Friday Wrap-Up (February, 12)

Optimism abounds. The S&P 500 remains on track to end the week with muted gains.

(Arvind Rajaraman – Head of Investments at UCLIF & Lead Editor)

Welcome to the UCLIF Friday Wrap-Up, our weekly newsletter that brings you the most important market events and information during the past week! So what’s moving markets?

Markets: Optimism abounds.  The S&P 500 remains on track to end the week with muted gains. Investors trimmed their cash holdings and injected a record $58 billion into stock funds this week, according to the Financial Times. The major US indexes ticked higher for the week and posted record closes. 

Economy: US jobless claims, which we’ve been tracking since last March, dropped slightly last week. And while more than 20 million people still collected unemployment in late January, economists are hopeful that the recent downward trend in Covid cases will allow the labor market to mend further.

Markets in a Minute


Information Technology (Maria Lomaeva)

This week, investors’ concerns regarding the economic recovery in the US grew; however, the tech market has recovered most of the losses, with Nasdaq Composite rising 0.85% since Monday. 

Wall Street welcomed another successful IPO this week – online dating business Bumble – which started trading under the ticker $BMBL at a price of $43, raising $2.2bn from investors. Bumble shares grew by almost 63% during the first day of trading. 

Video game publisher Take-Two Interactive Software (TTWO) reported its earnings on Monday. The company delivered net bookings of $814.3m and adjusted EPS of $1.24, ahead of expectations. Despite the strong results, Take-Two shares fell by almost 7% because the company failed to announce any new game releases. 

Last week, the gaming industry also saw quarterly earnings announcements from Activision Blizzard (ATVI) and Electronic Arts (EA). Both companies beat Wall Street estimates on quarterly sales and earnings; in the March quarter they expect to beat analysts’ revenue targets. However, Activision expects in-line earnings for the current quarter, while EA missed its earnings target. That sent EA shares down almost 7% amid the news, while Activision shares jumped almost 10%. 

Cisco (CSCO) reported a fifth consecutive decline in quarterly revenues YoY on Tuesday, although beating expectations on both revenue and earnings. While the current quarter guidance is in-line with Wall Street estimates, Cisco shares dropped by 5% after the earnings report as analysts had counted on higher revenues within certain business segments, such as applications, security sales and services. 

Nest week, e-commerce company Shopify (SHOP) as well as software companies Twilio (TWLO) and Palantir (PLTR) will report their quarterly earnings. 

Healthcare (Christine Chan)

In the past weeks, the healthcare sector has shown strong earnings in Q4’2020, with a market capitalisation of +8.5% and a revenue growth of +11.4%. This is reflected by the robust growth of the Health Care Select Sector SPDR exchange-traded fund (NYSEARCA:XLV) in previous weeks, but with a relatively quiet week, it has risen 0.97% over the past week to end at $117.28.

Despite recent controversies surrounding their COVID-19 vaccine efficacy, excellent news has come for AstraZeneca (LSE/NASDAQ:AZN), as they recently announced on Thursday 11th February 2021 their 10% increase in product sales in 2020, which beat analysts’ estimates.  This includes their strong projections of revenue growth for the year ahead and they are expecting their total revenue for 2021 to increase by a low-teens percentage. Their 2020 performance was primarily driven by new medicines within oncology and biopharmaceuticals, including Tagrisso, a lung cancer drug, and Farxiga, a type 2 diabetes drug. Their Q4’2020 revenue surpassed $7.4 billion, a figure that hasn’t been achieved in many years. As a result, their share price has risen a healthy 3.44% since the announcement.

Eli Lilly (NYSE:LLY) has also been delivering great results this week, with its share price rising 2.43%. On Tuesday 9th February 2021, the US Food and Drug Administration (FDA) issued an emergency use authorisation (EUA) for Eli Lilly’s bamlanivimab and etesevimab, monoclonal antibodies to be administered together as an intravenous infusion for the treatment of mild to moderate COVID-19. A study involving over 1000 patients found that the combination reduced the risk of death and hospitalisation by 70% when compared to a placebo dose. However, before this positive announcement, it was reported that their CFO was forced to step down after his inappropriate personal communications were revealed by an internal investigation. Their share price took a blow as a result and dropped 2.4% after Monday. Even so, Eli Lilly’s 28% increase in share price throughout 2020 was one of the best results among the world’s largest pharmaceutical companies, backed by very strong revenues.

Consumer Staples and Consumer Discretionary (Jun Wei)

The S&P 500 is inching closer to the historic 4,000 mark. Meanwhile, the S&P 500 Consumer Discretionary Index traded slightly down this week while the Consumer Staples Index traded sideways. As earnings season continues, we take a closer look at Disney (DIS) and Coca-Cola (KO). 

