North American markets today, Monday, viewed several hours before opening, appear poised for a negative start, with major indicators firmly in the red at time of writing. That reflects a cooling of last week’s rally and nervousness over the possible government shutdown on December 10, though it can be argued that lawmakers will go the extra mile to avoid adding another crisis in Washington. Uncertainty over the size, timing and execution of the stimulus bill also overhangs the markets.
European markets are open at time of writing and major indicators there are mixed with the FTSE 100 in the green but the DAX and CAC 40 very firmly in the red. The nervousness over the final BREXIT divorce deal continues.“ Britain and the European Union sought on Sunday to strike an elusive trade deal, with failure likely to end with trade in chaos, markets tumbling and a huge economic price to pay,” explains a Reuters report.
The potential impact for the British economy is enormous. “A no-trade deal would wipe an extra 2% off British economic output in 2021 while driving up inflation, unemployment and public borrowing, Britain’s Office for Budget Responsibility has forecast,” according to the same Reuters report.
Looking to North American markets there are several events set for this week where the outcome will pose questions for the short and medium terms.
For example, Toll Brothers Inc. will be reporting fourth quarter and full year results tomorrow. That will provide another insight into the current housing boom, driven by low interest rates. However, given the staggering unemployment figures, it remains to be seen whether the boom can continue. Toll Brothers attracts a wide spectrum of ratings by analysts. Raymond James Ltd. and Wedbush Securities Inc. have it as a ‘Buy’, while Wells Fargo & Co. and Citigroup Inc. have it as a ‘hold’ and Merrill Lynch Inc. and J. P. Morgan & Co. have it as a ‘Sell’.
Also tomorrow and probably more closely watched than is the norm for conferences, the International Federation of Pharmaceutical Manufacturers and Associations holds a panel with executives from major pharmaceutical companies including Eli Lilly and Co., GlaxoSmith Kline plc, Johnson & Johnson Inc., Pfizer Inc. and others. Comments from the panel may provide some clarity for the very confusing vaccine situation and what we can expect both as worried individuals and as investors.
That is probably the most stressful issue currently at work in the markets. On the one hand we hear of vaccines and imminent approvals and on the other hand we hear of huge surges in COVID 19.
Friday alone brought a new daily high of nearly 228,000 additional confirmed COVID-19 cases across the United States as health experts worry about the effects of Thanksgiving and Christmas Holiday travel. We can be forgiven for feeling pulled between optimism and fear.
Also, this week, food delivery service DoorDash Inc. will price its initial public offering, currently understood to be between $90 to $95 per share. DoorDash, like GrubHub Inc. and Uber Eats has benefitted enormously from the pandemic restrictions on dining out. However, what is unclear is whether it can sustain its explosive growth whenever vaccine distribution becomes a reality and surviving restaurants understandably pull out all of the stops to win back dine-in customers. At time of writing, GruibHub has a total of 19 ‘Hold’ ratings from analysts at institutions as diverse as Barclays Bank plc and Credit Suisse AG.
Investing in DoorDash can be seen as investing in continued high demand for food delivery even after restaurants re-open eventually for traditional dining.
That is a major question that overhangs several stocks. How much of the pandemic-induced growth will continue in the post-pandemic era?
Moreover, DoorDash’s success is also tied to continuing acceptance of what is often called ’the gig economy’. On November 3, California voters rejected a provision that would have classified DoorDash drivers as employees instead of their current status as independent contractors. DoorDash had painted a gloomy picture of the implications of changing their status to employees.
In another closely watched IPO, AirBnb is scheduled to announce its share price on Wednesday, expected to be between $55 and $60. Investors looking towards recovery next year might find it appetizing. AirBnb’s success intimates greater penetration of the ‘sharing economy’, a factor that underpins the future of ride-sharing operations such as Lyft and Uber. The unknown here is the extent to which hotel chains can revive their appeal, especially for business travel.
These events underline some of the issues that investors and their advisors may discuss in the months to come.
Disclosure: I do not own shares in any company mentioned in this column. I do not plan to participate in any of the IPO’s listed here.