Top News  Shutterstock Stocks posted their strongest week since November, with the S&P 500 and Nasdaq Composite climbing to new record highs, as investors hoped a weak January jobs report would increase the likelihood of another big fiscal relief package. The recovery in the U.S. labor market appeared to stagnate for a second month, as non-farm payrolls increased by just 49,000 and December's figure was downwardly revised to show 227,000 job losses, strengthening the case for further stimulus. For the week, the Dow gained 3.9%, the S&P rose 4.7%, the Nasdaq jumped 6%, and the small-cap Russell 2000 index rallied 7.7% for its best week since June. The benchmark 10-year Treasury yield finished at a year-to-date high 1.17%, gaining 8 basis points on the week. | | Top News Shutterstock Stocks posted their strongest week since November, with the S&P 500 and Nasdaq Composite climbing to new record highs, as investors hoped a weak January jobs report would increase the likelihood of another big fiscal relief package. The recovery in the U.S. labor market appeared to stagnate for a second month, as non-farm payrolls increased by just 49,000 and December's figure was downwardly revised to show 227,000 job losses, strengthening the case for further stimulus. For the week, the Dow gained 3.9%, the S&P rose 4.7%, the Nasdaq jumped 6%, and the small-cap Russell 2000 index rallied 7.7% for its best week since June. The benchmark 10-year Treasury yield finished at a year-to-date high 1.17%, gaining 8 basis points on the week. | |
| Events Amazon (AMZN) posted record revenues of more than $125B for the fourth quarter after the closing bell on Tuesday, up a whopping 44% Y/Y on holiday and pandemic-driven demand, but the biggest news wasn't the ringing of the register. CEO Jeff Bezos said he would step aside later this year, though he would remain engaged at Amazon as executive chairman. Andy Jassy, the head of the company's cloud division, will take the helm of the e-commerce giant in the third quarter.
Although Bezos' departure was announced last year, Amazon consumer boss Jeff Wilke officially made his exit last month and was considered the number two at the company. Jassy is also an Amazon veteran (he's been with Bezos since 1997) and was the architect of Amazon Web Services, which is how Amazon makes most of its money. In the most recent quarter, AWS had net sales of $12.7B with an operating income of $3.6B, more than half of the firm's overall operating income. AWS also has a market share of around 34%, according to Synergy Research Group.
Why is Bezos taking a back seat? "Being the CEO of Amazon is a deep responsibility, and it's consuming," he declared, saying it was time to focus on some of his passion projects and philanthropic ventures. Those include The Washington Post newspaper and private space company Blue Origin (BORGN), as well as his Day One Fund and the Bezos Earth Fund. Bezos, aged 57, founded Amazon from his garage in Seattle in 1994, eventually expanding the company to dominate industries like online retail, groceries, streaming, cloud computing and artificial intelligence.
Movement: Trading volatility was seen after-hours, before Amazon shares ended the session slightly lower, as investors digested the news. The company also said sales in Q1 would be between $100B-$106B, a slowdown from the fourth quarter, but an increase of between 33% and 40% from a year earlier, and expects coronavirus-related costs to decelerate after several months of heavy investments. Alphabet (GOOG, GOOGL) reported earnings at the same time as Amazon, but shares soared over 7% AH. The tech giant blew through forecasts with an ad spending recovery, and broke out operating income from its cloud business for the first time, with a loss that showed the business is still in investment mode.    | |
| Earnings Ugly Q4 results from BP (BP) on Tuesday sent shares of the energy giant down 7% as the coronavirus pandemic weighed on demand and slammed earnings. Underlying replacement cost profit, used as a proxy for net profit, fell 96% Y/Y to $115M vs. an expected $360M. For the full year, BP slumped to a loss of $5.7B, its first in a decade, driven by the collapse in energy prices and weaker refining margins, as well as fragile gas marketing, trading results and asset/exploration writeoffs.
"2020 will forever be remembered for the pain and sadness caused by COVID-19. Lives were lost - livelihoods destroyed. Our sector was hit hard as well. Road and air travel are down, as are oil demand, prices and margins," said CEO Bernard Looney, who started in his role last February.
