North American markets today, Monday, viewed several hours before opening at 9:30 a.m. EST, appear poised to start very mixed with the DOW firmly in the green, the NASDAQ just as firmly in the red and the S&P 500 wavering. It is possible – though certainly not assured – that the S&P 500 could turn positive during the morning.
The safe havens of gold and silver are positive at the time of writing.
The European markets are open and are also mixed with the FTSE 100 and CAC 40 in the green – though wavering -- while the DAX is firmly entrenched in the red.
Major currencies such as the British pound sterling, Canadian dollar and Euro are all up. That relationship may continue in the short term as some tensions ease, according to Jeremy Thomson-Cook, Chief Economist at London-based payments specialist Equals Money. “The majority of the movement in GBPUSD (pound vs. dollar) is dollar weakness but sterling is also flexing its muscles with the Bank of England and local election event risk done and dusted with little cause for concern,” he says. The Euro is also gaining against the dollar though not as strongly as the pound sterling.
That follows Friday’s trading with the S&P 500 and DOW hitting record highs in spite of a huge shortfall between expectation and reality in the release of the Bureau of Labor Statistics report.
Job growth slowed to 266,000 in April, well down from the popular estimate of 1 million new jobs being discussed by analysts even hours before release of the report. Combined with the downward revision to the March estimate, that triggered a scramble in the Beltway and a realization amongst investors that the recovery has quite a distance to go.
Stocks still climbed because the report seems to reduce fear of inflation and cutbacks in government funding. (I’ll have more to say about inflationary pressures in a future column.)
In a roundabout way, this letdown means a degree of clarity -- if only for the time being -- for the market. “Like the sugar-rush comedown from a kid’s party fuelled on fizzy pop, (Friday’s) payrolls report makes for sobering reading,” according to Robert Berkeley, Trading Analyst at London-based liquidity provider IX Prime, “This is the sort of data that unless there is an enormous revision next month, could take a massive slice out of market expectations of the Fed tapering in the coming months.”
Berkeley says that traders had been baking in acceleration of the American economy recovery and that the April jobs umbers had been expected to anticipate a huge increase for the second quarter of the year. Those expectations are now scaled back, he says. Implicit in the shortfall is that the recovery is not moving as rapidly as hoped.
Still the recovery is certainly underway, driven by vaccinations, stimulus checks and rock-bottom interest rates. A very large unknown factor – but one that will partially determine the strength of the recovery – is the net impact of revenge spending—the concept that suggests that individuals will open their wallets wider than usual out of relief and a desire to make up for lost time. That has led to a rapidly expanding group of stocks known as recovery plays. We won’t know how this works until we get there, so to speak. Many individuals feel pulled in the opposite direction due to job loss or lifestyle changes that began with the pandemic and have become permanently integrated into their outlooks.
The recovery plays category includes ride hailing companies. Uber Technologies Inc. qualifies as an international recovery play while Lyft is more of a domestic recovery play.
Uber delivered Gross Bookings and EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) that were well above Wall Street expectations and clearly were highlights of the March quarter. Adding to the recovery momentum was that the month of April showed a robust performance and is now at roughly 70% of pre-pandemic figures, according to Dan Ives, Managing Director of Research at Wedbush Securities in New York.
The future, while positive has some qualifiers. Uber still faces driver shortages and plans to invest in incentives to bring them back faster and the costs might have a dampening effect.
The recovery could bring some reduction in food delivery revenues. “(With) delivery -- even in cities where dining has opened up -- comps clearly get more difficult in (the second half of the year) and we do expect some headwinds to restaurant delivery as weather improves and people head out with vaccines ramping quickly.,” he says. Uber is moving to offset that with other delivery business including groceries.
“In a nutshell, we remain bullish on Uber and believe this is a core recovery name to own for the next year as ridesharing rebounds and the delivery business finds a normalized growth rate,” he says.
Today’s activity could very possibly include a bump in TESLA shares following Elon Musk’s appearance on Saturday Night Live although Hollywood Reporter called it ‘More forgettable than commercial’
Both sides of the pandemic will turn up in today’s results. Online gaming platform Roblox Corp, a beneficiary of the pandemic, reports first quarter earnings and investors expect results to include increased demand for video games during the pandemic. Roblox ended Friday at $67.90, up from its IPO price of $64.50 but down from its all-time high at $83.41. Roblox has strong Buy ratings and target prices from a range of blue-chip institutions including J.P. Morgan and Merrill Lynch and stands to continue benefitting from the children’s market. Meanwhile Simon Property Group may report a drop in first quarter results and investors will be looking for clues about the potential return of customers to shopping malls reassured by vaccine shots and government stimulus checks.
Disclosure: I do not own any shares in any company mentioned in this column