>>> Barron’s Weekend Summary

Barron’s Weekend Summary: Trump’s coronavirus infection hasn’t rattled investors, but it’s too early to sound an all-clear for its impact on the economy and markets

* Cover Story: The markets didn’t overreact on news that Donald Trump has the coronavirus, but it would be premature to sound an all-clear for the impact on financial markets and the broader economy; The odds may now increase that Washington will act more decisively to contain the virus, possibly with new public health measures and passage of a broad-based stimulus package—but some analysts are concerned the situation could also heighten worries that the virus is far from contained, eroding consumer and business confidence and renewing calls for lockdowns or quarantine measures to contain a second wave.
* Tech Trader: “The IPO market is broken—the companies issuing stock don’t seem to be complaining, but they’re paying way too much for the privilege of trading in the public markets, and traditional IPOs have become an exceedingly expensive way to raise money.”
* Trader: Investors shouldn’t be surprised if the S&P 500 remains stuck in a range between 3200 and 3400, according to Macro Risk Advisors technical analyst John Kolovos, who adds that price action above 3425 should start to boost confidence in the recovery.
* Features: 1) Positive on MSFT, SNE, ATVI, EA, TTWO: With movie theaters shuttered because of the pandemic, the next generation of video game machines are arriving with the gaming at the top of the entertainment sector—US videogame sales are forecast to rise 19 percent this year, to $45.6B, compared to the box office, which grossed just $1.9B this year; 2) Positive on IVZ, JHG: Activist investor Nelson Peltz is pushing for more consolidation in the asset-management industry, and having taken 9.9 percent stakes in Invesco and Janus Henderson, he will push for a merger or other strategic combination and seek to create an industry giant; 3) “Due to the latest shift in Federal Reserve policy, finding income in bonds has gone from being exceedingly difficult to nearly impossible, and finding safety in them might be increasingly elusive. Investors in these securities need a new approach—and a reset in expectations”; 4) Cautious on THO, WGO, CWH, PATK, LCII: The recreational vehicle industry is thriving, but some analysts are worried about the trend’s staying power, and supply-chain challenges and a labor shortage in the industry’s capital of Elkhart, Indiana, could hurt profit margins; Camping World may be the best play because it dominates its market and has plans for adjacent business lines; 5) Positive on TEX: The manufacturer of equipment used in construction, mining, maintenance, and other industries is a small-cap industrial with a strong balance sheet, the potential for profit growth, and cheap shares—and a recent streamlining of its portfolio has left it leaner and better able to remain profitable through economic cycles; 6) Positive on EPD, MMP, KMI: With the growth in renewables, oil and gas will likely remain an important part of US energy needs in the coming decades, and the companies play a critical role in the industry; These depressed closed-end funds offers a cheap way for investors to play the battered energy-pipeline sector, get ample yields, and avoid some of the tax hassles that come with master limited partnerships.
* Mutual Funds Quarterly: 1) Dimensional Fund Advisors funds were among the earliest quantitatively run factor-based funds that focused on value and small-cap investing, and while retail investors couldn’t directly buy them, that’s changing with the launch of three ETFs—Dimensional US Core, Dimensional International Core, and Dimensional Emerging Markets Core—in the next few months; 2) Profile of Will Danoff, who for three decades has managed the $131B Fidelity Contrafund, the largest US mutual fund run by a single manager, a fund he has guided through vastly different economic and news cycles, returning 13.7 percent a year on average.
* European Trader: French water and waste company VE’s attempt to acquire a major stake in rival Suez is taking far longer than such deals normally do because of the French water industry’s complex history and shareholding structure—though it’s unclear whether the deal is good for shareholders or not.
* Emerging Markets: Chinese President Xi Jinping ’s recent pledge to make his country carbon neutral by 2060 is an exception to the trend of empty promises from global leaders, and the scope of his ambition is underpinned by actual achievements—from a standing start 10 years ago, China has created seven of the world’s top 10 solar module manufacturers.
* Commodities: “Industrial metals posted gains in the third quarter, with silver up sharply and copper touching its highest prices in over two years, suggesting that the worst of the coronavirus hit to the economy may be over.”
* Streetwise: Value stocks, which have disappointed for a decade, beat growth stocks during September, says columnist Jack Hough—strategists suggest favoring cheap stocks with high returns on equity, such as T, Comcast, GS, ALL, ALK, and LH.

SkyNews : Deliveroo picks Goldman to steer restaurant app to London float

Deliveroo picks Goldman to steer restaurant app to London float
The food delivery app is unveiling new services as it picks bankers to work on a public listing, Sky News learns.

Deliveroo has appointed investment bankers to oversee a long-awaited flotation as it unveils a blizzard of innovative features that it hopes will provide a compelling growth story for public market investors.

Sky News has learnt that the food delivery app, which last week said it was preparing to add 15,000 riders to its fleet by the end of year, has begun working with Goldman Sachs on its plans for an initial public offering (IPO).

A float is expected to take place in London next year, and is likely to value the company at more than £2bn, according to insiders.

