After waiting on edge through nearly four full days of vote counting, America received its answer on who would be sworn in as president come January.
This week, Wall Street is set to weigh the market implications of President-elect Joe Biden’s incoming administration. His presidency, alongside Vice President-elect Kamala Harris, is set to usher in a push for bigger fiscal stimulus, a public option in health care, investment in sustainability, and a more measured approach to foreign policy and trade, among other key issues.
Elected in the midst of a crisis, Biden is also set to strike a more serious tone on combatting the coronavirus pandemic, with the outbreak having already taken the lives of more than 230,000 Americans, sickened more than 9.8 million and dragged U.S. economic activity to a historic nadir. Biden is set to announce a new 12-person coronavirus task force on Monday, as one of his first major acts during his presidential transition, according to reports from Axios and CNN.
“Joe Biden has won the contest for the White House – an outcome that signifies a return to a near-term market environment dominated by low rates, a hunt for yield and growth stocks,” analysts from the BlackRock Investment Institute said in a note Saturday. “A Democratic sweep – with Democrats also seizing control of the U.S. Senate – looks unlikely, although a runoff election for two Georgia Senate seats in January keeps the race alive.”
“A divided government would constrain the Biden administration’s ability to implement plans for large-scale fiscal stimulus and public investment, tax, health care and climate related legislation,” they added. “We see an increased focus on sustainability under a divided government, but through regulatory actions, rather than via tax policy or spending on green infrastructure. It also would likely signify a return to more predictable trade and foreign policy – even as U.S.-China rivalry is set to stay elevated due to bipartisan support for a more competitive stance.”
Other analysts have been even more doubting of Biden’s ability to advance many of his bigger campaign promises in the face of a divided government.
“Much of President-elect Joe Biden’s agenda will be dead on arrival with the Republicans maintaining control of the Senate,” Paul Ashworth, Capital Economics chief North American economist, said in a note Saturday. “But there is still a chance of more fiscal stimulus being passed, albeit probably not until after Biden takes office on Jan. 20.”
Meanwhile, President Donald Trump has still refused to concede. His campaign has filed at least a half-dozen lawsuits in battleground states including Michigan, Georgia, Nevada and Pennsylvania, claiming without evidence that many ballots in these and other states were in question. Two of Trump’s lawsuits have already been dismissed in Michigan and Georgia, and a number of analysts have mostly shrugged off any near-term risks Trump’s legal challenges may confer.
“Risks to the outcome appear remote, and we prefer to look through any market volatility that legal challenges by President Trump may bring,” the BlackRock analysts said.
Nikola, Disney, Palantir earnings
Another batch of corporate earnings results are slated for release throughout the week, with companies from Canadian cannabis stocks like Aurora Cannabis (ACB) and Canopy Growth Corporation (CGC), to blue-chip corporations including Disney (DIS) each poised to report quarterly results. A number of newly public companies including Nikola (NKLA), Lemonade (LMND) and Palantir (PLTR) are also set to report.
As of Friday, about 89% of S&P 500 companies had already reported third-quarter earnings results. Of these, 86% of them reported a positive earnings per share surprise, according to FactSet. If this proportion carries through the remainder of earnings season, it will mark the highest percentage of upside earnings surprises for S&P 500 companies since FactSet began tracking the measure in 2008.
Nikola has a lot to prove to Wall Street in its third-quarter results. In September, the stock suffered a major blow after short-seller Hindenburg Research published a scathing report accusing the company and its founder, Trevor Milton, of fraud and misleading investors. Nikola has denied the fraud allegations, but Milton stepped down from his role as chairman and member of Nikola’s board shortly after the report was published. Shares of Nikola have tumbled nearly 50% since Hidenburg published its report Sept. 10.
A multi-billion dollar partnership with legacy automaker General Motors (GM) also hangs in balance. The two companies announced a $2 billion manufacturing and licensing agreement early in September, in which General Motors would help manufacture Nikola’s Badger electric truck for a stake in the newly public company. However, the deal was put on hold following the Hindenburg report, although GM CEO Mary Barra said in an interview on Bloomberg TV last week that talks between the two companies to close in on the partnership were still ongoing.
“All focus of the Street is centered around any updates on the GM partnership,” WedBush analyst Dan Ives said in a note last week. “With this linchpin EV [electric-vehicle] partnership/ownership stake thrown into uncertainty post the Trevor departure and short report, investors are hoping to get some update on the progress of signing the GM deal as we head into earnings.”
“With Nikola essentially a pre-revenue company at this point, its all about the management team laying out the execution, timetable, and build out strategy for its EV/Hydrogen fuel cell roadmap,” he added. “We believe at this point it’s all about regaining investor credibility one step at a time with next Monday another building block on that path, although clear challenges remain ahead for Nikola. Overall we still believe the company’s EV and hydrogen fuel cell ambitions are attainable in the semi-truck market, although we have serious concerns that the execution and timing of these ambitious goals stay on track over the coming years.”
