Closing Stock Market SummaryThe S&P 500 declined 0.2% on Monday to ease back from record territory, while the Nasdaq Composite (+0.5%) closed at a fresh record high amid relative strength in growth stocks. The Dow Jones Industrial Average (-0.5%) and Russell 2000 (-0.1%) finished in negative territory after setting intraday record highs in the morning.
Generally, the large-cap value/cyclical stocks struggled today after outperforming growth stocks and the S&P 500 since the end of October, as investors paid heed to the recurring headlines of rising coronavirus cases/hospitalizations in the U.S. In addition, stimulus/government funding talks dragged on without a resolution.
The energy sector was hit the hardest with a 2.4% decline, although it remained up 30% this quarter and no other sector declined more than 1.0% today. The information technology sector (+0.3%) provided influential support, while the communication services (+0.6%) and utilities (+0.6%) sectors outperformed.
Not all growth stocks had great performances, but investors appeared to hide out in mega-caps Apple (AAPL 123.75, +1.50, +1.2%), Tesla (TSLA 641.76, +42.72, +7.1%), and Facebook (FB 285.58, +5.88, +2.1%). Apple's gain was partially at the expense of Intel (INTC 50.20, -1.79, -3.4%), which fell 3% after Bloomberg reported on Apple's next-gen Mac chips that could outclass Intel's top-end PC chips.
Palantir Technologies (PLTR 28.94, +5.09, +21.3%), like Tesla, continued to ride a bullish momentum after securing a three-year contract with the FDA. PLTR shares surged 21%.
Separately, Boeing (BA 238.17, +5.46, +2.4%) and Pfizer (PFE 41.25, +0.91, +2.3%) were notable value-oriented stocks that bucked the negative trend in the space. Boeing was upgraded to Buy from Neutral at UBS. Pfizer could have its COVID-19 vaccine approved by the FDA on Thursday.
Longer-dated Treasuries finished on a higher note to bounce back from recent losses and undo some of the recent curve-steepening action. The 2-yr yield was flat at 0.14%, and the 10-yr yield decreased four basis points to 0.93%. The U.S. Dollar Index increased 0.2% to 90.85. WTI crude futures decreased 1.0%, or $0.48, to $45.77/bbl.
Reviewing Monday's economic data:
- Consumer credit increased by $7.2 billion in October (consensus $9.0 billion) after contracting by a downwardly revised $15.1 bln (from $16.2 billion) in September.
- The key takeaway from the report is that revolving credit decreased for the seventh time over the last eight months dating back to February, which preceded the initial pandemic lockdown period taking hold in the U.S.
Looking ahead, investors will receive revised figures for Q3 Productivity and Unit Labor Costs and the NFIB Small Business Optimism Index for November on Tuesday.
- Nasdaq Composite +39.5% YTD
- S&P 500 +14.3% YTD
- Russell 2000 +13.4% YTD
- Dow Jones Industrial Average +5.4% YTD
After Hours Summary: SFIX +34.4%, SMAR +14.4%, COUP +3.6% up on earnings; TOL -3.7% lower on earningsAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: SFIX +34.4% (also names former AMZN exec as CFO), SMAR +14.4% (also names new CFO), COUP +3.6%, INTU +0.2% (updates guidance to include Credit Karma acquisition)
Companies trading higher in after hours in reaction to news: HOLI +17% (receives preliminary non-binding acquisition proposal for $15.47/sh), GOGO +3.5% (S&P upgrades to 'B-' from 'CCC+' following sale of commercial aviation business; outlook stable), KURA +2.7% (stock offering), BLUE +2.3% (provides update on LentiGlobin Gene Therapy at ASH meeting), ON +2.2% (names new CEO), NYMT +2.2% (increases dividend), NKTR +2.1% (presents preclinical data for NKTR-255 at ASH meeting), LPRO +1.9% (stock offering), KPTI +1.6% (presents new XPOVIO data at ASH meeting), GERN +1.1% (Reports Ten Imetelstat Presentations at ASH meeting), RTX +1.1% (authorizes $5 bln share repurchase program), BMY +0.2% (presents analyses from pivotal Quazar AML-001 study), RYAM +0.2% (S&P places on watch positive on proposed refinancing), ESE +0.1% (CFO to retire), FMTX +0.1% (Presents Clinical Proof-of-Concept Data at ASH meeting), GTS +0.1% (CFO to retire), JKS +0.1% (DE Shaw discloses 5.9% stake)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: TOL -3.7%, HQY -2.5%, CASY -2% (also increases dividend)
