Wall Street’s Breaking Bad
This must be Thursday. I never could get the hang of Thursdays.
— Arthur Dent, The Hitchhiker’s Guide to the Galaxy.
Indeed, it is Thursday, dear reader. And you know what that means … weekly unemployment claims and a market rally. (More optimistically, it’s also Reader Feedback day! Read on…)
The Labor Department reported 3.2 million new unemployment claims for last week. The seven-week rolling total now sits at a staggering 33 million. In case you wondered, that’s bad.
However, Wall Street managed to delude itself into finding a silver lining once again. Investors are keying off the fact that claims have fallen steadily for the past five weeks.
In other words, the labor market is bad and getting worse. But … at least it’s not getting progressively bad… (Or the amount of bad is not as bad as the amount of bad that we had two weeks ago.) Something like that.
So, either Wall Street has broken “bad,” or investors are so far into doublespeak that they can’t tell the difference anymore. Personally, I like Jim Cramer’s commentary on the situation: “At the end of the day, this action makes little sense.”
Cramer also went on to tell CNBC: “When we get Friday’s employment report it is going to be so bad that we’re going to be debating whether we’re in a serious recession or a depression.”
I don’t have Cramer’s confidence on this one. I believe Wall Street will shrug off tomorrow’s official jobs data from the Labor Department. Why wouldn’t it?
The market has shrugged at every other piece of apocalyptic economic data in the past two months. Why should tomorrow’s nonfarm payrolls report be any different?
Let’s shift gears here and turn to a reemerging trend that could have a more direct impact on our trading habits over the next several weeks to months.
I’m talking about the return on the trade war cycle.
Buried under the weekly unemployment claims headlines was this gem from MarketWatch: “Global Equities Rise on Trade Talk Hopes as More Jobs Vanish in the U.S.” (Well, that was the headline before MarketWatch changed it.)
Yes, trade talk hopes.
On May 1, President Trump said that he is considering putting the kibosh on the phase 1 U.S.-China trade deal in retaliation for China’s handling of COVID-19.
Trump doubled down on the China threat at a town hall meeting over the weekend. “Now they have to buy,” Trump said. “And if they don’t buy, we’ll terminate the deal, very simple.”
Today, news broke that Washington and Beijing have scheduled talks on the matter next week. This will be the first time that the two sides have discussed the trade deal since signing it in January.
And so, we find ourselves once again moving the needle on the Great Stuff Trade War Cycle chart:
If you followed this pattern last year, you probably made quite a bit of cash. I had more than a few Great Stuff readers tell me they made bank by following this pattern.
That said, things are a bit different this time around. We’re not in a bull market. We face a mountain of bad economic data. And we’re desperately dealing with a global pandemic. Given those external pressures, this may be a short-lived trade war cycle.
Regardless, Trump’s tilt toward China brings more volatility to an already volatile market. But you can use this volatility instead to your advantage instead of making decisions out of panic.
Hectic times beg for simple trading strategies, and we found what just might be the simplest strategy to follow: the 10X Switch.
Adam O’Dell is about to show you how you can use it to easily play both sides of the market swings — without buying or selling a single stock, option or bond.
(See, we told you Great Stuff gets you past the velvet ropes.)
Good: Viable Viacom
ViacomCBS Inc. (Nasdaq: VIAC) is the dark horse in the race for streaming-video dominance. The unholy union between Viacom and CBS holds a collection of content that includes Pluto TV, CBS, Nickelodeon, BET, MTV, Comedy Central, Paramount Pictures and Showtime.
That dark horse status isn’t holding back ViacomCBS at all. The company blew past Wall Street’s earnings expectations this morning by $0.18 per share. Revenue, meanwhile, beat analysts’ targets by $100 million.
That’s not to say there weren’t problems. ViacomCBS’s ad revenue fell 19% year over year, and so did both earnings and revenue. However, digital-streaming revenue soared 51%, and film revenue jumped 11% on home-licensing deals (read: streaming deals).
The point is, if ViacomCBS wasn’t already on your shortlist for streaming video investment ideas, it should be. The real question is, if you read Great Stuff, why isn’t VIAC already on your radar? (I mean, we told you about ViacomCBS back in February.)
Better: Getting Down at P-Town
It’s official. I was wrong on Peloton Interactive Inc. (Nasdaq: PTON).
Well, sort of — I didn’t count on a global pandemic to force people to work and work out from home.
The company proffering stationary bikes with video subscriptions is making bank during the U.S. pandemic lockdown. This morning, Peloton said that first-quarter revenue spiked 66% to $524.6 million.
Earnings were still poor, arriving at a loss of $0.20 per share and missing the Street’s estimate by $0.02. But, for an expanding startup, that’s to be expected.
The real juicy news is that subscription revenue skyrocketed 92%, as the company’s “connected fitness” subscribers jumped 94% to 886,0000. Paid digital subs rose 64% on the quarter.
Peloton also raised its full-year revenue and subscriber count outlooks above Wall Street’s target.
What’s more, this trend may be stickier than most stay-at-home trends in the market right now. Imagine going to the gym while COVID-19 still floats around out there with no cure. No thanks.
So, do I still think Peloton sells overpriced bikes with the equivalent of a Netflix subscription? Yes.
Is that model going to work in the current and post-pandemic market? Yes, yes it will.
The fear-driven sentiment surrounding local gyms and going outside to work out could linger for months to a year or more. That fear will provide a heavy tailwind for PTON stock and the company’s bottom line.
