More and more dynamic political and epidemic situation is so far not causing increased volatility. This week only Monday saw major indices move more than 1% down. The rest of the week was characterised by very low volatility. Its measure (VIX) hovers around 25-27.
Reporting season rolls on. 27% of members of the S&P500 have reported so far. The average earnings surprise is +18%, sales surprise +3%. Exepctations were obviously extremely low. It’s the second consecutive quarter of very solid earnings and sales beats. It can be shown by the following graph showing the average surprise for the recent quarters:
The highest positive surprises are the Consumer Discretionary sector (almost 91% so far this quarter for earnings). This is possibly the effect of shops having come back to normal operations after the total lockdowns.
On the political front the markets seem comfortable with the Democratic sweep in the polls lately. The expectation is that a big new fiscal boost to fight the pandemic is quickly introduced, should Joe Biden win the race. Some portfolio managers see downside risks to such a scenario though and suggest caution iahead of the 3rd Nov election day. Most point to potential higher taxes being a drag to equities in the longer run.
-> Over the last weekend the House Speaker Nancy Pelosi gave President Trump 48 hours to reach the expected stimulus aid. The media (Washington Post mainly) sounded out doubts that the deal is near. That sent stocks sharply lower and most indices ended the day -1.5-1.7%.
-> On Tuesday we saw a rebound as not new negative news hit the market in regards to aid. Not much action in other specific areas.
-> On Wednesday Snapchat (SNAP) rose as much as 28% after extremely strong 3Q20 results. Stock added another 7% and 11% the next two days. SNAP’s reported adjusted EPS was $0.01 vs. a $0.05 loss expected by the street. Revenues also surprised ($680m vs. $556m exp). Additionally the company’s ARPU (Average Revenue Per User) also rose. This is one of the signs of the structurality of the recession we’re going through. Some business struggle or bankrupt and others (like SNAP and similar) are being boosted massively. The world will be different from the one we once knew when all this ends. I am telling you :).
-> The same day one of our Global Leaders Portfolio (GLP) stocks, Biogen (BIIB), also reported numbers. EPS hit at $8.84 vs. $8.21 exp (8% above exp), whilst sales were inline at $3.376bn. BIIB additionally lowered its 2002 revenue and EPS guidance and acknowledged the negative impact stemming from growing competition of it’s major drug Tecfidera. Stock ended the day 70bps higher.
-> Another member of the GLP Intel (INTC) also reported on Thursday. Numbers were not a big thing. both sales and earnings hit just inline at $18bn and $1.11 respectively.
-> Friday was pretty boring to be frank. Stimulus talks continued and still no outcome was there.
-> On the week tech underperformed in general as as a Democratic win is generally said to be negative for this sector (potential higher regulation).
-> Effective weekly index changes: S&P500 -0.5%, Nasdaq -1.1%, EuroStoxx600 -1.4%, DAX -2%, Nikkei225 +0.5%.
Other markets events:
-> Bonds: the US yield curve (10y-FF) widened to over 75bps, same with the German curve (10Y Bunds-3M) which now stands at 14bps with 10Y Bunds at -0.57%. High Yield Spreads stable around 5.
-> Commodities (ex oil): Gold flat on week. Not much action.
-> Oil: lost over 3%.
-> Currencies: the greenback struggled vs. major currencies, DXY (Dollar Index) -1% on week, EURUSD +1.2%.
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