The markets today, Monday, viewed several hours before opening, appear poised to start on a positive note. At time of writing, major North American indicators are all in the green in spite of nervousness over the COVID 19 pandemic and a troubled change of administration in Washington, meaning that the path to the much needed stimulus is also very troubled.
President-elect Joe Biden’s administration urged the Trump administration to pass financial relief quickly in light of the huge surge in cases, according to a Reuters report. Biden advisers warned that the next few weeks are critical and that the healthcare systems are at a tipping point, according to the same Reuters report.
A well-structured and adequately financed stimulus program would have the potential to stabilize the economic picture, which in turn would lend some stability to the markets in months to come.
While the path to the stimulus and its impact looks troubled, the markets are not as concerned by the actual election results as originally feared, according to an Associated Press report which points out that on Friday the S&P 500 closed on a record high.
While the need for stimulus is clear, tangible and urgent, professional investors don’t see President Donald Trump’s tweets and legal claims changing the results.
“I'm a pretty conservative guy, and I've come to believe that Biden is going to be our president," said Barry James, portfolio manager with James Investment Research in Ohio in the same Reuters report. "It's just seemingly impossible that it would be anything other than that."
That being the case, professional investors can proceed with investment priorities comfortably based on Joe Biden moving into the White House and on the Biden administration’s reported plans to fight the pandemic through measures targeted by location rather than a national lockdown.
European markets are already open and most indicators there are in the green, helped by bank results but overhung by continued nervousness over the economic impact of lockdowns and the final resolution of the BREXIT divorce.
Consumer categories can be viewed from several perspectives this week and I will several of them during this week.
Tomorrow, Walmart Inc., high-rated by Wall Street institutions such as Jefferies Group LLC. and Morgan Stanley Inc. will report its third quarter results tomorrow and strong earnings can be expected due to pandemic sales. Investors will be curious about the results of its subscription service, drive-in moves and Christmas outlook. Also, Target Corp. like Walmart, a big-box retailer and like Walmart high-rated by Wall Street but with slightly less enthusiasm overall, reports its second quarter results on Wednesday, hopefully also with a Christmas shopping outlook.
At the same time, it is unlikely that history will completely repeat itself in this category. Some analysts have suggested that the coming of a second wave of COVID 19 will lead to another round of mass hoarding of supplies similar to what happened during the onset of the first wave. (Whether we are headed for a second wave or whether the first wave never ended is another story.) While it was unlike anything seen in recent memory, the hoarding – which went into overdrive in many stores -- boosted revenues and therefore shares of several companies in the category and some analysts are suggesting the possibility of a repeat.
From an investor’s point of view that might look promising but it’s unlikely to happen again, according to analyst and media commentator Gavin Graham. “The second wave of the coronavirus has seen some evidence that consumers are once again stocking up on necessities such as canned goods, pasta and of course lavatory paper,” he says. “This repeat of the panic buying that saw shelves cleared in the spring does however appear to be much less intense, partially perhaps because much of what was purchased then is still unused,” he explains.
“Therefore while some commentators are recommending buying the shares of companies that make these products, it’s unlikely that (investors) will see a big increase in sales and profits,” he says, adding that in many cases their share prices have already reflected the rise in demand. “If you’re considering buying stocks like Clorox, Reckitt Benckiser or Unilever check how much they’ve risen already,” he cautions.
The moral of the investing story and a good overall perspective is that even recent history is an imperfect guide. In another example, Saudi ARAMCO, the world’s largest oil company is borrowing heavily to pay $75 billion in dividends because it simply does not have sufficient available cash. An analyst who had suggested that that would become necessary before the plunge in oil prices might have had to face a sobriety test.
Disclosure: I do not own shares in any company mentioned in this column.