Monday Morning Reads
- Citizens Spending at Home
- Could Still Exert Economic Power
- Credit Is Very Tight
- Wall Street Set to Jump
- Drive-Thru Demand
- SoftBank’s Vision Fund Back To Black
- The Elusive Logic of Mr. Market
- Don’t Sell America Short
- The Markets and the Economy Don’t Care About Your Politics
- The Other Side of the Trade
- Investors See People Dumber Than They Are Getting Rich
Traders who held off on buying last week due to the political uncertainty appear to be triggering a new wave of buying this morning as they unwind positions amid reduced odds of a drawn-out election fight. Dow and S&P 500 futures are ahead by 1.6%, contracts tied to the Nasdaq are up 2%, while equities jumped across the globe. Markets have strongly reacted to the likelihood of a split Congress, meaning less drastic policy changes like tax hikes and increased regulation. With the fiscal response uncertain, it also means the Fed will have to do more to bolster the world's largest economy, which has weakened the dollar in recent days. "The consensus is that Biden will be easier on trade and foreign policy, unlike Trump who is more erratic and aggressive," added Colin Low, senior macro analyst at FSMOne.com in Singapore.
Berkshire Hathaway (BRK.A, BRK.B) splurged another $9B on repurchasing its own stock in the third quarter, bringing its nine-month total to around $16B. The record buybacks surpass many of Berkshire's biggest investments in recent years as the conglomerate reported Q3 operating earnings of $5.48B vs. $5.51B in Q2 and $8.07B in the year-ago quarter. The only major business segment to see a Y/Y increase in operating earnings was "railroad, utilities and energy," while insurance underwriting posted a loss vs. a year-ago profit. Other investments? About 70% of Berkshire's cash in equities at Sept. 30 was concentrated in four companies - Apple (NASDAQ:AAPL), Bank of America (NYSE:BAC), Coca-Cola (NYSE:KO) and American Express (NYSE:AXP).
SoftBank's (OTCPK:SFTBY) foray into trading doesn't appear to have gone as planned, with the group reporting a ¥131.7B ($1.3B) loss from speculation on tech stocks in Q3 after an attempt to diversify using its massive cash pile. Back in September, the company led by Masayoshi Son was said to be the "Nasdaq whale" behind the purchase of billions of dollars' worth of U.S. equity derivatives that stoked a rally in big U.S. tech stocks. The group still reported a net profit of $6B for the quarter, helped by fresh signs of recovery at its $100B Vision Fund since the WeWork debacle, as well as a gain related to the merger of its portfolio firm Sprint with T-Mobile U.S. (NASDAQ:TMUS).
Investor focus is also turning to the Senate after major networks declared Democrat Joe Biden winner of the U.S. presidential election, though Republicans have sued over ballot counting and President Trump said his campaign will file additional lawsuits. While seats in North Carolina and Alaska are still too early to call - but will likely go to the GOP - both Senate seats in Georgia (a state Biden appeared to flip blue) are headed to a runoff election on Jan. 5. If they would end up in Democratic hands (and Kamala Harris is Vice President), then Democrats could gain a majority since VPs can provide tie-breaking votes. The significance of those races means January is "the new November" in terms of election volatility risk, said Michael Purves, CEO of Tallbacken Capital, citing contracts for the VIX, the stock market's fear gauge, stretching out into the months ahead.
While Biden is preparing his transition team, he cannot shift into high gear until the U.S. General Services Administration, which oversees federal property, certifies the winner. Over the weekend, the GSA said "an ascertainment [of the presidential election] has not yet been made. GSA and its administrator will continue to abide by, and fulfill, all requirements under the law." While some office space has been allocated at the Commerce Department's headquarters in Washington, additional resources like salaries for administrative support and government email addresses won't be given over until the agency has formally identified Biden as the winner.
Making the resurgent coronavirus an immediate priority, Joe Biden will announce a 12-member task force today to deal with the pandemic that has killed more than 237,000 Americans. It will be charged with developing a blueprint for containing the disease and will be co-chaired by former Surgeon General Vivek Murthy, former FDA Commissioner David Kessler and Dr. Marcella Nunez-Smith of Yale University. Biden has promised that he will ask Dr. Anthony Fauci, the infectious diseases expert who has clashed with President Trump, to stay on in his role as the Director of the National Institute of Allergy and Infectious Diseases. He'll also reach out to Republicans and Democrats in Congress to discuss a new relief package, with new daily coronavirus infections in the U.S. totaling over 100K for each of the last five days.
Joe Biden's COVID-19 task force announcement will kick off a busy week that will see him and Kamala Harris moving forward with a presidential transition on a number of fronts. They have a host of economic positions to fill including Secretary of the Treasury, where Federal Reserve Governor Lael Brainard is seen as a top contender. The selection for the post and others must be approved by the Senate, which may still be in the hands of the GOP, and could threaten the chances of progressive candidates for the position like Senator Elizabeth Warren. Biden's team is also considering naming a climate czar to deliver on the promises he made during the campaign, with John Kerry in the running after negotiating the Paris climate accords in 2016.
Cannabis stocks are enjoying a third consecutive day of big gains amid expectations that Joe Biden will lead a reform effort that will spark investment in the sector. "While Tuesday night's election did not clearly show who America thinks should lead the nation, it did make clear that we are united on replacing our country's archaic cannabis laws," said the Cannabis Consumer Policy Council. Marijuana would be decriminalized at a federal level in the United States under a Biden administration, but efforts toward full legalization may also be on the table. Premarket: ACB +41%, HEXO +39.6%, TLRY +35.4%, CRON +22.8%, APHA, +18.1%, MJ +17.3%, CGC +13%.
While the Q3 earnings season has been overwhelmed by the focus of investors on the U.S. election, a look back by Bank of America shows that 67% of S&P 500 companies have beaten estimates on both the top and bottom line. The firm notes that small caps smashed it, with the S&P SmallCap 600 index Q3 earnings topping consensus expectations by 50%, driven by Consumer Discretionary, Financials and Industrials. Analysts, however, were a bit handicapped during the quarter with many companies not providing guidance. The question might now be: Will there be a big push higher of consensus estimates after U.S. corporations showed some pandemic resiliency?
What else is happening...
China's exports roar ahead, trade surplus widens.
In Asia, Japan +2.1%. Hong Kong +1.2%. China +1.9%. India +1.7%.
In Europe, at midday, London +1.4%. Paris +1.6%. Frankfurt +1.9%.
Futures at 6:20, Dow +1.6%. S&P +1.6%. Nasdaq +2%. Crude +2.5% to $38.07. Gold +0.4% at $1959.20. Bitcoin +2.2% to $15495.
Ten-year Treasury Yield flat at 0.81%
Today's Economic Calendar