Companies trading lower in after hours in reaction to news: MRNS -7.4% (stock offering), ARCT -6.4% (files for mixed securities shelf offering; also files for stock offering), STRO -4.6% (stock offering), ATRA -4.4% (stock offering), IBIO -4.4% (stock offering), AGIO -4.1% (Announces Updated Data from Phase 1 Study of Mitapivat at ASH meeting), TRIL -3.5% (presents data at ASH meeting and provides guidance for 2021), GRWG -3.4% (stock offering), SQNS -2.9% (stock offering), GLYC -2.6% (provides Rivipansel data at ASH meeting), VLRS -2.2% (stock offering), MSTR -1.6% (convertible notes offering), IGMS -1.3% (stock offering), UBER -0.6% (Aurora Innovation to acquire Uber's Apparate USA; Uber to make cash investment in Aurora; Uber also announces $1 bln convertible notes offering), AMZN -0.2% (AWS unit to open second infrastructure region in Australia), FOUR -0.1% (S&P outlook revised to negative on new debt; ratings affirmed)
--> NKLA -1.42% today, -46% on the last 10days with almost 2 times the free float traded on that period
Revolut on track for profits as regulators and investors switch focus
Chairman Martin Gilbert says cryptocurrency revenue has grown as foreign exchange has shrunk
UK-based fintech Revolut is on track to make its first monthly profit this year, with more regular profits in 2021, chairman Martin Gilbert said.
Profitability is an increasingly important target for the fintech sector, Mr Gilbert told the Financial Times’ Global Banking Summit.
“Up until now, profitability didn’t matter. It was all about growth,” he said. “Over the past year, both regulators and shareholders have demanded that there’s a path to profits.”
“Regulators because they’re cautious and they don’t want to see you fail. For shareholders, there are the ‘haves’ and ‘have nots’. Those that have raised money before Covid are in a much better position than those that have had to raise money since,” Mr Gilbert said.
Revolut is one of Europe’s biggest and most high-profile fintechs but its accounts show that it made a pre-tax loss of £107m in 2019, more than three times the level of the previous year.
Mr Gilbert, a City of London veteran who was previously co-chief executive of Standard Life Aberdeen, became Revolut’s first chairman at the start of this year as the company bolstered its corporate governance. Michael Sherwood, the former co-chief executive of Goldman Sachs International, has also been brought on to the board.
In February, before the coronavirus crisis hit in earnest, the company raised $500m in a funding round that gave it a valuation of $5.5bn. “We were certainly fortunate and pragmatic in the fundraising,” said Mr Gilbert.
Revolut has not been immune to the impact of the pandemic though.
Foreign exchange has traditionally been one of Revolut’s most popular offerings, but Mr Gilbert said that this year there had been a “big shift” to other revenue streams, such as cryptocurrencies and more regular domestic spending. He is not expecting foreign travel to return to its 2019 levels until 2022.
The company has also had to cut costs to make sure that it can hit profits.
Looking ahead, the priorities are to win both banking licences and customers in the markets where the company operates.
“In Ireland, we’ve got something like a 30 per cent penetration rate — it’s amazing,” said Mr Gilbert. “One of the big strategies is to get the penetration rate up in all the countries we operate in to that sort of level that we have in Ireland.”
Revolut has high hopes for the US, where it has just launched. “The medium-term plan is eventually to have a banking licence there, as it is in the UK [and] in Ireland as well,” he said.
“We see a huge opportunity in the US,” he said, highlighting the Hispanic market as one that the company would target because of the potential for international money transfers.
“I’ve always thought — and it was the same in asset management — you have to succeed in America. Half of the world’s wealth is there so you’ve got to go there and compete.”
Demand for Corporate Bonds Drives Inflation-Adjusted Yields to Zero
The development highlights how demand for fixed-income assets is reducing their potential returns
The average U.S. investment-grade corporate bond now yields less than a key measure of investors’ inflation expectations for the first time on record, highlighting how demand for fixed-income assets is reducing their potential returns.
As of Friday, the annual expected inflation rate over the next decade—derived from the difference in yield between nominal and inflation-adjusted 10-year U.S. government bonds—stood at 1.89%, according to the Federal Reserve Bank of St. Louis. The average investment-grade corporate bond yielded just 1.85%, according to Bloomberg Barclays data.
