Stock Market Commentary for 11/30/2020:
- Futures took a dip on news that the Trump administration is weighing blacklisting Chinese leading chipmaker SMIC as well as national offshore oil and gas producer CNOOC. Last week, the stock market closed in the green with tech-heavy NASDAQ outperforming other major indexes. The market continues to juggle positive vaccine news from Pfizer, Moderna, and AstraZeneca, with the fears of a delayed economic recovery due to surging Covid-19 cases.
- OPEC+ with the lead of Saudi-Arabia, is set to begin a two-day meeting on Monday to discuss the next phase of its production policy. The market expects OPEC+ to delay the 2 million barrels-per-day production ramp-up, which was initially planned for January of 2021. Most market experts see oil around $50 a barrel by the end of 2021.
- Coronavirus tracker: Per Johns Hopkins, the U.S. reported 145,232 new cases on Saturday, and hospitalizations reached 91,635. The CDC warned against traveling for Thanksgiving, but more than 9 million citizens traveled by air. The U.S. is still on track to start vaccinations in a matter of weeks.
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Top Investment Story #1: Black Friday: Bust For Stores, Boom for E-commerce
What is Happening?
According to Sensormatic Solutions and Adobe Analytics, Black Friday in-person shopping fell 52.1% this year, while online spending surged 21.6%- hitting a new record. Even with a decrease in foot-traffic, the National Retail Federation predicts holiday sales will increase 3.6% to $755 billion, including a 20% growth from online shopping. Let’s look at the winners and losers!
Why does this Matter?
This Black Friday was a continuation of an emerging trend since Covid-19 restrictions hit in March. Cautious consumers are shopping online, or gravitating toward big-box retailers that offer everything from groceries to clothing in one stop.
The Winners: Amazon, Etsy, Walmart, Target.
- Target’s comparable sales rose 21% in the recent quarter, boosted by a 155% surge in online sales.
- Walmart’s U.S. sales were up 6.4%, and online sales nearly doubled.
- Etsy stock is up 255% this year, while Amazon rallied 68%.
The Losers: Department and apparel stores such as Macy’s, Kohl’s, T.J. Maxx, J.C. Penney.
- Macy’s and Kohl’s sales fell around 20% and 14% in the most recent quarter.
- J.C. Penney and J.Crew both declared bankruptcy this year.
It seems that consumers have changed their purchasing behavior. This holiday season, Americans are predicted to spend $755 billion, and only $202 billion will come from online sources. It appears that e-commerce still has massive room to grow for years to come.
Top Investment Story #2: High-Risk ETFs See Largest Demand Since 2008
What is Happening?
Investors are aggressively chasing higher returns, as levered exchange-traded-funds (ETFs) see the largest inflow of investment since 2008. Inflows are on pace to break the ’08 record of $16.7B.
Why does this Matter?
Any sort of investment behavior that imitates 2008 raises eyebrows for investors. Levered ETF demand does not mean there is an impending financial crisis. However, we should look into these investment vehicles to understand why they’re in such high demand.
Levered ETFs were originally meant to be single-day, or short term investments. In recent years, and especially since March and April lows, they have become long term holdings for many investors. Levered ETFs can mirror indices such as the S&P 500 or the Dow Jones Industrial Index. The difference is, they will reflect multiplied gains or losses of these indices. Long term investors are chasing a significantly higher upside, while exposing themselves to a potentially crippling downside.
While the nearly $14B put into ETFs in April and March have experienced massive returns, there is the capacity for black swan events to wipe out those gains in as quickly as one day. When oil prices cratered in 2018, triple leveraged oil ETFs crumbled and some became insolvent. Bull investors lost everything.
The allure of larger returns does not come without assuming proportionate downside risk. There is a reason that Invesco and other large ETF providers are fighting to have these leveraged vehicles ditch the “ETF” label in their names. They carry risks that standard exchange-traded-funds do not. Without proper due diligence, many retail investors can get badly burned.
– Written By Jack Dunne