The following article will review some of the biggest news stories from last week in the business and financial world.
Table of Contents
Introduction
During the first week of June, we stumbled upon the early stage of a V-shape recovery right after positive reports stating that unemployment in the US was not as dramatic as statistically proven previously by analysts.
This lead to a massive rush of bullish positions opened by institutions and individuals trying to grab everything they could before it was too late.
Consequently, there was an immediate surge in demand on most companies, especially the airlines, cruise lines and logistics and all those companies which were previously considered too risky to own.
Moreover, the OECD+ agreed on cutting oil production until July in order to increase its quotation. As the economies are reopening so is the oil demand rising, suggesting that the worst could be over.
The dollar was falling fueled by optimism over the reopening of Western economies despite the rallies its initial rally in March, also fostered by the announcement of the European Commission which is planning to pump over €750 billion euros to help the eurozone mitigate form the damages caused by the lockdown.
As far as the vaccine is concerned, NVAX wasn’t mentioned by Trump in his Top 5 list of pharmaceutical companies despite some of the elected, unlike NVAX, didn’t even start phase 1. Nonetheless, this brought to a 20% plunge, also heightened by the fact that it won’t receive any subsidies from the government.
The second week of June the market plunged 7%. As the opportunities emerged last week, retail investors may have exercised rampant speculation that has brought to a sharp decrease in quotations also due to new rising concerns related to the coronavirus. On Friday market seemed to catch up again with the bullish trend.
Investors taking profits
Some say it could be because of a potential second wave of COVID-19 and Fed’s grim outlook for the U.S. economy. But these factors cannot clarify why all the market has fallen, Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) included.
Although health experts have been expressing concern about a potential second and much more lethal wave coming this winter, the new COVID cases reported during the second week of June has not been that significantly different from previous weeks.
Analysing last week, one indicator that could help to explain the reason for such a plunge could be easily referable at the market sentiment.
The previous week has seen prevalent bullish positions being opened as enthusiasm for heavy speculation began, and therefore Thursday’s decline should not be a surprise nor be attributable to other than normal up and downs called price corrections, market-timer sentiment reached its utmost setting up a sell-off.
The Nasdaq Composite reached a new high earlier this week closing above the 10.000 level the previous Wednesday and lost only 5% the day later. This could be attributable to a massive volume of short-term market timers all concentrated in the same areas, generally the riskiest who could bring the most profits.
The bottom line, as always though, is that nobody can time the stock market and there doesn’t need to be a grand explanation about why markets are going up or down.
The media loves to say “markets are up on such and such news” or “markets are down because of X and Y event”, but in reality they can rise or fall for any number of reasons.
The best time to invest was always yesterday, regardless of how well markets perform in the short-term.
There’s panic, but the employment is rising
Last Friday’s blowout jobs report showed a 2.5 million job gain despite the -7.7 million job losses projected by analysts. This confirms that the worst economic consequences could be over and that the economy is quickly regaining to its previous splendour.
All States in the US have eased the lockdowns and reopened their economies in some form or another and are allowing further expansions on a daily basis. This includes all major cities like New York too which recently reopened entering in their phase 1. This is indeed of utmost importance as they represent most of the US GDP.
Tesla over $1.000 and the 11.000 new cars sold in China
Tesla shares have recently surged crossing the $1.000 line earlier last week and then following the market in a downtrend from Wednesday. The stock’s 120% this year has increasingly attracted the investors’ eyes. In the early months of 2020, Tesla was seeing an in incredible growth as its total deliveries jumped 50% and the Tesla 3 Model proved to be a worthy product for consumers.
Lately, the company built a factory in China and managed to sell 11.000 Tesla 3 Model vehicles tripling April’s volume according to the China Passenger Car Association (CPCA). While the Tesla factory based in Shanghai was open, COVID related lockdowns paused the local production in California prompting management to withdraw its guidance for 35%-plus growth in vehicle deliveries this year.
Although many investors are quite optimistic, also fostered by the March-launched Modely Y, and considering the existing lockdowns ceased in California, many do still believe that Tesla shares are quite expensive.