Backdrop: After cutting its dividend in August for the first time since the Deepwater Horizon disaster in 2010, BP returned to a profit in the third quarter. Crude prices and energy demand recovered, but fresh government-imposed lockdowns and travel bans triggered BP to warn of a volatile outlook and cut 10,000 jobs. It will likely become known as the "worst year in the history of oil markets," according to the International Energy Agency.
Outlook: Looking to move past the gloom, Looney has described 2020 as a "pivotal year" for the company, but the "toughest of his career." He has pledged to turn BP into a net-zero emissions company by 2050 by selling assets and reshaping its business for a lower-carbon future. In order to accomplish that goal, BP has already slashed capital spending by billions of dollars, cut costs dramatically, secured new credit lines, issued bonds and stalled exploration activity. The (once) oil major also wants to sell $25B in assets by 2025 to slash debt and fund its green energy push. (58 comments) | |
| Regulation While the "meme stock" trade continued to unwind, discussions over market volatility continued to ensue. Treasury Secretary Janet Yellen called a meeting with the SEC, the Federal Reserve Board, the Federal Reserve Bank of New York and the Commodity Futures Trading Commission to address the recent market frenzy involving GameStop (NYSE:GME) and Robinhood. This comes after the SEC said it was investigating "manipulative trading activity," as well as actions taken to "unduly inhibit the ability to trade certain securities."
Fine print: Yellen requested an ethics waiver to hold the meeting after receiving more than $700,000 in speaking fees from Citadel Advisors, the financial empire run by Ken Griffin. Griffin also runs a hedge fund and controls Citadel Securities, a market maker that executes trades for Robinhood.
What could happen? Likely nothing, but if the SEC were to act, it could pursue a series of rules, ranging from short interest caps to taxing short-term bets, according to BofA analyst Michael Carrier. The commission may also move to review payment for order flows (PFOF) and pursue social media oversight to ward off potential market manipulation. Jefferies analyst Daniel Fannon meanwhile thinks the SEC could explore greater investor education around derivatives and risk management or increase costs for leverage services.
This is all taking place while the SEC operates under temporary leadership. The eventual confirmation of Gary Gensler, President Biden's pick for the agency, is a virtual certainty, but it could take weeks or months for the Senate to approve him. Right now, the chamber is focusing on Biden's cabinet-level nominations, coronavirus relief and a possible impeachment trial for President Trump. (177 comments) | |
| Outlook A topic that received lots of attention on Wall Street this week was a requirement that stocks be physically deposited in an account within two days of making a transaction - a process known as "T+2." During that time, brokers have to post collateral to the Depository Trust & Clearing Corp. because equity prices can fluctuate over those 48 hours, and the lag can make sure everything turns out alright. Some buyers are also using margin and sellers can be tapping borrowed shares, so the requirement could help prevent brokers from getting burned before the transactions settle.
Backdrop: For many years, markets operated on a "T+5" settlement cycle, when security transactions were done manually. In the 1990s, the SEC shortened the settlement cycle to three business days, which reduced the amount of money that needed to be collected at any given time. It was only in 2017 that the commission moved to T+2, calling the previous standard an outdated "settlement cycle" due to improvements in technology, emerging new products and growing trading volumes.
Latest argument: Given our current lightning-fast systems, many market participants say two days is too long to settle trades. "Moving the industry closer to T+1 settlement is good for everyone because the less risk we maintain in the system, the better off everyone is," said Shane Swanson, former director of equity market structure at Citadel Securities. Some are even calling for instant settlement, like Robinhood (RBNHD) CEO Vlad Tenev, who had to put up some big funds this week to cover the trading frenzy on his platform.
"There is no reason why the greatest financial system the world has ever seen cannot settle trades in real time. Doing so would greatly mitigate the risk that such processing poses," Tenev wrote in a blog post. "Technology is the answer, not the oft-cited impediment. We believe it is important for all relevant stakeholders to convene in the near term to discuss the urgency and necessity of this issue." (17 comments) | |
| Economy The Biden administration went full speed ahead on a $1.9T coronavirus economic relief plan after House Democrats adopted a budget resolution that would enable a bill to pass with a simple majority (VP Kamala Harris would cast a tie-breaking vote). Despite a public debt load of $27T, the consensus stance from the Democratic camp is not making the case for fiscal restraint at this stage in the recovery. Stocks have been buoyed by the stimulus efforts in recent days, with the major averages set to open in the green for the fourth straight session.
