North American markets today, Wednesday, viewed several hours before opening, appear poised for a mixed start. The DOW and S&P 500 are in the red while the NASDAQ is firmly in the green. However, the S&P is shifting back and forth and could make it into the green before or after market opening. (That is by no means assured.)
The safe havens of gold and silver are in the red while currencies are fluctuating at time of writing. The British pound is up while the Canadian dollar and the Euro are down.
European markets are already open at time of writing and are also mixed with the FTSE 100 shifting back and forth while the CAC 40 and DAX are firmly entrenched in the red. The FTSE 100 could make it back into the green before the end of the trading day although that is also by no means assured.
The current situation underscores again the divide between governments and markets. While governments are panicking over the latest COVID 19 news, investors are more sanguine, according to Michael Stark, Market Analyst at Exness, a London-based online trading platform.
“New, fast-spreading variants of COVID 19 have governments panicked in many cases, so logically one might think that markets should share this feeling or at least shift somewhat away from risk on.,” he says. “That this hasn't happened suggests complacency,”
Stark figures that active progress on vaccinations and what he terms ‘a general control of outbreaks’ are likely to will continue. “However, many markets have a long way to fall if there’s a surprise jump in cases or significant delay in rolling out jabs.”
In the previous two columns I suggested a number of risks at play in the stock markets. Today I would like to balance that with a few pieces of good news.
In the argot of investing, the phrase ‘fallen angel’ refers to a stock that has gotten beaten down but shows promise of rising again. The much-beaten, much-criticized General Electric Company may eventually prove to be an example. It gained $0.27 yesterday to close at $11.26 though it had reached $12.23 during the trading day. That would have seemed unbelievable a year ago. It hasn’t really reached ‘fallen angel’ status yet but that’s within the realm of possibility – a thought that might bring some comfort to investors who bought it at $60.00 in 2000.
While the pandemic has brought near-bankruptcy to companies such as AMC Entertainment Holdings Inc., it has created good returns for the two main competitors in the streaming wars – more accurately described as the battle for our living rooms. With only five exceptions the Walt Disney Company is rated as a “Buy’ by all of the analysts I checked and some of their target prices range at or above $200. NetFlix has mainly ‘Buy’ and ‘Hold’ ratings but has ’Sell’ ratings from Wedbush Securities, Needham Benchmark but it’s paid off for its investors.
The pandemic also crystallized several trends that were already underway before the crisis started but became more front and center as a result of changes forced up on us. High on this list is the move to cloud computing. Microsoft reported yesterday that its Azure cloud computing services grew 50%. This, explained Reuters is “… the second quarter of acceleration in a business that had begun to slow as the global pandemic benefited the software maker’s investment on working and learning from home.”. The results mean that cloud growth, led by Microsoft, is just getting started according to an analysis by Wedbush Securities.
Another trend already underway but massively helped by the crisis is online gambling which may help pay some government bills, according to a Reuters report. “Wagers will be a welcome source of tax dollars across COVID-19-scarred America, where the potential market for web- based sports betting could be worth up to $23 billion,” it predicts.
The Reuters report explains that New Jersey, Delaware and Pennsylvania have allowed online sports betting and have reaped huge returns.
“As watchdogs ease rules in 2021, sites such as Flutter’s FanDuel and casino groups like Caesars and MGM will get lucky, it says.”
It predicts that more cash-strapped states will legalize online gambling. “With typical tax rates on internet gambling in the mid-teens or higher and growth accelerating, it’s an opportunity to top up their coffers,” it says.
At the same time, Caesars Entertainment, MGM Resorts and Wynn Resorts will continue to overcome fears of cannibalizing their in-person businesses and will continue building up online offerings. “After the tax collectors get their cut, shareholders can divvy up the jackpot,” it says.
That is probably one of the few times that state tax collectors and investors have something in common.