So-called real yields—or the return investors can expect on bonds after adjusting for inflation—have been below zero for months on U.S. government debt. But last week marked the first time in records going back to 2003 that the phenomenon ever extended to a broad index of corporate bonds.
The two situations are related; negative real yields on U.S. Treasurys drive investors to buy riskier assets in search of better returns. Many have turned to corporate bonds, driving yields to new lows in recent months, investors and analysts say.
The yield on the benchmark 10-year Treasury inflation protected security—a proxy for real Treasury yields—is currently around minus-0.97%. That means investors can still pick up a meaningful amount of return by buying corporate bonds.
“Most individuals and institutions don’t have the luxury of being [invested in] 100% equities,” said Nicholas Elfner, co-head of research at Breckinridge Capital Advisors, which specializes in investment-grade bonds.
The choice, therefore, isn’t whether to buy corporate bonds at all, but how much to purchase relative to Treasurys, and investment-grade bonds remain “a way to add some incremental yield,” Mr. Elfner said.
The most recent decline in real corporate yields has been helped along by a burst of economic optimism. Over the past month, yields on 10-year U.S. government bonds have climbed toward 1% in response to progress toward coronavirus vaccines and new spending legislation designed to tide the economy over until those vaccines are widely distributed next year.
In recent trading, the yield on the benchmark 10-year U.S. Treasury note was 0.929%, according to Tradeweb, down from 0.967% Friday but up from 0.768% on Nov. 4. Treasury yields tend to rise when the economic outlook improves, because faster growth can lead to a higher rate of inflation and eventually interest-rate increases from the Federal Reserve.
The same developments have fueled a climb in market-based expectations for inflation. Even so, corporate-bond yields have fallen because the improved outlook has made investors more confident that businesses will meet their debt obligations.
For businesses, the decline in corporate-bond yields is welcome news, allowing them to borrow at rates that would have been unthinkable just a few years ago.
Last week, Bank of New York Mellon Corp. issued $750 million of three-year bonds at a 0.386% yield, the lowest ever for that maturity, according to LCD, a unit of S&P Global Market Intelligence. In the secondary market, a Microsoft Corp. bond due in 2022 last traded on Dec. 1 with a 0.196% yield, just 0.03 percentage point above the comparable U.S. Treasury yield, according to MarketAxess.
Andrew Karp, head of global investment-grade capital markets at BofA Securities, said that investment-grade corporate-bond issuance is likely to decline next year from its record-smashing pace this year, in large part because companies already have done so much to raise cash and extend their debt maturities in recent months.
Still, he said, companies are “definitely still intrigued by the opportunity to lock in long-term rates at what are still historically attractive levels.”
Société Générale: branch line
Customers and unionists will need careful management in the shift to remote banking
In France, they prefer the personal touch, and that extends to banking. But if Société Générale has its way, France will lose its leadership in bank branches per person in Europe. The bank on Monday offered details of its plans to cut 600 outlets by merging two domestic retail divisions.
SocGen is only following the pack. A slew of European banks including ABN Amro, Deutsche Bank, HSBC and Svenska Handelsbanken have announced branch closures. It is a natural response as business moves online and low rates squeeze lending margins.
But France’s powerful trade unions will look through digital hype to likely job cuts. They are the reason bank branches per capita have dropped just 18 per cent in the decade to 2019, according to the IMF. Compare that with a slimming by one-third throughout the EU.
These sensitivities, as much as SocGen’s blasé attitude to underperformance, explain the leisurely timetable. The integration should slash overheads by €350m annually in 2024, about 6 per cent of group operating profit last year. SocGen will bring together its French network with that of subsidiary Crédit du Nord.
Ironically, retail banking has provided much of group profits recently, as the investment bank has stumbled. Earnings from global banking and investor solutions almost halved in the three years to 2019. So customers and unionists will need careful management in the switch to remote banking.
SocGen’s online bank, Boursorama, has grown quickly, more than doubling customers to over 2m since 2016. But even in this pandemic year the French have not exactly embraced internet banking, says McKinsey. Its recent survey revealed that online or mobile banking usage trod water this year. Spain, Germany and Portugal all experienced double-digit percentage increases.
The market has warmed to SocGen of late. The stock has bounced higher than rival BNP Paribas over three months, while still trading at a steeper price discount to book value. Even this modest improvement will not last if all the group’s cost cuts come as slowly as its branch closures.
