Tech giants make significant gains on positive Q2 earnings despite high COVID cases and the antitrust hearing.
The S&P 500 climbed ~1.6% last week with significant volatility throughout the week, but ended up on a high note as many big companies delivered better than expected earnings. Investors are cautiously optimistic as COVID cases have taken a turn for the better and there is more detail around the second CARES Act. However, on the flip side, unemployed Americans have stopped receiving the $600 unemployment benefit, putting many in an uncomfortable and unsustainable position. There’s a lot going on, but we’ll break it down for you so you know what to expect in the near future. Here are the details:
📈COVID-related deaths are trending up, but new daily cases and hospitalizations are starting to decrease. This week, we saw the number of daily COVID cases begin to drop in the U.S., having reached a peak of 77K new cases in one day. However, COVID-related deaths are still trending up given the approximate two week delay between testing positive and the potential risk of death. We hope to see COVID-related deaths turn the corner soon and continued decline in the number of daily COVID cases and current hospitalizations due to COVID.
📈High risk states have established more stringent re-opening policies, hopefully preventing another uptick in new daily COVID cases. High-risk states like Texas, Florida, and California have taken significant steps to cap the number of daily COVID cases in their respective states. Face coverings, restaurant capacity restrictions, and curfews have helped reduce the rate of COVID cases significantly. We hope this second wave of increasing COVID cases was enough to promote states to reopen their economies responsibly, preventing a third wave of COVID.
📉 Unemployment claims tick upwards for the second week in a row, as COVID benefits come to an end. This week, an additional 12K individuals filed for unemployment claims as compared to the week prior. An increase in individuals filing for unemployment claims is likely to reflect the restrictions on state reopenings. We hopefully will see unemployment claims decrease further as Americans become more comfortable with the “new normal” and increase engagement with the economy, which will promote additional hiring to keep up with consumer demand.
📈 Tech stocks surge on impressive earnings despite COVID and an antitrust hearing. Overall, Q2 earnings have been more positive than expected, especially in the tech sector. Facebook, Apple, and Amazon all saw a surge in share price after disclosing earnings this week. This earnings season demonstrates tech’s resilience against COVID and a more positive picture of economic recovery for that sector. The NASDAQ has left the S&P 500 and Dow Jones behind, but the latter two indices depend more on a vaccine given they include companies greatly impacted by COVID.
📈 The second stimulus package has been detailed and is under discussion, as the GOP softens on the idea of extending the $600 unemployment benefit. The second stimulus package was proposed by Senate GOP this week, which detailed a decreased weekly unemployment benefit, a $1.2K stimulus check, and additional benefits to help promote Americans to re-enter the workforce while helping those who may find it difficult to find employment. However, there is still much discussion around this topic and it does not seem like we are close to a deal. However, it seems like members of the GOP are starting to soften on the idea of extending the $600 unemployment benefit under certain conditions as a way to appease voters as we near the election. If so, this would continue to prop up our economy, increasing the value of stocks, gold, and bitcoin, while hiring the value of the USD.
📈 Sanofi and GSK receive $2.1B from the U.S. government for 100M doses of their COVID vaccine. This week, Sanofi and GSK announced that the companies were entering an agreement with the U.S. government to produce 100M doses of their COVID vaccine. A significant chunk of this money will go towards research and development (e.g., clinical trials), while the remaining amount will be spent on production. This demonstrates a large step forward as the government funds development and potentially expedites the process to having a vaccine, which will enable the economy to recover faster.
WX Capital is more positive on the near-term outcome of the stock market now that we have ridden out the last volatile two months. Our change in perspective is mostly around the fact that the second round of rising COVID cases have come and passed (hopefully!). Americans are now more acquainted with social distancing and personal protective equipment, which will hopefully continue to drive down cases, hospitalizations and deaths due to COVID. Hopefully safe re-engagement with the economy as well as additional stimulus will drive the economy upwards in a safe and steady pace. Finally, several companies have begun the last phase of clinical trials for the COVID vaccine. There seems to be a high chance of a successful trial and potential vaccine release by the end of 2020 or beginning of 2021. Overall, things are pointing upwards. Please don't hesitate to reach out with questions!