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Nov 10, 2020

Analysis | The Finance 202: Trump's 'crash' call goes bust: Stocks surge on vaccine breakthrough, Biden win

Tory Newmyer


Pfizer CEO Albert Bourla called the news of the drug’s advancement a “light at the end of the tunnel.” Traders appeared to view the resolution of the presidential election in similar terms. “Globally, investors are just happy to turn the page on the U.S. elections,” Eli Lee, head of investment strategy at the Bank of Singapore, told the Wall Street Journal. 

The one-two punch drove a 1,600-point rally in the Dow before it pared back those gains to close up 834.57 points, or nearly 3 percent, at 29,157.97, Taylor Telford and Hamza Shaban report. That represented the index’s highest close since February. Meanwhile, the S&P 500 climbed 1.2 percent to close at 3,550.50, its second-highest-ever close.

Among individual stocks, names that have suffered the most during the pandemic broke out as winners.

Shares of Carnival, the cruise line company battered by coronavirus lockdowns, surged 39 percent. American Airlines, Delta and United Airlines all leaped at least 15 percent. “Kohl’s rose $4.30, or 20%, to $25.84. Bank of America climbed $3.45, or 14%, to $27.76,” the Journal’s Caitlin Ostroff, Ben Eisen and Chong Koh Ping report.

Via Compound Capital Advisers founder Charlie Bilello:

Via Financial Insyghts president Peter Atwater: 

“Meanwhile, the pandemic’s winners, such as big tech companies, lagged behind the rest of the market, a reversal of fortunes that some investors said was among the most stark they had seen,” they write. “The tech-heavy Nasdaq Composite, which climbed 33% this year through Friday, fell 181.45 points, or 1.5%, to 11713.78.”

A number of stay-at-home stocks plunged.

Netflix sagged 8.6 percent; Clorox, 11 percent; Zoom Video Communications, 17 percent; Peloton Interactive, 20 percent. “Despite Monday’s declines, those stocks are still up at least 45% in 2020,” per Bloomberg News.

Firearms stocks also dropped as post-election political unrest failed to materialize. “Smith & Wesson Brands and rival Sturm Ruger & Co fell more than 9%, while Vista Outdoor, which sells ammunition and a range of sporting goods, fell over 12%,” Reuters reported.

Gains from a Biden win were largely priced into the market already. As we’ve written here, stocks that stood to benefit from a Biden win have been outperforming those friendlier to a Trump second term since last spring. Here’s another look at that phenomenon from Michael Cembalest, JPMorgan Asset Management’s chairman of market and investment strategy:

Wall Street focused in the weeks leading up the election on an expectation of a " Blue Wave," figuring Biden and a Democratic Senate would deliver much bigger fiscal stimulus to encourage the economic recovery.

But since the election, the market has swapped that bullish narrative for another that conforms to the likely new balance of power. Now, investors are betting divided government, with Biden facing Republican control in the Senate, will yield a Goldilocks outcome for stocks: Stimulus will be smaller, but Biden will ease uncertainty, including on the trade front, while the Senate GOP heads off major corporate tax increases. Over the last week, that has produced rarely seen gains:

“The market-friendly bits of Biden will be in place: the lack of volatility, more clear foreign policy,” Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe, told the Journal. “But at the same time, the bits that the market was worried about—higher taxes and more regulation—will not happen. That’s what’s been driving the market higher.”

Futures suggested more room for the rally to run. Per CNBC, “The Dow Jones Industrial average was set to build on its big Monday rally, while big technology stocks were set to decline again as positive vaccine news sparks a market rotation out of names that thrived during the pandemic into stocks linked to an economic recovery.”

Market movers

Fed calls out climate change as an economic risk.

The statement comes in the central bank's biannual financial stability report: “Acute hazards, such as storms, floods, or wildfires, may cause investors to update their perceptions of the value of real or financial assets suddenly,” Fed Governor Lael Brainard said in comments attached to the report, released Monday, Reuters's Ann Saphir reports.

“Such abrupt price changes from climate-related disasters could also create difficult-to-predict knock-on effects through financial markets, the report said, particularly because not enough is understood, or disclosed, about the true extent of exposures to climate risks.” 

From Morning Consult's Claire Williams:

The transition

Lael Brainard faces China questions. 

Colleagues at Treasury say the potential Biden pick to lead the department pushed to label the country a currency manipulator. “Brainard may face scrutiny over her dovish comments about China as a top Obama administration official if Biden chooses her to be Treasury Secretary, but people familiar with her work said she took a more aggressive approach in private,” Bloomberg News's Saleha Mohsin reports.

“During her time as Treasury’s undersecretary of international affairs under President Barack Obama, Brainard pushed behind-the-scenes to label China a currency manipulator, former colleagues say. Her boss at the time, then-Secretary Tim Geithner, ultimately rejected her advice, and Brainard backed the administration’s decision in public. While at Treasury, Brainard boasted that the administration had made ‘measurable gains’ in U.S. exports to China without “undue drama” -- comments that now strike a contrast with Trump’s tariff wars with Beijing.”

Biden's Wall Street backers won't see Trump-level access. “Wall Street overwhelmingly put its money behind Mr. Biden in this election, and donations have always bought some level of access to the Oval Office. Hedge-fund investors Donald Sussman and James Simons and investment bankers Blair Effron and Roger Altman were among the biggest financial backers of the president-elect,” WSJ's Gregory Zuckerman and Liz Hoffman report.