UK admits giving concessions on hybrids to protect car plants
Some models will be allowed to be sold for five more years to save jobs at Toyota and Nissan, minister says
The UK introduced key concessions into its rules to decarbonise new vehicles to try and protect the future of British plants owned by Japanese manufacturers Toyota and Nissan.
Plans were unveiled last month to phase out the sale of new petrol and diesel cars by 2030, but allow purchases of some hybrids until 2035.
A last-minute modification, buried in the proposals, to allow the sale of “full hybrids” — such as the cars made by Toyota and Nissan that have lower emissions than petrol-only models but limited electric-only range — has angered green groups, which say it undermines the policy.
“We took that approach because we listened to the industry, and we recognise how important they are to the manufacturing base of this country,” transport minister Rachel Maclean told the Financial Times’ Future of Mobility summit.
“We also recognise that hybrid technology can be a step for people, when they do have a hybrid it often helps them to gather confidence to make that purchase of a fully electric vehicle later.”
The change was designed to protect the UK’s fragile network of car plants, which are already squeezed by falling sales at home and uncertainty over Brexit since the referendum in 2016.
Honda and Ford have both announced UK plant closures in the past two years, while Nissan in 2019 ditched plans to build additional models in its Sunderland factory.
After several delays, Nissan will begin producing a hybrid version of the Qashqai car at Sunderland next year, while more than 90 per cent of the cars rolling off the lines at Toyota’s site at Burnaston are hybrid.
Ministers are keenly aware of the need to keep onside international auto executives, whose reports to their overseas headquarters are essential to secure future investment in the UK. Together the two companies support tens of thousands of jobs in the UK.
Hours after announcing the 2030 plans, prime minister Boris Johnson moved to reassure the sector and joined an online meeting of business executives, including Nissan Europe boss Gianluca de Ficchy, who were discussing the proposals.
How generous the concession is will boil down to the exact parameters of hybrids that are allowed to be sold, which is due to be thrashed out in a consultation next year.
The measures state that hybrids will be allowed “if they have the capability to drive a significant distance with zero emissions”, a phrase that will be fiercely debated.
Toyota’s hybrid system, which it has been selling in the Prius for 20 years, is the reason the Japanese giant has one of the lowest average CO2 emissions per car of any maker in Europe, despite not selling a single fully electric vehicle.
The company believes that more than 60 per cent of any urban trip runs on zero emission, though intermittently as the engine cuts in and out to recharge the battery.
In contrast, plug-in hybrids such as those produced by BMW and Volvo that charge at a wallbox are able to drive for dozens of miles on their battery alone, although larger batteries make this technology far more expensive.
Both systems eliminate the “range anxiety” of electric-only cars, because the engine in the vehicle cuts in when the battery drops too low.
Hakan Samuelsson, Volvo’s chief executive, last week said the brand may stop selling hybrids completely and switch to full electric cars before the end of the decade.
“I would be surprised if we wouldn't deliver only electric cars from 2030,” he told the FT’s Future of the Car summit.
In a highly unusual move for Toyota, which is one of the UK’s most loyal auto investors and naturally averse to threatening language, the company previously warned that it would not invest in its British operations in future if the system was outlawed.
Both Nissan and Toyota will struggle to convince their respective headquarters in Japan to invest in Britain if they cannot sell the cars they produce in the UK.
“If you can’t sell the product where you make it, that’s a challenging pitch,” said one industry insider.
Yet the consideration “completely undermines” the headline phase-out date of 2030, according to Doug Parr, chief scientist at environment group Greenpeace UK.
“If we’re not having hybrids that go many miles, 50, 60, or 70, then we are really talking about a 2035 ban, not a 2030 ban,” he said.
“It’s hard to imagine there will be many cars that are not hybrids by 2030 anyway.”
Currently 22 per cent of cars sold in the UK are the type of vehicle that may be permitted, according to figures from the Society of Motor Manufacturers and Traders.
But an EU-wide rule, likely to be replicated in Britain’s post-Brexit requirements, will require average CO2 emissions per vehicle to be cut by 37.5 per cent by the end of the decade compared with the start, something that will wipe out all but a handful of internal combustion engines.
Forecasts from LMC, a data company, compiled before the UK measures were produced, expected engine-only vehicles to account for just 8 per cent of sales by the end of the decade, with battery cars expected to rise to 40 per cent of sales.
The rest will be various types of hybrid or hydrogen fuel cell cars. How many are permitted beyond 2030 is, according to Mr Parr, “a battle still to come”.