Nikola, which has not yet sold a battery-electric truck, is expected to report an adjusted loss of 20 cents per share on revenue of $50,000 for the third quarter. Last quarter, all of Nikola’s revenue came from solar installation revenues for Trevor Milton.
Disney has been among the myriad companies hard-hit by the coronavirus pandemic, as stay-in-place orders and social distancing turned its once-lucrative theme parks business into a money-losing operation.
Disney’s theme parks are expected to return to a modest operating profit in the fiscal fourth-quarter, however, as most of the company’s theme parks (outside of those in California and in Paris) have reopened with some capacity constraints. Still, the company laid off 28,000 workers at the end of September primarily at its parks, as attendance remains below pre-pandemic levels. More job cuts across its studio entertainment division and ESPN are also forthcoming, according to Deadline.
Amid the struggles across many of its legacy businesses, Disney recently announced it planned to focus more heavily on building out its one-year-old streaming service, Disney+. As of August, Disney+ had about 60 million subscribers, versus Netflix’s (NFLX) nearly 200 million. AT&T’s (T) HBO and HBO Max services hit about 38 million subscribers at the end of September.
Under the pressure of activist investor Dan Loeb of Third Point Capital, Disney decided in October to reorganize its business to direct more funds to Disney+. That additional investment, however, is not expected to pay off immediately: Wall Street expects Disney’s direct-to-consumer and international business segment, which houses Disney+, to have lost another more than $1 billion in the fourth quarter.
Overall, Disney is expected to report a quarterly. adjusted loss of 72 cents per share on revenue of $14.2 billion, for a top-line drop of 26% over last year. Shares of Disney are down about 12% for the year-to-date, underperforming relative to the S&P 500’s 8.6% gain.
Newly public company Palantir is set to deliver its first-ever earnings report as a public company Thursday after market close. The Denver, Colorado-based big data company made its public debut via direct listing in September.
Despite having existed for nearly two decades and counted major government agencies including the Department of Defense as key customers, Palantir has had yet to report a profit. Ahead of its direct listing, Palantir said it expected to post non-GAAP operating income of between $60 million to $62 million for its fiscal third quarter, although this metric excludes stock-based compensation and other expenses related to its direct listing. It also said it expected revenue to come in at as much as $280 million for growth of 47% over last year.
For the first half of 2020, Palantir’s net loss was nearly $165 million, for an improvement from the $281 million it lost over the same period in 2019. But excluding stock-based compensation, its first-half 2020 net income was $17.2 million, it said.
Given Palantir’s work with the government, the company’s commentary around how the new administration might impact business is likely to be closely monitored in its earnings report and call on Thursday. On Friday, shares of Palantir spiked prices 16% for its best day since its direct listing. Bloomberg attributed this gain to speculation that a Biden victory would bring about smaller defense spending, putting Palantir in a position to benefit since its services are typically cheaper than competitors’ offerings.
Shares of Palantir have jumped 91% since its direct listing on Sept. 29.
Monday: McDonalds (MCD), Aurora Cannabis (ACB), NewAge Beverage (NBEV), Canopy Growth Corporation (CGC), Cars.com (CARS), Plug Power (PLUG) before market open; Occidental Petroleum (OXY), ZoomInfo Technologies (ZI), Nikola (NKLA), The RealReal (REAL), Beyond Meat (BYND), Novavax (NVAX), Norwegian Cruise Line Holdings (NCLH) after market close
Friday: DraftKings (DKNG) before market open
Tuesday: NFIB Small Business Optimism, October (104.5 expected, 104.0 in September)
Wednesday: MBA Mortgage Applications, week ended November 6 (3.8%)
Thursday: CPI month-over-month, October (0.2% expected, 0.2% in September); CPI excluding food and energy month-over-month, October (0.2% expected, 0.2% in September); CPI year-over-year, October (1.3% expected, 1.4% in September); CPI excluding food and energy year-over-year (1.7% expected, 1.7% in September); Initial jobless claims, week ended Nov. 7 (725,000 expected, 751,000 during prior week); Continuing jobless claims, week ended Oct. 31 (7.285 million expected); Real average weekly earnings year-over-year, October (4.1% in September); Real average hourly earnings year-over-year, October (3.3% in September); Monthly budget statement, October (-$124.6 billion in September)
Friday: PPI final demand month-over-month, October (0.2% expected, 0.4% in September); PPI excluding food and energy month-over-month, October (0.3% expected, 0.4% in September); PPI final demand year-over-year, October (0.4% expected, 0.4% in September); PPI excluding food and energy year-over-year, October (1.2% expected, 1.2% in September); University of Michigan Consumer Sentiment, November preliminary (82.0 expected, 81.9 in October)
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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