What a day. What a two weeks, really.
U.S. equity markets were strong on Monday. The S&P 500 began a new winning streak, after Friday's very mild red candle had put an end to a seven-day winning streak for our marketplace's broadest large-cap equity index.
Eight of 11 Sector Select SPDR ETFs finished the day in the green, with cyclicals at the top of the performance tables, and Utilities ( XLU) at the bottom just below Financials ( XLF) , which makes sense given that the U.S. 10-Year Note strengthened on Monday. That strength has continued overnight. The 10-Year pays a little more than 1.62% as I write this note after yielding as much as 1.7% last Thursday.
The "action" on Monday was really one where the Nasdaq 100, small-cap indices, and Dow Transports (we talked about this on Fox Business' Claman Countdown on Monday afternoon) led the way, sandwiched by major news events prior to the opening bell, and after the closing bell. I refer to Tesla ( TSLA) and Facebook ( FB) . This is why aggregate trading volumes were so much heavier for Nasdaq-domiciled names than they were for stocks that call the "Big Board" home.
Breadth was outstanding, across the entire landscape. Winners beat losers by more than five to three at both exchanges, while advancing volume simply crushed declining volume at both of New York's primary exchanges as well.
Readers are reminded that Tesla, which was up 12.7% on Monday all by itself, comprises 3% of the Nasdaq Composite and almost 2% of the S&P 500.
Pricing In the Past
While pundits across financial media have been quick to credit a better-than-expected start to earnings season for this October equity rebound, and some others have mentioned the likelihood for potential passage of the two fiscal spending packages or even Evergrande's sudden ability to service its international debt, the unspoken fact is that markets are pricing in some fiscal policy, but it's not what these pundits think.
It is becoming increasingly clear that Democrats in D.C. do not have the votes on their own side to either increase corporate tax rates substantially, or perhaps even to increase corporate tax rates at all. Markets had been pricing the corporate side of the 2017 tax overhaul back out of equity prices, and now, in a hurry have had to price the possibility that these rates stay where they are back into the market, not to mention the economy that supports it.
Negotiations go on, but to date, it appears that Arizona Senator Kyrsten Sinema, who is much quieter than fellow fiscal and political moderate Sen. Joe Manchin of West Virginia, has not budged. Of course, we are not there yet, and a lot can happen as the week develops. Both House Speaker Nancy Pelosi and New York Sen. Chuck Schumer have at times sounded quite confident that an agreement across Democrats in both chambers of the legislature had been at hand.
The Trump administration tax overhaul had taken the standard U.S. corporate tax rate from 35% down to 21%. An increase to at least 25% had almost been assumed and absorbed by U.S. equity markets. We shall see. To have to reprice a corporate tax hike now already priced out... would get ugly.
The Beast That Is
On Sunday, Morgan Stanley's Adam Jonas increased that firm's target price for Tesla to $1,200 from $900, as he expects productivity in Austin, Texas and Berlin, Germany to come online, outweighing near-to mid-term computer-chip shortages. The stock tried to reach that new target in just one day after news broke that Hertz ( HTZZ) , now out of bankruptcy, had ordered 100K Model S electric vehicles for a reported $4.2B.
By day's end, Tesla would top a market cap of $1T, the sixth U.S.-listed firm ever to do so, and Tesla would end up worth more than the next nine automobile manufacturers combined. Hertz will start offering customers Tesla's vehicles by this November, with expectations to place the vehicles in 65 markets by the end of 2022, and more than 100 by the end of 2023. By the time delivery is completed, Tesla will comprise 20% of the entire global Hertz fleet.
In case nobody was watching, Tesla increased prices over the weekend for the Model 3, and Model Y by $2K a piece, and also for the Model S, and Model X by $5K. Speaking of individual wealth, Elon Musk simply no longer has any competition at the top. Jeff Bezos and Warren Buffett, not that it matters to either one of them, are no longer even close.