It is true that the company does have significantly more room to expand as it is now producing cheaper cars in China and that SUVs are popular in both EU and the U.S. and therefore Tesla new Model Y could make them fit. The Model Y alone could double the annualized vehicle sales at a cheaper price targeting an increasingly rising middle-income class.
The only issue worth to be considered is that Tesla is still far behind in sales if compares to traditional car producers such as Ford and Toyota with a capitalization of $175 billion but an overall generated profit of $1 billion in the last 12 months.
As the stock has rallied for months with critical ups and downs, Tesla could be a long haul option you could be willing to endure as the striking volatility shakes the quotations of your shares.
As far as SpaceX is concerned, Elon Musk managed to launch astronauts for the first time just few days ago urging his employees to accelerate their progress on the assigned task, the next-generation Starship rocket. Elon Musk’s goal is to create a fully reusable Starship, a commercial plane with a short turnaround between flights.
ECB’s Lagarde encourages bond buys
The ECB’s President Christine Lagarde, in response to the COVID pandemic, supported the aggressive stimulus measures taken by the European Central Bank, stating that they are adequate to the risk faced by the eurozone to mitigate the damages caused by the pandemic. Lagarde emphasises that the ECB took a proportional approach after an accurate cost-benefit analysis.
Lagarde assured that the ECB’s policy is to make sure that borrowing needed from fiscal authorities does not translate into higher interest rates for the private sector damaging the engine of the economy.
The German Constitutional Court claimed that the massive purchases of the ECB will have to justify or else lose the German Bundesbank as the main buyer in this scheme. Lagarde said that the ECB would kindly assist the Bundesbank addressing to the issue highlighted by the German Constitutional Court.
The German court asserted that a different bond-purchase scheme should be designed as the PEPP may fall foul of a ban on bankrolling governments. The ECB, without any consideration, expanded its PEPP (Pandemic Emergency Purchase Programme) from €1.35 to €1.50 trillion euros and it extended for a year.
Data showed on Tuesday saw that among the worst-hit countries by the coronavirus is Italy which recently received billions and billions in aid to cover the expenses the government had during April to May but the ECB merely managed to keep up the country’s borrowing costs steady.
The Finnish Parliament’s constitutional committee questioned the legal grounds of the ECB too on its plan pumping so much stimulus in the economy. The 27 EU members will hold talks on June 19 on this matter. The package will require unanimous support from all the members of the Union.
Hertz’s spikes 70% after revealing $1 billion shares sell plan
Hertz has surged almost 70% last Friday when the company revealed its intention to raise $1 billion in a share sale to capitalize and makeover 1000% since it started filing for bankruptcy.
Hertz skyrocketed as much as 1500% from May 26 as investors are betting on a miraculous escape of the car rental company from bankruptcy proceedings. The staggering up-trend move is purely speculative and it poses a big risk to the potential buyers or those who are holding it as it could sharply go down instantly.
Hertz is trying to take advantage of the volatility of its shares and the recent volumes could potentially present a unique opportunity to raise funds and deplete the bankruptcy filing the company started on May 22. The company, though, tried to be honest with its shareholders announcing that:’’the stock could ultimately be worthless’’ and that the worst-case scenario is still existing.
The debt repayment of the company and all the issues it is dealing with are not solely related to the pandemic and the possibility that the shareholders want to sell, but also a new letter from the New York Stock Exchange that warned the company that a bankruptcy proceeding is enough to ban it from public trading.
Hertz is now looking to sell as much as $1 billion of its shares in order to capitalize from the recent and booming uptrend. Last Thursday the Wall Street Journal wrote that Hertz is trying to convince the judges to let them conclude a deal with Jefferies LLC that would allow the company to sell $250 million worth of shares. This could ultimately be the best opportunity the company found compared to loans that other insolvents firms get.
The company is also selling and planning to delete leases on 144.000 vehicles in order to spare $80 million in savings to restart the company.
The PlayStation 5 could get on our shelves by the end of the year, Sony announced
On Thursday, during the falling market, Sony unveiled the design of its new generation console, the PlayStation 5. Sony also revealed a number of games that will be supported by the console. Though the company did not mention any price or date of release, it announced that it will be purchasable by the end of this year.