Best: Testing, One, Two … Three?
We’re still months away from a viable vaccine for COVID-19, but Moderna Inc. (Nasdaq: MRNA) has put the world one step closer to that goal.
Today, the U.S. Food and Drug Administration cleared Moderna’s coronavirus vaccine for phase 2 trials. The company plans to begin those trials with 600 patients very shortly. Furthermore, it’s already finalizing plans for phase 3 trials as early as this summer.
“We are accelerating manufacturing scale-up and our partnership with Lonza puts us in a position to make and distribute as many vaccine doses of mRNA-1273 as possible, should it prove to be safe and effective,” CEO Stephane Bancel said in a statement.
I’ll be honest: This is the best news I’ve heard on the COIVD-19 front since this whole thing began.
Now, you’re probably wondering if you should invest in MRNA shares. I’m going to give that a great big “that depends.”
Way to be noncommittal there, Mr. Great Stuff.
Well … it does. Are you in or nearing retirement? Then stay away from speculative biotechs. Moderna itself said that it will “incur significant expenses this year” due to vaccine development. It should get most of that money back from grants and awards, but it’s still a risk.
If you’re younger in your investment journey, and your risk tolerance is high enough, you might give MRNA a shot. (Ha-ha … shot … I’ll see myself out.)
That said, for those of you into taking risks, wait for MRNA to pull back from today’s surge before you jump in. There will be some follow-through profit-taking from those who got in early. You’ll get a better entry price if you don’t chase today’s surge.
You yelled “Marco!” and it’s my turn to play polo — or something along those lines. It’s time for this week’s edition of Reader Feedback!
Boy, this week has everyone writing in … and it’s not just the “DO YOU HAVE MESOTHELIOMA???” ads that usually come through.
Nay, this week, Great Stuff readers are right on the pulse with all things China and trade wars. Seriously, I haven’t seen this many “anti-this” and “anti-that” email chains since the early 2000s… (Boycott the world — no, no, reopen the world! Go underground! Eat more broccoli!)
Keep it coming, dear readers! Write to us anytime at GreatStuffToday@BanyanHill.com. Now let’s dive in…
Some cities are exposing their inner dictators by some of their actions. The federal government has been overly generous in helping the states deal with the enormous challenges created by this virus. Has it been perfect? Of course not. It’s government. I just hope and pray voters remember who did what in November.
— Andrew W.
Hey Andrew! Quick counter point, just for funsies: At many levels, the federal government’s inability to stay self-consistent is one of the enormous challenges that states are facing. Reopen now, reopen never — it doesn’t matter what the plan is if mixed messages and misinformation botch it either way.
That said, I am envious of the hope you hold for your fellow voters this November.
Just one question — who did Buffet sell all his airline shares to?
All the airlines he sold have similar charts, but selling a position the size he had any time in the last month should have caused an even bigger move, unless someone with VERY DEEP pockets was buying those shares.
— Gordon F.
Deep pockets, you say? JPow, it’s Buff Buff. My, what unlimited stimulus you have … maybe you’d be down with a little personal bailout…
I hate to break it to anyone wanting a juicy story. There’s no boogey man here. There’s no conspiracy. I know, the X-Files lied to me too.
Many people, new to the markets or otherwise, want to find something — anything — amiss whenever the Big Money is concerned. Warren Buffett didn’t go prowling the streets of Omaha looking for a back-alley airline stock deal, as fanciful an image as that might be.
Let’s break this down.
Big-time investors like Buffett’s Berkshire don’t just dump $4 billion in stock all at once. They do it carefully, bits at a time over a period … to market makers, other big investors, retail investors and banks. And Berkshire and its subsidiaries started last month.
I’m not privy to the exact methods, but Big-Money investors do this for exactly the reason you mentioned: to not tank the market all at once … and to not hurt the prices that they get for that sold stock.
Is Buffett willing to get a bad deal on hundreds of millions of airline shares? When a single-penny difference means losing billions? And risk even more portfolio upheaval at a time like this? I say nay nay.
(A shill! A shill! They got to him!)
Ooh, I’ve Been Dirt, and I Don’t Care
— Tim P.
You know how much it’ll make you?! Tim, your crystal ball — give it here!
I joke, but there is one serious leg-up that real estate has over equities right now.
Yes, home showings will slow and/or stop. And going through the buying process is a pain in non-pandemic times. (Though, I’ve seen quite a few rental listings using the “See it solo!” method, which gets my industry-disruption Spidey senses tingling.)
But here’s the difference: With stocks, you can check Robinhood every second of the trading day and watch the dizzying price changes.
You can … but it’ll drive you bat-flu crazy. Well, most of the market is glued to the screen anyway. And as investors’ positions whipsaw, so do their reactions, and the vicious cycle grows through rally, bust and boom again — often within mere hours.
Irrationality breeds irrationality, and the equity markets are filled to the brim with it right now. Real estate? Not to the same neck-breaking extent. Just imagine if your house had a ticker on it and you could see it make 500-point moves like the Dow every day.
If you wrote in and I didn’t get to your email, it may be because you cursed too $%^*@#$ much. I still appreciate your email, even if we can’t share it publicly.
Got more on your mind? So do I, so let’s get writing. Send us an email at GreatStuffToday@BanyanHill.com.
Until next time, be Great!
Editor, Great Stuff