Deliveroo declined to comment on Goldman's appointment, and sources close to the company insisted this weekend that there was no definitive timetable for a public listing.

Further banks are expected to be appointed in the coming months.

The company, which was launched by chief executive Will Shu in 2013, has seen a surge in sales as customers have turned to food delivery services during the coronavirus crisis.

However, the ongoing costs of its investment in technology led it to warn this year that a refusal by competition regulators to sanction a big investment from Amazon could undermine its chances of survival.

Reuters - Exclusive: Airbnb aims to raise roughly $3 billion in IPO - sources

Exclusive: Airbnb aims to raise roughly $3 billion in IPO - sources

(Reuters) - Home rental company Airbnb Inc is aiming to raise around $3 billion in its upcoming initial public offering (IPO), people familiar with the matter said on Friday, taking advantage of the unexpectedly sharp recovery in its business after the COVID-19 pandemic roiled the travel industry.

Airbnb will be one of the largest and most anticipated U.S. stock market listings of 2020 which has already been a blockbuster year for IPOs, featuring the likes of record label Warner Music Group WMG.O, data analytics firm Palantir Technologies PLTR.N and data warehouse company Snowflake Inc SNOW.N.

Airbnb said in August it had filed confidentially for an IPO with U.S. regulators. [nL4N2FL3SN]

The company’s current plan is to make its filing publicly available in November after the U.S presidential election and is targeting an IPO some time in December, the sources said, requesting anonymity as the plans are private.

The sources cautioned that the timing is subject to change and market conditions, in particular volatility that could come from the election.

A spokesman for Airbnb declined to comment.

The company could achieve a valuation of more than $30 billion in the IPO, the sources added, again cautioning this was subject to market conditions.

This would be substantially higher than the $18 billion Airbnb was valued at in April when it raised $2 billion in debt from investors. Airbnb’s most recent independent appraisal of the fair market value of its stock pegged its worth at around $21 billion.

The push to go public and the growth in its potential valuation underscores Airbnb’s dramatic recovery from earlier this year when it secured emergency funding from investors and the outlook for the travel industry was uncertain.

Since then, San Francisco-based Airbnb has benefited as travelers shy away from larger hotels and instead prefer to drive to local vacation rentals.

The company said in July that customers had booked more than 1 million nights in a single day for the first time since March 3.

Shares of U.S. online travel agency Booking Holdings Inc BKNG.O, which some Airbnb investors use as a conservative public market proxy for its own stock, have rebounded more than 35% in the past six months.

Reuters reported last month that billionaire investor William Ackman had approached Airbnb about going public through a reverse merger with his blank-check company but that Airbnb was prioritizing going public through a traditional IPO.

>>> SohnX San Francisco Conferences 6th & 7th of October - Virtual

>>> SohnX San Francisco Conferences 6th & 7th of October - Virtual

Taking place October 6 & 7, Virtual


Speakers
  • Josh Friedman, Co-Founder, Co-Chairman and Co-Chief Executive Officer, Canyon Partners, LLC
  • Glen Kacher, Founder & CIO, Light Street Capital
  • Jeff Osher, CFA, Portfolio Manager, No Street Capital
  • Jeff Shen, Ph.D., Managing Director, Co-CIO of Active Equity and Co-Head of Systematic Active Equity, BlackRock
  • Gil Simon, Chief Investment Officer & Managing Partner, SoMa Equity Partners
And a fireside chat with
  • Howard Marks, Co-Chairman, Oaktree Capital Management in conversation with David Villa, Executive Direction & CIO, State of Wisconsin Investment Board.

REuters - Fed's Mester says next phase of recovery will be hardest

Fed's Mester says next phase of recovery will be hardest
By Jonnelle Marte

(Reuters) - The U.S. labor market is recovering more slowly and it could take two to three years for the unemployment rate to return to levels seen in February as companies adjust to smaller staffs and workers retrain for new careers, Cleveland Federal Reserve Bank President Loretta Mester said Friday.

Low-income workers, Black workers and Hispanic workers, as well as those with lower levels of education, bore the brunt of pandemic-related job losses and could face longer spells of unemployment, Mester said during an interview with Reuters.

“The next phase of the recovery ... is going to be the hardest part of the recovery,” Mester said, where longer-term issues will need to be addressed as the economy heals.

The U.S. labor market added fewer jobs than expected in September and more than 300,000 Americans lost their jobs permanently, according to data released by the Labor Department Friday. Payrolls are still down nearly 11 million jobs when compared to pre-pandemic levels.

Employment is rebounding slowly for service sector jobs, including those in leisure and hospitality, Mester said. Some people who worked in those hard-hit industries may need more time to find new jobs or train for new careers, she said.

In contrast, some sectors that benefit from low interest rates, including the housing market and auto sales, are seeing a sharp rebound, she said. So are parts of the transportation industry, she said.

“It’s almost like there’s two economies going on,” Mester said. “It’s very much sector by sector.”

