Weekly Snapshot November 9th, 2020
Market Review: Week Ending 11/6/2020
While the outcome of both the Presidency and Senate remains unknown as of the time of this writing, investors’ votes were heard loud and clear as the S&P 500 Index rose 7.3% last week to 3509, the best week since the early recovery period of April.1 The prospects of a Biden victory along with a split Congress was well received by investors wanting a larger fiscal stimulus package and less trade tensions, without much risk of significant tax hikes. Politics upstaged Covid-19 worries last week, unlike the prior week when daily cases rose to over 100k in the US and news of lockdowns in Europe contributed to a 5.6% fall in US stocks.1 A rising market along with Covid-19’s third wave (new daily cases totalled $132k on Friday) propelled Technology stocks higher, as the S&P 500 Technology sector gained 9.0% last week. The week’s most significant economic report, October’s Nonfarm Payrolls, showed a solid 638k gain, lowering the unemployment rate to 6.9%, indicative of an economy that remains on the path to recovery.1 In the coming weeks, regardless of the outcome of the election, investors will be closely watching if rising virus cases results in any restrictions to future economic activity as with more than 10m fewer jobs today compared to the pre-pandemic period, more improvements are necessary to sustain markets at their current levels. 10-year Treasury Bond yields fell 5bps to 0.82% last week, after rising to 0.90% heading into the election where a potential Democrat sweep was expected to result in a larger fiscal stimulus package.1 With 89% of S&P 500 companies Q3 earnings already reported, earnings have been a positive catalyst for stocks. A record 86% have beaten analysts estimates, lifting EPS expectations to a decline of 8% y/y for Q3, compared to an expected decline of 22% that was predicted heading into the quarter.2 Rising EPS revisions now have S&P 500 Index EPS at $161 for 2021, leaving the market trading at ~22x next year’s earnings estimates, not cheap, but probably fair given the low level of inflation and interest rates.
STOCKS IN THE NEWS
- Qualcomm Inc. (QCOM) – Apple’s primary 5G iPhone chip supplier reported a huge beat and raise quarter in Q3, resulting in a 17.6% surge in the stock last week. Revenues rose 35% y/y in the quarter, and EBT doubled, leading to a significant increase in guidance for the upcoming quarter.1
- CVS Health Corp (CVS) – CVS transformation into a comprehensive health care company appears to be gaining momentum. While EPS in Q2 were slightly lower y/y due to one-time Covid expenses, cash flow jumped 20% y/y and margins expanded, adjusted for non-recurring items. Management boosted guidance for earnings and cash flow in the upcoming quarter, leading to a 15.8% rise in the stock last week.
WHAT WE’RE WATCHING IN THE WEEK AHEAD
- November 3rd Elections – We will be closely watching how investors handle the election fallout, filled with recounts and lawsuits alleging voter fraud. By Monday, we would expect that Joe Biden will be declared the President-elect and is likely to begin planning for the transition, while President Trump pursues his legal right to contest the outcome in Federal courts. There are still Q3 earnings that remain to be reported that could move markets (McDonald’s, Walt Disney, Cisco, Siemens and Applied Materials to name a few) and there are also economic reports due to be reported (including October CPI and PPI), but investor focus is likely to remain squarely on Washington DC for another week.3
As always, we appreciate your confidence in our team.
Fundamentum Investment Committee
Paul Danes, CFA® – Investment Committee
Trevor Forbes – Investment Committee
Matt Dunn, CFA® – OSJ Supervisor
- Wall Street Journal, 11/6/20
- FactSet, 11/5/20
- Barron’s 11/6/20
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.