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North American markets today, Wednesday, viewed several hours before opening, appear poised for a mixed start. Most major North American indicators are in the green at the time of writing, buoyed by vaccine news, the seeming possibility of a stimulus plan in Washington, promising efforts to avoid a shutdown and the rush of initial public offerings including DoorDash Inc.. DoorDash is expected to begin trading today at $102 per share, well above the previous range of $90-$95 per share, which in turn was above earlier targets. Investing in DoorDash assumes a belief that it can sustain its explosive growth when restrictions are relaxed and restaurants understandably pull out all the stops to bring back dine-in customers. That’s a heavy bet.
This follows yesterday’s trading in which major indices including the S&P 500 and NASDAQ hit new records as stocks closed higher. Amongst pharmaceutical companies, Moderna Inc. closed at $169.86, up $10.34 on the day. Johnson & Johnson Inc. closed at $151.55, up $2.58 on the day and Pfizer Inc. closed at $42.56 up $1.31 on the day.
However, ‘…uncertainty over fresh fiscal stimulus held gains in check …” according to a Reuters report. Reuters suggests that investors are “… watching whether policymakers will be able to clinch an agreement on a relief bill and a spending bill with Friday as the deadline to avoid a government shutdown.”
It is reasonable to believe that lawmakers will not want to add a shutdown to the list of Washington follies – sorry -- political crises – that they currently face and contribute any further to investors’ apprehensiveness about Beltway machinations.
European markets are open at time of writing and major indicators there are in the green, buoyed by vaccine news, the potential for American stimulus but still awaiting a resolution of BREXIT trade issues.
What is unclear at time of writing is the potential impact of Russia’s recent announcement that it could export vaccine at $20 per dose and the news from the United Arab Emirates that it had approved a Chinese vaccine.
Continuing our look at the fallout from the pandemic, Campbell Soup Co.’s first quarter results today may have some clues. Analysts expect increased sales due to higher demand for packaged goods during the crisis. The question that company executives may address is whether the increased demand can be sustained. RBC Capital Markets and Jefferies Group LLC. rate it as a ‘buy’. Several companies have it as a “Hold’, but blue-chip institution Goldman Sachs has it rated as a ‘Sell’.
RH, also known as Restoration Hardware Furnishings Inc. reports third quarter results today. Anticipating positive results, the company’s share price rose yesterday by $3.92 to close at $472.73.The majority of Wall Street analysts rating RH have it as a ‘Buy’, several have it as a ‘Hold’ but Jefferies Group LLC. alone has it as a ‘Sell’
Costco Wholesale Corp. reports first quarter results tomorrow with analysts looking for increases in home goods sales due to greater consumption during the pandemic. What they need next is a clear view of expectations for holiday sales and the outlook for 2021. Investors obviously have confidence in the stock because it closed yesterday at $372.60, up $4.27 on the day.
Also, on Thursday, Lululemon Athletica reports third quarter results and investors will be listening for the Christmas outlook. It’s well rated by analysts but closed yesterday at $3781.07, down $0.41 on the day.
What these results prove is that the positive and negative fallout from the pandemic crisis will continue at least until the next earning season.
As the year starts to wind down, investors and their financial advisors could have a meaningful conversation around whether they believe that there is a continuing bull case for 2021. The vaccine momentum will not last forever while other influences such as rock-bottom interest rates will stay in the mix for at least the first half of 2021.
At the same time horrific pandemic-triggered unemployment figures and changes in Washington have to be considered. The crisis has induced effects on the investment environment that would have seemed inconceivable a year ago. It is possible that some of 2021’s good news has already been priced into share prices.
J. P. Morgan chief executive officer gave a qualified reading on 2021 yesterday at the Goldman Sachs virtual 2020 Financial Services Conference, according to a CNBC report. Asked whether he thought markets had become overvalued, he responded that if investors’ base case occurs -- a recovery next year spurred on by coronavirus vaccines — then that means today’s “bond spreads and most equity prices would be justified,” he said, but added that ″There may be a bubble in small part of the stock market, not all of it.”
Where does all of this leave investors, their portfolios, and their retirement plans? Assumptions are dangerous in investment decisions, but it is reasonable to assume that the investment environment will continue being volatile for at least the first half of 2021 and likely longer.
Looking at all of these facts and assumptions, I’m often reminded of the words of the Ryan Gosling character in Blade Runner2049: “Buckle Up’.
Related: How Much of the Pandemic-Induced Growth Will Continue in the Post-Pandemic Era?