The Jobs Report showed the economy added more than jobs than expected in October. The S&P 500 and Nasdaq attempt to build on winning streaks. Pfizer announces COVID-19 pill. Reopening plays and pandemic plays are shifting after earnings announcements. Airbnb, Uber, and Square are among the peer-to-peer platforms reporting earnings. Semiconductors lead Tech sector rally. Central banks appear to rally around transitory inflation message.
The Employment Situation Report Showed the Economy Added More Jobs Than Expected
Earnings Reports Around Peer-to-Peer Platforms Show Shifts in Consumer Behavior
Bond Market is Trying to Digest Changes from the Fed, BoE, and ECB
(Friday Market Open) The S&P 500 (SPX) and the Nasdaq Composite (COMP:GIDS) are trying to extend win streaks on Friday. The S&P 500 is up nearly 25% for the year and the Nasdaq is up nearly 24% for the year.
The Employment Situation Report for October was released this morning showing that the economy added 531,000 new jobs which was well above the estimate of 450,000. Additionally, the unemployment rate fell to 4.6% from 4.8% and beating the estimate of 4.7%. However, the labor participation rate remained at 61.6% which means four million workers have yet to return to the labor market after leaving during the pandemic.
Additionally, the report is even stronger than the original eye test because the private market is rising and making up for 70,000 jobs lost in the public sector. Furthermore, the transportation and warehousing sector added another 140,000 jobs. This addition takes the sector above February 2020 levels. The development demonstrates strong demand as companies do everything in their power to get products to market.
One other point of concern from the jobs report is that the average hourly earnings rose from 4.6% to 4.9%. While this development is terrific for workers, it’s a rising costs that could weigh on corporate earnings.
The jobs report showed that many people are getting back to work and Pfizer (PFE) is giving them another reason to return. The stock was up almost 12% after announcing that its COVID-19 treatment pill has 89% effectiveness in cutting the risk of death and hospitalization. According to Barron’s, the testing results topped Merck’s (MRK) COVID-19 therapeutic, but no comparative trial was actually conducted. Merck was down 9.1% before the bell.
A big mishmash of earnings announcements came in after Thursday’s close. Peer-to-peer platforms Airbnb (ABNB) and Uber (UBER) both announced positive earnings. However, Airbnb offered a much better 2022 outlook than Uber. Airbnb was up 1.25% in after-hours trading, while Uber was down 2.69%.
Peer-to-peer fintech firm Square (SQ) fell 2.66% in after-hours trading after missing analysts’ estimates on earnings, revenue, and gross payment volume. The stock had already fallen about 2% during the day after investors approved a $29 billion buyout for Afterpay (AFTPY). And after announcing a deal between Tesla (TSLA) and Square’s subsidiary and music app TIDAL. Square competitor PayPal (PYPL) announces earnings on Monday.
After the bell, social media company Pinterest (PINS) climbed 6% when it announced better-than-expected earnings and revenue despite lower active users.
Stocks ended Thursday mixed with the Dow Jones Industrial Average in the negative but the S&P 500 and Nasdaq in the positive. Technology stocks were the biggest winners on the day, with the S&P Technology Select Sector Index ($IXT) up 1.4%.
The rally in technology was based mostly around semiconductors. The SOX (PHLX Semiconductor Index) climbed more than 3% thanks in part to a positive earnings announcement from Qualcomm (QCOM). Qualcomm soundly beat analysts’ expectations for earnings and revenues and offered an upbeat outlook for 2022. The news prompted the stock price to rally more than 12% on the day.
Chipmaker Nvidia (NVDA) was another driver in the semiconductor success thanks in part to comments from a Well Fargo analyst who expects to see Nvidia release its Omniverse Enterprise soon. The platform enables a wide range of vertical apps that allow developers to target a small number of users. Nvidia was up more than 11.5% and topped $750 billion in market cap.
