Stock Market Commentary for 12/28/2020:
- The General Theme:
U.S. stock futures rose slightly on news that President Trump signed a $900 billion Covid-19 relief bill into law, averting a government shutdown and extending unemployment benefits. In Europe, the E.U. and the U.K. have agreed on a provisional deal.
- Stock Talk:
– CAUTION: Investors have borrowed a record $722 billion against their investment portfolios through November. Sky-high margin debt tends to precede major market fluctuations, as seen in 2000 and 2008.
Here is Warren Buffett’s take on leverage.
– Nikola – shares of the electric vehicle company shed 8.5%, as the stock continued its slide after the end of a garbage truck development deal with Republic Services was announced.
– Oil stocks slid Thursday after being one of the best performers Wednesday. Positive news on an E.U./U.K. deal pushed oil prices higher over the weekend.
- Coronavirus tracker: Per Johns Hopkins, the U.S. reported 160,604 new cases yesterday, and current hospitalizations are at 117,344. Over one million people in the U.S. have taken the vaccine.
– By Raymond Kanyo
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Top Investment Story #1: China Takes On Alibaba
What is Happening?
On December 24th, Beijing launched an antitrust lawsuit against Alibaba. Separately, Alibaba’s payment behemoth Ant Group also faces regulatory scrutiny. Alibaba’s American shares plunged 13% on the news. Let’s explore what this means for Alibaba and its competition.
Why does this Matter?
The start of this feud between China’s Communist party and Alibaba’s founder Jack Ma, can be traced back to a conference in October. During that conference, Jack Ma infuriated government leaders with a speech in which he criticized financial regulation. In return, Chinese President Xi Jinping decided to halt Ant Group’s IPO (which would have been the largest in history).
Alibaba is now under investigation, on reports that it was pressuring merchants who sell goods on its platform, to stop selling on competitors’ platforms. Other Chinese companies in this situation, such as HNA Group and Anbang Insurance, were forced to sell operations and rebrand. Separately, Alibaba’s payment behemoth, Ant Group, is being “kindly” forced by regulators to refocus its payments business.
The feud has turned into a political campaign against corporations that China deems “too big to fail.” JD.com and Tencent stocks both declined on the news, as they can easily become regulators’ next target. It appears that China is trying to enforce oversight, fearful that technology companies will become unruly Goliaths. As an example, Alipay has a wealth of data on the spending habits of hundreds of millions of Chinese consumers and businesses. Such vast data could be used to influence political power.
-By Raymond Kanyo
Top Investment Story #2: Permanent Remote Work Excites These Firms
What is Happening?
Data suggests work-from-home trends are here to stay! Producers of consumables are attacking these new habits in various forms, as firms attempt to retain this year’s impressive growth.
Why does this Matter?
The pandemic has lasted long enough to consider certain consumer habits as more than fads. Approximately 25% of the U.S. workforce will work remotely for multiple days a week in 2021, compared to just 4% prior to the pandemic. While some workers and firms are anxious to reopen office doors, others appear to be pushing back return deadlines or abolishing them completely. Consumer staples producers are seeing sustained growth in areas many considered to be dormant cash cows.
Consumer packaged good consumption is up nearly 15% sector-wide, over this time last year. Some shining stars include microwave popcorn, paper towels, bath tissue, macaroni & cheese, and frozen meals. Firms such as Kraft Heinz, Proctor & Gamble, Conagra Brands, and General Mills are attacking new demand differently.
Proctor & Gamble has experienced the need to innovate due to new pandemic consumption habits. Former reliable consumers who once demanded Gillette shaving products, are now maintaining facial hair due to working from home. In response, P&G has started to roll out new pieces into its product mix, including beard oils and facial moisturizers.
Other firms such as Kraft Heinz and Campbell Soup have invested in building new factories to meet newfound demand for classic products. Rapidly made lunches have become a staple for a generation that was originally bypassing such conveniences. These firms anticipate that the demand for such products is not only long-lasting, but a reason to innovate. Executives have speculated releasing new health-oriented options and different flavors to its offerings, to retain much-coveted younger customers.
Meanwhile, Kimberly-Clark, the maker of Cottonelle bath tissue, is seeking help from third-party producers to meet new demand. Making the production of these paper products cheaper and more efficient in existing factories is now a top priority. For the first time in years, these firms have ample reason to be excited. Opportunity is plentiful for those who wish to take it.
Keep an eye out for household names as they look to keep customers for the long-haul. New advertisements, improved production, and an emphasis on product development could have American consumer staples returning to the spotlight.
– Written By Jack Dunne