Disney’s (NYSE: DIS) earnings took a hit last quarter due to closures in its California theme parks and capacity restrictions on its other theme parks. The company estimated that due to coronavirus, it lost $2.6 billion in operating income, and its quarterly revenue from parks fell 53% year-on-year to $3.58 billion. However, its overall revenue ($16.25 billion vs. $15.9 billion expected) and EPS (32 cents adjusted vs. expected loss of 41 cents) beat expectations. However, what drove Disney’s after-hours share price jump (1.7%) was its impressive subscriber growth for Disney+. The streaming platform rivalling Netflix now has 95 million paid subscribers, increasing by 10 million over the holiday season. With the release of popular series on Disney+ such as The Mandalorian and WandaVision, Disney+ continues to put pressure on the market leader Netflix in the variety and quality of shows and subscriber base. With a large TAM for online streaming still untapped particularly for sports, Disney’s streaming offerings such as Hulu and Disney+ will remain of strategic importance for future growth. Coca-Cola (NYSE: KO) managed to beat analyst expectations on EPS (47 cents vs. expected 42 cents) due to effective cost-cutting measures but missed on revenue ($8.6 billion vs. $8.63 billion). In addition to cutting unprofitable brands, it also cut 11% of its workforce which is unheard of in Consumer Staples. Shares in Coca-Cola jumped 1% after the announcement, but the recovery in Coca-Cola’s sales will rely heavily upon virus restrictions and the reopening of theatres, restaurants and nightlife venues.

Communication Services (Katarina Lau)

Earlier this week, the UK’s communications regulator – Ofcom issued a £10.5 million fine on the UK’s second largest mobile network operator – O2 for overcharging its customers for the past 10 years. It was found that approximately 140,000 people paid incorrect fees amounting to £2.4 million of overpayments from 2011 to 2019. The figure of overpayment is higher on paper, including those who refused to pay the sum demanded, aggregated to a value of £40.7 million. The fine brought attention to the UK’s competition regulators to scrutinize the potential merger deal of O2 with cable broadband provider, Virgin Media further, to avoid monopolistic behaviours and abusing market power, especially after learning O2’s tactics of overcharging consumers. This stands as a warning to all british telecoms operators to comply with existing regulations to avoid paying huge amounts of fines and deteriorating its brand name in the future. 

mage result for disney

Disney (DIS) reported strong growth in Q1 2021, pushing up its stock around 1.7%. Disney+ now has almost 95 million paid subscribers, this comes after Disney’s free-trial period ended for some subscribers who are also Verizon customers. However, average monthly revenue per paid Disney+ subscriber, dipped 28% Y-o-Y, from $5.56 to $4.03, as the number includes subscribers to Disney+ Hotstar (launched in India and Indonesia last year) which has lower average monthly revenue per paid subscriber than other markets.Overall, Disney now has >146 million total paid subscribers across its streaming services and revenue for Disney’s direct-to-consumer business grew 73% to $3.5 billion. This major growth has helped offset losses in other segments like Disney’s parks, experiences and products segment which fell 53% to $3.58 billion. CEO Bob Chapek said that any outlook on this segment will mainly be determined by vaccination rates.

Financial Institutions (Jamie Biswas)

This week saw moderate gains within financial institutions, with the Vanguard Financials ETF (VFH) increasing 1.85%, continuing last week’s momentum. The gains within the sector can be attributed largely to banks, with insurance firms performing poorly relative to banks this week. The financial institutions sector outperformed the S&P 500 this week, which increased 0.89%.

This week Société Générale (SocGen) announced their Q4 2020 financials, making an annual loss for the first time in decades. The banking sector has been hit particularly hard by Covid-19, largely due to record low interest rates, but SocGen is under even more pressure than its peers. Over the past year, its share price is down 42%, with the bank trading at a price-to-book ratio of about 0.25, the lowest of any large European bank. 

Other than Santander, SocGen is the only large European bank to report a loss in 2020. Even Deutsche Bank, which hasn’t been profitable since 2014, made a profit in 2020. Other large banks have benefitted from increased revenues within their investment banking practices, which SocGen missed out on. The bank reported an annual loss of €258 million, its first since 1987. The bank made a profit in the second half of the year, but a poor start to 2020 meant the bank made an annual loss. Partly to blame was the €684 million of impairment charges, due to a restructuring of the bank. The bank is focused on merging its domestic banking networks as well as improving the investment bank. The bank reported revenues of €5.8 billion for the fourth quarter, 6% lower than the same period last year. Revenues from fixed income trading fell 16%, contrasting the US Bulge Bracket banks and BNP Paribas, which capitalised on the market volatility to reach record revenues in some cases. SocGen’s share price rose 3.5% as a result of the earnings announcement.