More semiconductor news came in after the bell. Apple (AAPL) semiconductor supplier Skyworks (SWKS) announced better-than-expected earnings and revenue, but the stock was only slightly higher in after-hours trading. Additionally, Microchip Technology (MCHP) beat on top- and bottom-line numbers, but there was no trading in the stock after the bell.
The bond market is digesting Wednesday’s Fed announcement by shifting through the yield curve. Overall, the yield curve steepened with the 5-, 7-, 10-, 20-, and 30-year maturities as each rose four basis points. The steeper curve may suggest that bond investors think the Fed’s tapered bond-buying program may be focused on shorter maturities.
The Bank of England (BoE) and the European Central Bank (ECB) appear to be falling in line with the U.S. Federal Reserve. BoE surprised investors by not raising interest rates; instead, it chose to focus on its tapering plans with the hope that tapering will address the “transitory” inflation issue.
ECB President Christine Lagarde reiterated the transitory message and added that it would be unlikely that the ECB would raise rates in 2022. Fed Chairman Jerome Powell was unwilling to address interest rates on Wednesday, instead focusing on tapering plans. The Fed funds futures are pricing in a 57% chance of the federal funds rate being above 0.25% by June and a 65% chance of it being above 0.5% by December of next year.
Peer-to-Peer Pandemic: Many peer-to-peer platforms found a lot of demand during the pandemic but have recently experienced a lot of volatility and even some weakness. Airbnb may have some of the best prospects going forward as we move past the pandemic because it’s likely to benefit from consumers who are excited to travel again.
Increased travel could also benefit Lyft and Uber, who are already reporting higher bookings and more drivers coming back. In fact, travel site Expedia (EXPE) is up more than 13% in premarket trading on better than expected earnings and revenue.
Square and PayPal may struggle if the supply chain improves, and consumers head back to stores and using their credit and debit cards instead of buying from classified ads and yard sales.
Pedaling to the Gym: Another pandemic stock that appears to be struggling is Peloton (PTON) The stock is down more than 48% from its January 2021 high. And fell another 25% in after-hours trading when it reported a miss on earnings estimates and then cut its forward earnings outlook.
According to a 2021 IHRSA Global Report, U.S. fitness clubs saw 75% to 80% of their members returning to the gym during the first few months of 2020. As COVID-19 cases continue to decline, more and more fitness fans may leave their home gyms behind. Speaking to this point, Planet Fitness (PLNT) closed 11.67% higher on Thursday creating a new 52-week high. The company reported better-than-expected earnings because it’s reopening gyms and has nearly returned to pre-pandemic numbers.
Pandemic Plays: Peloton isn’t the only pandemic play that’s has struggled this week. Roku (ROKU) and Chegg (CHGG) also disappointed investors with their earnings reports. Additionally, the work-from-home stock Zoom (ZM) once boomed but failed to close its merger deal with Five9 (FIVN) at the end of September. It’s also seeing an intense battle with RingCentral (RNG) and Microsoft (MSFT). The stock is down more than 40% for the year. It announces earnings at the end of the month.
Furthermore, Citrix (CTXS), another work-from-home stock, is down more than 2% in premarket trading despite better-than-expected earnings and revenue. The company reported strong cloud system growth but was downgraded by Morgan Stanley analysts.
However, it hasn’t been all bad for pandemic plays. Etsy (ETSY) and DocuSign (DOCU) are up 100% and 30% for the year respectively. Etsy announced better-than-expected earnings after the close on Wednesday, prompting a 13% rally in after-hours trading. The peer-to-peer selling platform looks to be a holiday alternative because users locally source their supplies and are less reliant on overseas shipping.
DocuSign isn’t scheduled to announce earnings until December, but the company continues to alter the way business is done. Recently, the company announced a partnership with Salesforce.com (CRM) to enable contract collaborations through its soon-to-be-acquired Slack (WORK) platform.
As peer-to-peer becomes face-to-face, many of these platforms will need to find new ways to appeal to customers.
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