a conviction call last week but I will now- if the RSI exceeds 70 this time, take profits- but don’t fully exit .
One thing I do like is how stable the volume has been this week and since the sharp sell-off last week. Stable volume is a good thing, especially if one is concerned about volatility. Low volume, especially a declining trend, means that there are fewer shares trading. Lower volume also means less liquidity across the index, and an increase in stock price volatility.
On pessimistic days, having NASDAQ exposure is crucial because of all the “stay-at-home” trade. However, positive vaccine-related news always induces the risk of downward pressure on tech names – both on and off the NASDAQ. What concerns me most are sharp sell-offs due to overheating and mania. Don’t ever let anyone tell you “this time is different” if fears of the dot-com bubble are discussed. History repeats itself, especially in markets.
It is very hard to say with conviction to sell your tech shares though. However, as I said before – if the RSI exceeds 70 again – consider selling some shares and taking profits. For now, however, the NASDAQ stays a HOLD .
For an ETF that attempts to directly correlate with the performance of the NASDAQ, the Invesco QQQ ETF (QQQ) is a good option.
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Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care
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