New thinking in economics? The idea here is that with interest rates at essentially zero, any growth seen from the measures will pay back the borrowing, while it would cost the economy more if the government does not go through with the spending. Economic policymakers from Treasury Secretary Janet Yellen to Fed Chair Jay Powell have also urged the administration to "act big," believing in the long run that the "benefits will far outweigh the costs." Republicans meanwhile want something more targeted and are seeking to ensure the funding from Congress' most recent stimulus package is fully spent first. Their bill also doesn't include state and local aid, paid sick leave, a $15 minimum wage and expansion to the child tax credit.
Flashback: Biden likely remembers President Obama's first term in office, when he spent much time trying to secure GOP support for additional stimulus measures during the global financial crisis. Obama pushed for a $1T stimulus package, or roughly 25% bigger than the record-setting legislation that ultimately got through Congress, though this time around, the Republican plan is less than a third of Biden's $1.9T proposal.
While President Biden has signaled some areas of compromise, and met with GOP senators over a smaller $600B offer, he won't ditch an overall package for the sake of bipartisanship. "Time is a luxury our country does not have," Senate Majority Leader Chuck Schumer said before moving forward with the budget process. Some concessions may be seen with stimulus checks, and Biden has indicated the direct payments could be sent to a smaller group of Americans. Previous checks were given to citizens making under $75,000 per year, but that is now likely to be reduced to $50,000, which would cut the total price tag of the COVID aid bill. (41 comments) | |
| Westport Fuel Systems (NASDAQ:WPRT) soared more than 50% after the market closed on Friday after Reuters reports that Amazon.com (NASDAQ:AMZN) ordered more than 1,000 truck engines that run on compressed natural gas in an effort to shift its fleet away from heavier polluting trucks. The engines, supplied by a joint venture between Westport and Cummins (NYSE:CMI), are for heavy duty trucks that run from warehouses to distribution centers, and can run on both renewable and non-renewable natural gas, according to the report.
Go Deeper: Alternative energy stocks and related ETFs have surged since it became clear that Joe Biden would win the U.S. presidency and the Democrats would control the Senate. Taking a broad look, JPMorgan thinks the alternative energy industry is in the early innings of adoption with further upside potential in the sectors as estimates are potentially revised higher. The firm had Sunrun (NASDAQ:RUN) and Sunnova Energy (NYSE:NOVA) lined up as top picks into the new year. | |
| U.S. Indices
Dow +3.9% to 31,148. S&P 500 +4.7% to 3,887. Nasdaq +6.0% to 13,856. Russell 2000 +7.6% to 2,230. CBOE Volatility Index -36.9% to 20.87.
S&P 500 Sectors
Consumer Staples +2.5%. Utilities +2.3%. Financials +6.6%. Telecom +7.3%. Healthcare +0.5%. Industrials +4.9%. Information Technology +4.9%. Materials +3.9%. Energy +8.3%. Consumer Discretionary +6.%.
World Indices
London +1.3% to 6,489. France +4.8% to 5,659. Germany +4.6% to 14,057. Japan +4.% to 28,779. China +0.4% to 3,496. Hong Kong +3.6% to 29,289. India +9.6% to 50,732.
Commodities and Bonds
Crude Oil WTI +9.4% to $57.08/bbl. Gold -1.9% to $1,815.1/oz. Natural Gas +12.4% to 2.882. Ten-Year Treasury Yield -0.2% to 136.71.
Forex and Cryptos
EUR/USD -0.72%. USD/JPY +0.71%. GBP/USD +0.23%. Bitcoin +15.1%. Litecoin +21.4%. Ethereum +22.%. Ripple -2.1%.
Top Stock Gainers
ATA Creativity Global (NASDAQ:AACG) +382%. Lizhi (NASDAQ:LIZI) +245%. CPS Technologies (NASDAQ:CPSH) +239%. Ocugen (NASDAQ:OCGN) +197%. American Resources (OTC:AREC) +156%.
Top Stock Losers
GameStop (NYSE:GME) -80%. Koss Corporation (NASDAQ:KOSS) -69%. MingZhu Logistics Holdings (NASDAQ:YGMZ) -66%. AMC Entertainment Holdings (NYSE:AMC) -49%. Express (NYSE:EXPR) -48%.
Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section. | |
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