Weekly Snapshot December 14, 2020
Market Review: Week Ending 12/11/2020
US stocks snapped a three week winning streak with modest declines last week, as the S&P 500 Index declined 1.0%, closing at 3663.1 The S&P 500 is up 15.4% YTD after falling 35% in February-March.1 The Technology heavy Nasdaq Composite also declined (-0.7%), while the recent rally in small-cap stocks, thought to benefit from a vaccine-led reopening continued, as the Russell 2000 Small-Cap Index rose 1.0%.1 While due for a pause, stocks reacted to news that talks of a 5th Covid-19 fiscal relief package seemed to be stalled again, and due to additional restrictions imposed by many states (NY and PA both closed indoor dining) to combat the surge of the virus. With daily records of new cases now being set (224k on Thursday) threatening to overwhelm the hospital system (a record 107k are now hospitalized with Covid-19), longer-term optimism around vaccines are tempered by the near-term realities of the virus, leading to small declines last week.1 Economic news of the week indicated more of the same – weekly jobless claims continue their recent rise following the November surge of new cases, rising 137k last week to total 853k, while the CPI report, again showed a lack of near-term inflation pressures as headline CPI rose 1.2% over the past 12 months.1 It was also reported that nonfarm productivity increased 4.6% in the third quarter, following the 10.6% rate of growth in the second quarter and that the economy expanded at a 33.1% annualized rate in the third quarter, following a 31.4% contraction in the second quarter.1 The highlights of the week were the IPOs of DoorDash and AirBnb, which closed with market capitalizations of $59B and $100B respectively, having risen 86% and 113% on their first days of trading.3 IPOs have raised more than $157B so far in 2020, the most since the dot.com boom in 2000, at valuations far above their private market values seen earlier in the year.1 DoorDash and AirBnB for example, were valued through private market fundings earlier in 2020 at $15B and $18B respectively. This adds to the signs of investor overconfidence that are abundant and worrisome, as some measures have now reached levels where future gains are less likely, though December is a seasonally strong month historically for stocks. In this TINA environment for stocks, we are reminded that Chairman Greenspan’s famous warning of “irrational exuberance” was issued in 1996, some four years before the piercing of the dot.com bubble in the spring of 2000.
STOCKS IN THE NEWS
Walt Disney Co. – Fundamentum GIE holding DIS, rose 14% on Friday after raising guidance (and prices) for subscribers for their streaming business, Disney+. Less than 1 year old with 86m subscribers worldwide, DIS now expects the subscriber count to reach 260m by 2024, compared to expectations at its debut of 90m by 2024. This level of growth would position Disney+ as the chief competitor to Netflix, which has over 200m worldwide subscribers now but isn’t seeing the same level of rapid growth as Disney+ off it’s lower base. Walt Disney’s pivot from a company devastated by pandemic-induced shutdowns of their parks, movie theaters and cruise ships to one more dependent on streaming services of their own internally developed content, could prove to be one of the most successful shifts in recent corporate strategy.
WHAT WE WILL BE WATCHING THIS WEEK
Tesla will be added to the S&P 500 Index on December 21 as the 8th largest market cap stock with a weight of ~1.5%.3 The stock has already soared 59% since rumors of the inclusion started in mid-November.3 With over $5.4T in passively managed S&P 500 Index Funds, it is estimated that $81B of Tesla’s shares need to be purchased, or 17% of the company’s free float, more than 3x its average daily volume in November.3 This will only add to the top-heavy nature of the Index, where the top 10 stocks now make up 28% of the Index.3 Not only will Tesla’s 160x 2021 PE ratio move the overall Index PE, it’s likely the volatility of Tesla could have a noticeable effect on the volatility of the entire Index.3 A bearish analyst from Bond Angle Research recently wrote, “Tesla’s addition to the S&P 500 followed its reporting of a requisite four consecutive profitable quarters, which can be traced entirely to energy credit sales plus noncash unusual accounting items – neither of which are its core business.”3 We have no position in Tesla but we will be watching for its impact on the Index, which we do use in our Tactical portfolios.
NOTE – This will be the last Weekly Commentary until the New Year. We wish you and your families a safe and happy Holiday season!
As always, we appreciate your confidence in our team.
Fundamentum Investment Committee
Paul Danes, CFA® – Investment Committee
Trevor Forbes – Investment Committee
Robert Armagno – Investment Committee
Matt Dunn, CFA® – OSJ Supervisor
- Wall Street Journal, 12/12/20
- FactSet, 12/11/20
- Barron’s 12/11/20
Investment advice offered through Fundamentum LLC a registered investment advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the investment objective of any investment strategy will be attained. Investing involves risk including loss of principal. Past performance is no guarantee of future performance. All indices are unmanaged and may not be invested into directly.