North American markets today, viewed several hours before opening, appear set to start on a positive note with major indicators in the green at time of writing. They are driven by promising vaccine news, though TV shots of laboratory technicians preparing vaccines and trucks transporting them continue to counterpoint disturbingly with fact boxes on the side of television screens showing surging numbers of deaths.
This follows yesterday’s trading which saw the major indicators closing at record highs with optimism driven by stimulus hopes as the Republicans and Democrats edged closer to agreement on aid to a shellshocked population. “It’s all about stimulus today and expectations of a pathway to a deal,” said Ryan Giannotto, director of research at Granite Shares in a Reuters report.
The optimism in the American market appeared to spill over into the Canadian market where it combined with some appreciation in the energy sector including oil prices.
However, the good news cannot be taken as assured. The major North American indicators shifted from red to green literally while I was developing this column and at time of writing the NASDAQ is only barely positive. It would not be surprising to see it slip back into the red by or before market opening.
This follows a trading day that held several surprises including the report of second quarter results by FedEx Corp. Not surprisingly, it reported increased revenue of 19% for $20.6 billion and adjusted earnings per share at $4.83 per share, compared with $2.51 per share from the same time last year.
Reflecting the good news, the share price rose and closed at $292.26, up $2.45 on the day. With all of that in the backdrop, FedEX then fell in after-hours trading, and is ranging around above and below $281.75 at time of writing. The contradiction likely reflects nervousness over management’s refusal to offer detailed guidance for 2021.
This counterpoints with the expected downbeat news expected for Carnival Corp. ‘s fourth quarter results today and the share price, already beaten down, fell $0.13 on the day to close at $21.63.
It can be argued that as well as dragging down Carnival’s revenues, the COVID 19 pandemic is depreciating Carnival’s near-iconic brand and customer loyalty. Not surprisingly, the majority of Wall Street analysts rating Carnival including Goldman Sachs and Merrill Lynch have it as a ‘Hold’ while Berenberg Bank, Wells Fargo and Morgan Stanley have it as a ‘Sell’. Surprisingly, Barclays and Stifel Nicolaus rate it as a ‘Buy’
In another market surprise yesterday, XpresSpa Group Inc. which has contracts to supply COVID-19 testing services at several airports announced an agreement with United Airlines to supply the same services. That announcement could normally be expected to drive up the share price. Instead, the stock closed at $1.37, down $0.08 on the day, as investors appeared to be reacting to XpresSpa’s decision to sell $41.66 million in equities to institution investors to raise funds.
Another surprise proved once again that jumping on a seemingly sexy Initial Public Offering can be dangerous. High-flying DoorDash fell as low as $149.95 and closed at $154.25, still down $3.80 on the day.
The triggers included a damning report. Citron Research described the food delivery company’s IPO as the “most ridiculous” of the year and says that the stock is worth a fraction of that. The Citron report argues that the food delivery sector is fiercely competitive and suggests a $40 price target instead of yesterday’s closing price.
This surprise begs a question that investors and their advisors need to consider: can companies such as DoorDash and others that have enjoyed explosive growth induced by the pandemic sustain that growth when the recovery actually takes shape? It’s at least questionable whether food delivery operations can sustain their growth when traditional restaurants pull out all the stops to win back customers. (I already get regular emails.)
By comparison, it is reasonable to believe that cloud companies can sustain much or all of their growth.
Still, notwithstanding the good news currently driving the market, it is reasonable to believe that the volatility to which we have become accustomed will continue into 2021. In fact, a report released earlier this week by Allianz Life Insurance Company of North America says that 72% of Americans believe that the markets will continue being very volatile in 2021. The same report says that 33% do not feel financially prepared to ride out the effects of the COVID-19 crisis and 34% have had to dip into retirement savings because of the economic impact of the crisis. That is presumably due to layoffs, firings and furloughs and we have no way of knowing how many of those individuals will recover their jobs.
The Allianz Quarterly Market Perceptions report says that Americans worry that markets will fall back from current highs, and that 44% feel that markets have not bottomed out yet.
Even an inveterate optimist would have trouble mounting an effective argument against the Allianz findings. The company does not say that the market will necessarily continue being volatile in 2021 but that a large proportion of individuals believe that that will be the case.
And they are probably right.