The Final Frontier
Speaking of Jeff Bezos, the space exploration company Blue Origin, sfter losing out on what had been considered to be some crucial NASA contracts, including a $2.9B mission back to the moon to Elon Musk's SpaceX, announced plans for a commercially developed, owned and operated space station that will be built in low Earth orbit. The project is being backed by "Genesis Engineering Solution'' as well as a consortium of universities. Plans call for enough room for 10 people, which means that this space station, which will be known as "Orbital Reef,'' will be nearly as large as the International Space Station.
While expenses have not yet been detailed, there are corporate partners. Boeing ( BA) will be charged with the station's operations and maintenance, and will provide a Starline spacecraft to transport crew and cargo to and fro. Boeing will also construct Orbital Reef's science-focused module.
In addition, Redwire Corporation ( RDW) , which went public last month and is an under-the-radar Sarge fave (my only non-defense space holding), will run the payload operations and build deployable structures, as well as help with the research of microgravity manufacturing. RDW closed up less than a buck (+8%) on Monday after initially spiking much higher earlier in the session. Unlike the Donald Trump social media deal-inspired spike in Phunware ( PHUN) last week, I see RDW as a long-term investment, and not a fast-money trade. I therefore did not take my profits and did not go home.
On That Note....
While discussing the current doings of Elon Musk, and Jeff Bezos, we'll move on to the last company Jeff Bezos ran (and still holds the hammer in), Amazon ( AMZN) . That company saw its AWS unit contracted by the U.K.'s three spy agencies on Monday to host classified material in a deal meant to increase and support the use of data analytics (big data) and artificial intelligence (AI) for the purposes of espionage.
For those on British soil concerned that GCHQ, MI5 and MI6 would be housing such crucial information with a non-U.K. cloud computing provider, AWS will hold this data in the U.K. Amazon, the corporation, will not have access to this data. The agreement is not close to the size of the Pentagon's JEDI contract that landed AWS in court with Microsoft's ( MSFT) Azure after Microsoft had initially been awarded that deal. This deal runs anywhere from BP500 to BP1B over 10 years.
Interestingly, earlier this year, France backed the creation of a "sovereign" cloud provider, dubbed "Bleu" that would be used to host that nation's sensitive data. Bleu is expected to ultimately join up with "Gala X," a project whose aim is to offer a European cloud-computing alternative to AWS, Azure and Alphabet's ( GOOGL) Google Drive.
Microsoft and Alphabet report this evening, Amazon on Thursday evening.
Q&A
Question:
When is a slight EPS beat, a revenue miss, a monthly active user miss, a sequential decrease in ARPU, and current-quarter revenue guidance that takes the high end of the range down below Wall Street consensus good enough for investors?
Answer:
When the company in question, Facebook ( FB) , repurchased $14.37B worth of common stock over the three months reported, leaving $7.97B in its prior share-repurchase authorization and the company has the resources to announce along with what was a mixed earnings release (at best), a $50B increase to that authorization.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Last 15.4% y/y.
09:00 - Case-Shiller HPI (Aug): Expecting 20.1% y/y, Last 19.9% y/y.
09:00 - FHFA HPI (Aug): Expecting 1.4% m/m, Last 1.4% m/m.
10:00 - CB Consumer Confidence (Oct): Expecting 108.7, Last 109.3.
10:00 - New Home Sales (Sep): Expecting 758K, Last 740K SAAR.
10:00 - Richmond Fed Manufacturing Index (Oct): Expecting 2, Last -3.
16:30 - API Oil Inventories (Weekly): Last +3.294M.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: ( MMM) (2.23), ( LLY) (1.96), ( GE) (0.44), ( HAS) (1.70), ( LMT) (6.80), ( RTX) (1.09), ( SHW) (2.05), ( UPS) (2.55)
After the Close: ( AMD) (0.66), ( GOOGL) (23.13), ( CB) (2.30), ( MSFT) (2.08), ( TXN) (2.08), ( TWTR) (0.18), ( V) (1.54)
(UPS, AMD, GOOGL, BA, AMZN and MSFT are holdings of Action Alerts PLUS . Want to be alerted before the portfolio buys or sells these stocks? Learn more now.)