"Roger Ferguson, chief executive of retirement manager TIAA-CREF, is in the mix for a cabinet post, according to people familiar with the matter. And financial executives like Morgan Stanley executive Tom Nides and former hedge-fund manager and presidential candidate Tom Steyer publicly backed Mr. Biden and could emerge with influence, or jobs, in his administration… 

“Pressure from the strongly anti-Wall Street progressive wing of the Democratic Party is likely to dim the influence of the finance industry in the new administration. So, too, is a desire of Mr. Biden to distance himself from the track record of Mr. Trump, who spoke of draining moneyed influence out of Washington but stocked his cabinet with supporters with ties to Wall Street and kept others on speed dial.”

  • Tech titans, business groups congratulate Biden: “The head of the U.S. Chamber of Commerce pledged to work with the Biden administration to prioritize economic recovery … The National Retail Federation, a trade group that advocates on behalf of 16,000 companies, called for unity in a statement released Saturday and pledged to work with the new administration,” Hannah Denham and Hamza Shaban report.
  • Farmers worry about regulation, hope for trade deals: “Some farmers said they worry a Democratic White House will mean stricter environmental regulations and other restrictions are on the way … Hog farmers are hopeful that Biden will bring the U.S. into a trade pact between Pacific-region nations, which Trump exited shortly after taking office,” the WSJ's Jacob Bunge reports.

Coronavirus fallout

From the U.S.:

  • Another grim milestone: “The United States topped 10 million coronavirus cases on Monday, the fifth consecutive day with a six-figure increase in infections,” Antonia Noori Farzan reports.

From Wired editor-in-chief Nick Thompson:

From the COVID Tracking Project: 

  • Ben Carson has covid: “The secretary of Housing and Urban Development Ben Carson told The Post that he’s ‘feeling terrific’ after testing positive for the coronavirus,” Ben Terris, Tracy Jan and Seung Min Kim report. White House chief of staff Mark Meadows and David Bossie, a top Trump campaign legal adviser, have also tested positive.
  • CDC finds nearly 10,000 coronavirus patients returned to hospital within two months of discharge: “That amounts to nearly 10 percent of all hospitalized patients, adding to the growing body of evidence that suggests that even people who technically recover from covid-19 may continue to struggle with complications long after the fact,” Antonia Noori Farzan reports.

Trade fly-around

E.U. imposes $4 billion in tariffs on U.S. products.

Some European leaders questioned whether they should wait to see what a Biden administration does: “But they approved the tariffs anyway, to take effect today,” Michael Birnbaum reports.

“The move is part of a 16-year dispute over whether Europe’s Airbus and America’s Boeing have been getting illegal state aid. It was the Bush administration that first complained to the World Trade Organization that Airbus was receiving illegal subsidies from E.U. governments. But the fight has taken a nastier tone under Trump, who characterized the European Union as a ‘foe,” complaining about “what they do to us in trade.’”

  • What will be affected: “The list includes a 15 percent tariff on Boeing airplanes and a 25 percent tariff on a sweep of products including tractors, frozen shellfish, gin, suitcases, video game consoles, cotton and salmon.” 

Pocket change

McDonald's announces new plant burger.

The fast-food giant says it will begin testing the offering next year: “The company joins other fast food chains like Burger King and Dunkin' in getting in on the plant-based trend. Last year, it began testing a burger in Canada made with patties from Beyond Meat, a seller of meatless products,” CNN Business's Danielle Wiener-Bronner reports.

“McDonald's isn't just going all in on meat substitutes. In addition to the McPlant line, McDonald's said in a strategy update to investors that it would capitalize on consumer trends that strengthened during the pandemic — like eating comfort food. That means focusing on its most popular menu items and selling more chicken.”

SoftBank's comeback continues with $6 billion profit: “Japan’s SoftBank Group Corp., the world’s largest technology investor, is ready to go on the offensive again after a year of struggling with missteps, losses and tanking markets,” the WSJ's Phred Dvorak reports.

“Since March, SoftBank has been implementing one of the world’s most aggressive asset-sale and share-repurchase programs, signing more than $90 billion in deals — including a September agreement to sell U.K. chip designer Arm Holdings to U.S. chip maker Nvidia Corp. for up to $40 billion. Those deals, which include the sale of most of its stake in T-Mobile US Inc. and a reduction of its stake in its Japanese mobile-phone unit, have turned SoftBank into a company whose main business is investments.”

Ex-TikTok CEO Kevin Mayer joins investment firm: Mayer has joined investment firm Access Industries in an advisory role, the WSJ's Micah Maidenberg reports.

“Access said Monday that Mayer will focus on its media-related businesses and identify new potential opportunities for the firm. Founded by the Russian-born billionaire Len Blavatnik, Access has major investments in Warner Music Group, streaming services such as Deezer and other companies.”

General Motors to add 3,000 tech jobs: “The hiring is expected to take place from now, through the first quarter of 2021, the company said,” Reuters's Sanjana Shivdas reports.

Chart topper

Daybook

Today:

  • Fed vice chair Randal Quarles and Acting Comptroller of the Currency Brian Brooks are set to testify before the Senate Banking Committee
  • Lyft and Advance Auto Parts are among the notable companies expected to report their earnings, per Kiplinger

Thursday:

  • The Labor Department reports the latest weekly jobless claims
  • Quarles and Brooks are set to testify before the House Financial Services Committee
  • Disney, Cisco Systems and Palantir Technologies are among the notable companies expected to report their earnings

Friday:

The funnies

Bull session

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