Industrials (Ed Collins)

The Industrials sector is up this week, with the Vanguard Industrial Index (VIS) having finished the week with up 0.76%.

Royal Mail (RMG) has forecast higher profits this week. Revenues jumped by a fifth in Q3 as the company predicted its full-year operating profit to exceed £500m. This comes after the pandemic supercharged a surge in online shopping that has driven parcel deliveries to record volumes. Shares rose 5% to 450.82p by mid-morning on Thursday. In Q3, Royal Mail handled 496m parcels, making this period by far the busiest in Royal Mail’s long history. Royal Mail suspended its profit forecast earlier in their financial year, which runs to the end of March, due to uncertainty caused by the pandemic. In their previous financial year, Royal Mail generated £325m of profit. Analysts had been expecting £402m for this year. In the nine months to the end of 2020, group revenues grew 13.5% to £9.3bn, compared to the same period a year earlier. The company acknowledged that it had experienced higher costs due to tighter COVID-19 restrictions and additional sorting costs from the higher-than-anticipated parcel volumes.

In a second story, Micael Johansson, chief executive of the Swedish defence group Saab (SAAB-B), claims that defence spending is on the rise. For example, the company’s home country, Sweden, approved a 40% increase in defence spending in the next 5 years, the biggest rise in military spending in 70 years. His comments came as Saab reported annual results that showed that its order intake has increased 56% last year compared to 2019. Sales for 2020 stayed constant at SKr35.4bn, ahead of analysts’ expectations, but pre-tax earnings fell 55% to SKr1.3bn, below consensus estimates. Shares fell 8% after the results were published over the disappointing profit guidance for 2021. However, one bright side is that Saab recorded a positive free cash flow after two years of negative figures.

Utilities (Katarina Lau)

This week, Utilities underperformed other sectors falling 0.9%. American Water Works Co, Inc. (AWK) and WEC Energy Group Inc (WEC) are 2 large utilities stocks with losses of 2.6% and 1.7%, respectively. The Utilities Select Sector SPDR ETF (XLU) also fell 1.2% and down 0.57% YTD

This week, Covalis Capital, an investment firm launched a new ESG fund that profits off trends in environmentally focused investing, specifically in the field of renewable energy. The company plans to back stocks in sectors that they believe will be given higher valuations by the market as their green credentials improve. The launch of the fund reflects hedge funds and asset managers’ long-term viewpoint of making ESG investing a money-making tool. This is especially evident through a report from PwC predicting that European mutual fund ESG assets will reach between €5.5 trillion and €7.6 trillion by 2025. Covalis will look to raise $1 billion for the new fund that will hold a basket of about 15-25 stocks that have strong green credentials and are constantly trying to improve their ESG rating, this includes mainly utilities and infrastructure stocks. With Covalis’ track record of managing its energy transition fund launched last May which made 32% returns last year, this new ESG fund would be one that might set the firm apart from other hedge funds, in this up-and-coming space. 

Materials (Ed Collins)

The Materials sector is up this week: the Vanguard Materials Index (VAW) has risen by 0.33% since the start of the trading week.

Chesapeake Energy (CHK) emerged from bankruptcy on Tuesday. The energy company was perhaps the highest-profile casualty of the wave of bankruptcies that took hold of the US shale industry last year. When Chesapeake filed for Chapter 11 in June, it was a milestone of the pandemic-induced oil crash. Chesapeake, a leader of the shale revolution collapsed under an enormous amount of liabilities is had accrued over recent years as it spent its way to supply growth.

Chesapeake’s re-emergence coincides with a year-high in oil prices. Shale operators have pledged, going forward, to prioritise shareholder returns, rather than supply growth. Chesapeake’s chief executive, Doug Lawler, described it as a new era “of responsibility and profitability and discipline.” Lawler said his company would be a smaller and more focused operator, spending well within its cash flow. When Chesapeake filed for bankruptcy, its debts were more than $9bn. The deal struck with creditors last month reduced this by $7bn and will also reduce $1bn of annual operating costs. If everything goes according to plan, Chesapeake will end 2021 with just $500bn in net debt and will generate $2bn worth of free cash flow in the next 5 years.

Following the oil crash seen last year, US oil and gas executives have united, all focusing on margins and capital discipline, as opposed to production growth, which has been the name of the game in the US shale patches in recent years. Chesapeake lost its NYSE listing after its bankruptcy, but started trading on the Nasdaq on Wednesday, opening at $43.


Oil & Precious Metals (Oliviero Sacchet)

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