GROWTH AT RISK
The Fed official said the U.S. economy has so far been supported by help from fiscal stimulus, but growth could slow as much of that aid expires. “That poses a significant risk to the outlook, if we don’t have that support in place,” Mester said.

For instance, one of the takeaways from the last financial crisis is that the economy can recover more slowly if state and local governments are not supported, she said. “Fiscal support for them, as well as for individuals and for small businesses, is needed to make sure that the recovery can continue on,” Mester said.

The Fed revealed a new framework in August that puts more emphasis on addressing shortfalls in employment and allows for modestly higher inflation so that the Fed can reach its 2% target on average.

Mester said that monetary policy is “well calibrated” now. Determining whether inflation is at risk of getting too high will depend on what else is happening in the economy. She said she will look at whether inflation is “accelerating” or hovering around a certain level.

Asked about whether the news that President Donald Trump tested positive for coronavirus could require more reassurance from the Fed about its efforts to support the economy and financial markets, Mester said the central bank is always working to ensure smooth market functioning. She referenced the Fed’s rapid response earlier this year, when it increased asset purchases and rolled out a suite of emergency lending facilities in response to market volatility.

“My sympathies go to anyone who either has had the virus, has the virus, has a loved one with the virus, because it can be a very dangerous thing,” Mester said. “That said ... the Fed is always doing what we can to ensure that financial markets continue to function.”

>>> US Close Dow -0.48% S&P -0.96% Nasdaq -2.22%


Closing Stock Market Summary

The S&P 500 fell 1.0% on Friday, but it was down as much as 1.7% after President Trump said he tested positive for COVID-19. Stimulus optimism boosted many value/cyclical stocks, which partially offset weakness in the information technology sector (-2.6%). 

The Nasdaq Composite underperformed with a 2.2% decline, clipped by steep losses in mega-caps like Apple (AAPL 113.02, -3.77, -3.2%) and Tesla (TSLA 415.09, -33.07, -7.4%). The Dow Jones Industrial Average declined 0.5%, while the Russell 2000 gained 0.5%.  

Generally, the market was caught up in the uncertainty on what President Trump's diagnosis would mean for the economy and other political issues. House Speaker Pelosi said the situation changed the dynamic on fiscal relief, which some investors interpreted a motivating factor to get a deal done, especially after a relatively disappointing September employment report. 

Cyclical sectors showed relative outperformance early in the day and later gained steam on hopeful-sounding stimulus commentary that suggested Ms. Pelosi and Treasury Secretary Mnuchin were making serious progress towards a deal. Talks could continue this weekend with differences still remaining.  

The industrials (+1.1%), energy (+1.0%), materials (+0.8%), and financials (+0.7%) sectors represented the cyclical gains. The real estate sector (+1.6%) advanced the most, though. Conversely, the same enthusiasm didn't apply to the mega-caps and other technology stocks, which outperformed the previous day. 

Touching on the jobs data, which was understandably drowned out in today's health concerns and stimulus news, the headline nonfarm payrolls figure was 661,000 consensus 800,000). The unemployment rate declined to 7.9% ( consensus 8.2%) from 8.4% in August, but the labor force participation rate fell to 61.4% from 61.7%. 

Longer-dated Treasuries moved higher following the report but pulled back into negative territory during the day. The 2-yr yield was flat at 0.13%, and the 10-yr yield increased two basis points to 0.70% after touching 0.65% at its low. The U.S. Dollar Index increased 0.1% to 93.84.

In other interesting developments, the S&P 500 closed below its 50-day moving average (3362), and WTI crude futures dropped 4.3%, or $1.66, to $37.05/bbl -- but the weaker prices didn't drag on the energy stocks. 

Reviewing Friday's economic data:

  • The September employment report was relatively disappointing. Granted the unemployment rate dropped to 7.9% from 8.4%, but the offset to that seemingly good news is that the labor force participation rate fell to 61.4% from 61.7%. September nonfarm payrolls increased by 661,000 (consensus 800,000).
    • The key takeaway from the report is that it will contribute to concerns that the labor market recovery process is becoming more arduous and that the risk of permanent job losses is increasing with the absence of a stimulus plan and lower aggregate demand at small businesses.
  • The final University of Michigan Index of Consumer Sentiment for September ticked up to 80.4 (consensus 79.0) from the preliminary reading of 78.9. The final reading for August was 74.1.
    • The key takeaway from the report is that the improvement was attributed largely to improved attitudes about the outlook for the economy among upper-income households.
  • Factory orders in August increased 0.7% m/m (consensus 1.2%) following an upwardly revised 6.5% increase (from 6.4%) in July.
    • The key takeaway from the report is the affirmation that business spending continued to increase in August, evidenced by a 1.9% increase in new orders for nondefense capital goods excluding aircraft, versus a 2.6% increase in July.

Looking ahead, investors will receive the ISM Non-Manufacturing Index for September on Monday.

  • Nasdaq Composite +23.4% YTD
  • S&P 500 +3.6% YTD
  • Dow Jones Industrial Average -3.0% YTD
  • Russell 2000 -7.7% YTD