Fresh undercurrents of tension between U.S. and China made the markets nervous sentiment while a renewed wave of rising virus cases in Europe added to the weak sentiment.
Tech stocks again led the sell off on Wall Street, which closed lower for the third consecutive week. With weak consumer demand expected ahead, traders lightened their positions as IPOs took centerstage, giving great returns. Next week, markets are closely waiting for Tesla’s Battery Day which could see some important announcements.
Selling pressure extends on Wall Street
Selloff on Wall Street extended to the third consecutive week as traders further cut long positions in tech stocks that had led the market rebound after March. After hitting its life high on September 1, the S&P 500 hit its lowest level during the month. For the week, the S&P 500 fell over half a percent, the Dow fell marginally below last week, while Nasdaq declined 0.56 percent. Fresh undercurrents of tension between U.S. and China made the markets nervous sentiment while a renewed wave of rising virus cases in Europe added to the weak sentiment. Countries like Denmark and Greece announced new restrictions while the U.K. is expected to soon announce fresh measures to curb the spread of the virus.
The fury of the tech selling has been so marked that Apple has lost over 20 percent in value since its high of $134 on September 1 with nearly 300 million shares traded on the last trading day of the week. The Nasdaq Composite has slipped nearly 1000 points to 10793 last week from its August 31 close of 11775.
Red hot IPO for Snowflakes
The cloud software data company wanted to raise $3.36 billion for the IPO, the biggest for the Wall Street in 2020. It had offered its stock at $120 apiece, after raising the price twice earlier. Despite that, this week it’s stocks more than doubled on listing day, valuing the company at $70 billion. Founded in 2012, Snowflakes provides data warehouse technology, collated from various sources for companies to integrate its strategy in the cloud. Snowflakes also announced that Berkshire Hathaway and Salesforce Ventures have committed $250 million each for the stock. It has been a busy week for IPOs as 21 companies took their stocks public on Wall Street, raising over $10 billion.
According to CNBC, it is for the first time that Warren Buffet has chosen to buy into an IPO since investing in Ford Motors’ IPO in 1956. If Snowflakes was the icing on the cake for investors. Gaming platform Unity Software and JFrog were among the other stocks that registered smart gains on their debut.
Fed indicates near zero rates till 2023
The Federal Reserve has indicated that rates could be near zero for at least three years. Officials of the Federal Reserve have suggested that tightening of interest rates could be delayed till the jobs situation nears the normal and inflation returns to two percent. The statement, issued after its two-day meeting, comes after it said that it will allow inflation to overshoot its two percent target after the period of underperformance. The Fed also committed to its full range of tools to support economic recovery. It is buying $80 billion of treasuries and $40 billion of mortgage-backed securities every month.
The U.S. economy is recovering after the steepest quarterly fall in GDP. Consumer demand is picking up, sentiment in inching up and sectors like housing are in much better shape. The coronavirus impact is keeping the economy and consumer consumption weak. The unemployment benefits given to people have now run out, weakening consumer demand.
Tesla: Excitement around Battery Day
Traders were riding on the Tesla stock this week in anticipation of an announcement on Battery Day at the company on September 21. CEO Elon Musk is expected to also update shareholders on the improvements that have been made in the company’s battery technology, key to making its cars more user friendly. Morgan Stanley auto analyst said the event could be “potentially narrative changing”. Musk had recently tweeted “many exciting things” that would be unveiled on Battery Day. After the shares split on August 31, it has been through a roller coaster ride. Since almost hitting $500, it has been trading lower and closed nearly 10% shy of its high.
During the second week of September, Tesla’s stock had registered its worst ever one-day fall when it plunged 21 percent after it was not included in the S&P 500. Markets had been betting on that happening for several weeks. Despite the one-day shock, Tesla has seen a 4X jump YTD.
Advertisers returning to Facebook?
Social media giant Facebook has claimed that advertising who had opted out of its platform earlier this year are now returning. Without taking any names, the company has said that several brands have returned. Facebook had assured advertisers that it was taking steps to curb vitriolic content on its platform. Sports gear maker Adidas was among those who have returned to advertise on the biggest social platform. Among the brands that announced stopping advertising from July were Harley Davidson, Pernod Ricard, Daimler AG, Coca-Cola, Lego, The Body Shop, Microsoft, Unilever, Target, Honda, Verizon, SAP, Mars and several others. After its second quarter results, Facebook said that during the first three weeks of July, revenue had moved up nearly 10 percent.
In a movement urging advertisers to stop hate for profit, over 1000 companies had decided to sharply cut down or stop advertising on Facebook. Some of them were among its top advertisers among its pool of nine million. After its second quarter results, Facebook had said that the top 100 advertisers contributed 16 percent of its $18.7 billion revenue.
“This very strong, very powerful guidance shows both our confidence and our determination. There’s no cook book” – Federal Reserve Chairman Jerome Powell, announcing its policy after the two-day Jackson Hole conference.
SPACs raise $38 billion in 2020
A promise today, revenues tomorrow? That is how Special Purpose Acquisition Companies, or SPACs, work. Investors are giving thumbs up to special purpose acquisition companies, or SPAC, that have caught the imagination of Wall Street. Companies are lining up to raise money to identify a potential acquisition later. Space tourism company Virgin Galactic and electric truck maker Nikola Corp. have seen lofty valuations even before commercial activities have started. Another SPAC, Tortoise Acquisition Corp, announced it wants to take its heavy truck electrification company Hyliion Inc public. During 2020, SPACs, also called blank cheque companies, raised nearly $38 billion. Investors may be finding the story around companies to be promising enough to put money for the dream.
Investments in SPACs may not be for the faint hearted. Judging a company’s performance in the absence of commercial activity and nothing to show as past financial performance can be a challenge. Will the promise last long enough for returns to materialise is the moot question.