Sony showed two versions of its new PlayStation 5 including a standard and a digital edition which won’t come with a disc reader. Considering that it will have a single hard drive for storing games, it could come at a cheaper price if compared to earlier versions and therefore more convenient for consumers, even though the company didn’t show any pricing list yet.
The new PlayStation 5 will run on an 8-core AMB Zen 2 processor and it will include some new accessories such a wireless headset with 3D audio support, and HD camera for streamers and a DualSense charging station to power the controllers. Sony also revealed some of the first games that will be available on the platform, these games come mostly from:
Japan Studio, Insomniac Games, Rockstar Games, Giant Squid, Norsfell, Capcom, Io-Interactive, Bethesda, XDEV and Superbrothers.
Adobe is surging but could have limited room for Growth
Adobe shares rose considerably during the last weeks because of the huge demand in mobile workplaces and digital products due to the COVID pandemic. The digital documents have been served millions of people who shifted from a physical to a work-from-home environment and it was the main driver for the sells the company made recently, similarly to the Zoom teleconferencing app (ZM).
Adobe’s stock, as industries have halted production, has suffered during the lockdown as the demand of technical, expensive software, web services also plunged and as consumers are focusing only on ‘’simpler’’ products or essentials and not expensive. This could result, in the Q2 report of the company, in a critical drop on several segments of its production such as Digital Experience, Digital media and Publishing resulting in a future drop in the months and therefore its quotation could be overweight at the moment and not representing reality. Adobe may not have sufficient room to grow.
This could indeed, in the future, as many companies are considering to advance on such aspect, bring much more income to businesses like these to foster freelancing and remote work.
Boeing, its turbulent volatility ride and the 737 MAX recertification
Boeing has taken its shareholders on a turbulent volatility ride since the pandemic began. Boeing stock crashed from $300 in March to a low of $90 and it has rebounded with relative ease to $230 despite being one of the most indebted companies. Some may see a new buy opportunity as Boeing shares have plunged yet again at $170.
The biggest reason why Boeing stock is surging is due to the optimism during the first week of June about the rebound in air travel that could soon reopen many international flights from July. The last TSA report states that almost 400.000 passengers passed through checkpoints in the US just in a single day and its surgeon by 2-3% each day.
Although the recovery is plausible, a second wave combined with a setback in the vaccine development process could lead to a steeper and longer recovery.
Despite the positives here above mentioned, the 737 MAX is still showing some major deficiencies. Narrow jets will likely be the protagonist of the commercial jet market in the years to come. Boeing is still facing major issues in relation to the multiple fatal crashes in recent months.
On plus that has to mentioned is that the 737 MAX will be recertified shortly. This could cause both a sharp increase or plunge of the quotations of the company. Boeing is currently processing almost 4.000 orders worldwide.
The resulting balance sheet, when the internal issues and the external issues are taken into, still matters. The company has been burning billions and billions in cash since 2019 and also spending $7 billion just in dividends.
As of March 31, the company holds almost $40 billions as it recently borrowed $25 billion more to prepare for the additional cash burn in the quarters to come.
This will undoubtedly affect its dividends and buybacks that will probably be suspended on the short term so that it can save and concentrate its debt reduction, and even in the best-case scenario, this would take at least half a decade. Having said that, the company could be deemed to a long term bearish trend in the future to come, or just stagnant.
NVIDIA and the expanding universe of gaming: graphic cards and gaming chips
NVIDIA just launched the A100 chip for data centres which will contribute to strong demand in the following quarter. The gaming industry, as many people are waiting home, has been growing at a quick pace with revenues of 10% or more a year. Despite its rapid growth related to their data centre businesses, selling graphic cards is just the tip of the iceberg.
NVIDIA is, in fact, selling majorly high-performance computing and artificial intelligence training products. NVIDIA’s CEO stated that the shift towards remote work is currently fueling an immense demand for gaming chips, not just because of the pandemic and that it could protract for the next years to come.
Further Reading
The UK announced falling house prices recently. That wouldn’t have surprised anybody.
What might have surprised people is that the UK’s real, inflation-adjusted, houses prices have been falling now for 13 years.
The media seldom speaks about this issue and instead always implies that the “housing ladder” is a one way bet that only goes up, with first time buyers priced out of the market.
