Jerome Powell’s commitments to the market
Source: Yuri Gripas / Reuters file
Remember when the 10-year U.S. Treasury note yield surpassed 1.5% back in late February? It caused panic and the selling of many stocks. Though this increase was unsettling, it only lasted a short time before the market started back on its bullish tracks. If you’re only beginning to study the markets you may not understand why rising yields are such a big deal to many investors. Well, for one, treasury yields are often used to help people value investments. Investors use these yields as their risk-free rate, meaning there is minimal risk when lending your money to the government, so when investing in a business, you’d expect more risk and higher yields. If treasury yields increase so much, the value of stocks declines drastically. This is what happened in late February when many investors liquidated their positions and purchased treasury notes. A lot more goes into it, but I like to picture the 10-year yield and the value of a stock on a teeter-totter. When one is up, the other is down.
Since the panic selling ended in March, the high valuations of companies have continued, and the yield has steadily increased to 1.7%. The 16th chair of the Federal Reserve, Jerome Powell, has gained the trust of many investors with his optimistic outlook. In his latest conference, he said that the increase in treasury yields is not permanent and will likely decrease over time. Powell also addressed fears of tapering, rescinding a quantitative easing program, and claiming the economy has much more room to run before they would need to intervene. For many investors, this is precisely the news they wanted from Powell. This gives many the confidence to stay in the market for the long term as it sees support from the federal reserve. For others, they believe this is merely a scheme being played to settle fears of increasing inflation. People who believe this point to the months coming to see how Powell will address inflation metrics then. Whether you believe Powell or not, his job is to support the U.S. economy, and the decisions he makes as we come out of this pandemic will be crucial.
Corporate earnings reports in full effect
Source: Electronicproducts.com
This was a huge week for corporate earnings. We had a good amount of winners and losers this week. Alphabet Inc. ($GOOGL), Apple Inc. ($APPL), and Shopify Inc. ($SHOP) are some of the more successful companies that reported this week. Alphabet, which is the parent company of Google, reported record-breaking numbers. Their revenue grew 34% from this same quarter last year, and ad sales increased by 32%. The company also announced a $50 billion plan to buy back shares. Apple also announced a plan to buy pack shares issuing $90 billion to that effort. Along with this, they increased their dividend payments by 7% to $0.22 per share. Revenue for the company was up 53.7% year-over-year to $89.58 billion, and EPS increased to $1.40. Shopify realized a 10% boost in their stock price on Wednesday as they beat analyst estimates for their quarter. Comparing this quarter to the same one of last year, $SHOP revenue grew 110% to $988.6 million. Subscription revenue grew 71% to $320.7 million, which is impressive considering the trend many companies are seeing in new users. Spotify Technology ($SPOT) and Pinterest Inc. ($PINS) are two companies that issued earnings this week, which both reported slowing user increase. Spotify saw a rise in users, up 24% year-over-year, but noted that this was slowing, and many experts expected more. This was the same story for Pinterest as their stock dropped 15% on the news that they added fewer users than expected.
UFC parent company Endeavor fairs well on their first day of trading
Source: Jasen Vinlove USA Today Sports
Endeavor Content ($EDR) is a media holding company representing artists across Hollywood and athletes in the NFL and NHL. Some of their biggest holdings are the Ultimate Fighting Championship (UFC) and Miss Universe. If you were wondering, I am a huge UFC fan, so I definitely took this as an excuse to showcase one of my favorite fighters of all time in the image above. Back to the story, this is the second attempt to go public. In 2019 the group filed to be listed and was set to debut on September 27th, 2019, but one day prior, they backed out of the IPO. Part of the reasoning was tied to the underperformance of other IPO’s in that time and lawsuits tied to the UFC. At that time there listing would have valued them at $7.6 billion while revenue $3.61 billion. On April 29th, 2020, Endeavor began trading under the ticker symbol EDR. Their listing started at $24.00 per share, which valued the company at $10 billion. With good timing, the group capitalized on $2.6 billion in their valuation in less than 2 years. According to their S-1 form filed with the SEC, revenue went from $3.61 billion in 2018 to $4.57 billion in 2019 before dropping to $3.48 billion in 2020. The drop in revenue makes sense as a talent and sports agency relies heavily on crowds, but their losses more than doubled from 2018 to 2020, and debts grew to $5.7 billion. In the S-1 form, they state, “If we cannot generate sufficient cash flow from operations to service this debt, we may need to refinance this debt, dispose of assets, or issue equity to obtain necessary funds.” Despite this, their stock did fairly well, opening at $24.00 and closing at $25.20. It’s no doubt that the pandemic had a considerable impact on the company, and they’re looking to have a turnaround year in 2021 as the UFC is already hosting full capacity crowds once again.
Reddit forum Wall Street Bets seeks a new target, but could the rally already be over
Source: Brent Lewin Bloomberg News
Microvision ($MVIS) has taken over as the leading discussion on the popular Reddit forum Wall Street Bets. The laser scanning lidar company has been on an absolute hot streak before this week. They started as a penny stock and hit a high of about $28 earlier this week. With many Reddit analysts expecting extraordinary results on Thursday, discussion topped that of GameStop ($GME). After earnings came out, the stock plummeted. It ended extended hours trading at $14.19 while short interest increased to 31.4 million shares from 28.3 million. Value investors wouldn’t even give this stock a second look, but Reddit is excited about these results and have their eyes on an acquisition. MVIS was previously in negotiation to be bought out by Microsoft, but the deal didn’t go through. Sumit Sharma, Chief Executive Officer, stated, “we believe the company is in a strong financial position which enhances our ability to negotiate with potential strategic partners.” This is where Reddit gets really excited as they believe Sharma is setting the company up for an acquisition. This may be true as their cash increased from $16.9 million at the end of 2020’s fourth quarter to $75.3 million ending quarter one of 2021. If Wall Street Bets is correct, this will add another layer on top of their GameStop saga.
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