Before The Bell
- The final trading day of November is set to begin with investors’ long equities holding major gains this month. The stretch has been a great one for traders, with stocks getting a boost early on from the elections results, which depending on Georgia Senate seat runoffs in early January, may result in a divided government. That keeps the possibility alive that some of the business friendly policies implemented during the Trump Administration will remain in place, which many pundits think would be a good scenario for both Main Street and Corporate America. Then, after the initial boost from the election outcome, equities surged to record levels on hopes that a COVID-19 vaccine is close to gaining approval. Shares of Moderna (MRNA) are up again in pre-market action on some more positive coronavirus vaccine trial data from the biotech company.
For the month of November, the Dow Jones Industrial Average, the tech-heavy NASDAQ, and the broader S&P 500 Index are sporting respective gains of 12.9%, 11.9%, and 11.3%. In fact, the Dow 30 and the NASDAQ reached record highs during last week’s abbreviated trading stretch, which saw the indexes add another 38 and 111 points, respectively, during Friday’s half-day session. Overall, the buying has been broadbased, with the smaller-cap stocks also witnessing eye-popping advances during the highly bullish month.
Also helping equities last week was a report that President-Elect Biden would like to select former Federal Reserve Chair Janet Yellen to be the next Treasury Secretary. Given her broad experience and seeming approval from the progressive wing of the Democratic Party as well as some conservative government officials, her confirmation would seem more likely than not. That news helped investors look past an unimposing report on consumer confidence from the Conference Board last Tuesday ahead of the all-important holiday shopping season. The Dow 30 soared past 30,000 for the first time ever mid-week.
Turning to the week at hand, we think investors should keep a close eye on the technology and retailing stocks. Apple (AAPL) will be closely watched for signs about how iPhone 12 sales registered during the Black Friday shopping weekend. If the Apple data is favorable it could give a boost to the technology names, including some of the mega-cap names, like Amazon.com (AMZN) and Microsoft (MSFT), which have not been high-flying stocks of late. Investors will also be interested in the latest quarterly results and guidance from Zoom Video Communications (ZM) and CrowdStrike (CRWD), which are two companies that have performed well during the pandemic. How would a possible COVID-19 vaccination impact these companies and their stocks, which benefitted from more individuals working and learning from home during the ongoing health crisis? We will also get the latest orders data from Tesla Motors (TSLA). Shares of Tesla were given a nicely boost recently from news that the issue will be added to the S&P 500 Index. This decision will force mutual funds and ETFs that track the S&P 500 Index to add the high-growth stock to its portfolio next month.
Investors also should be watching the energy sector this week, as a meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies got underway earlier today. It should be noted that an informal side OPEC+ meeting last night did not produce an agreement to maintain production cuts through the first quarter of 2021. Crude oil prices and a number of the energy stocks are trading lower in pre-market action.
Meantime, it will be a busy week for the business beat, which will include the latest data on employment and unemployment on Friday. That, along with the latest Beige Book summation of economic conditions from the Federal Reserve on Wednesday afternoon and data on November manufacturing and nonmanufacturing activity, will give investors a better view of how the U.S. economy is faring as the all-important holiday shopping season for the retailers heats up. Our thought is that the economically sensitive sectors will be under extra scrutiny this week, given these reports.
Speaking of the retailing sector, our sense is that with the coronavirus raging across the country (confirmed U.S. COVID-19 cases reached 13.74 million this weekend), the companies with the biggest Internet presence and online infrastructure are going to fare the best this holiday season. These companies include Amazon.com and the mass merchandisers Walmart (WMT) and Target (TGT). Conversely, we would probably stay away from the brick-and-mortar retailers that have struggled during the coronavirus pandemic, a trend that will likely continue this holiday season.
Before the opening bell, the futures suggest some initial modest profit taking after last week’s gains. So far overseas, the trading has been mostly bearish. The main indexes in Asia finished lower overnight, despite the strongest manufacturing growth in China last month since September 2017. The headline reading for China factory output came in at 52.1, beating the consensus estimate of 51.5. Likewise, there is more red than green ink among the major European bourses, as trading moves into the second half of the session on the Continent. Investors also should be aware that the final trading day of November, after a sharp run up in major U.S. indexes this month, may bring some portfolio rebalancing, which could possibly have a negative impact on intra-day trading. Stay tuned. – William G. Ferguson