U.S. GDP: Record Rise Follows Record Fall

Yesterday was “Super Thursday” for technology stocks as many of the world’s largest companies reported results.

As our economy shows tentative signs of improvement, Amazon, Apple, Alphabet and Facebook reported profits that highlighted one thing:  An economic recovery will only help them generate a level of wealth that hasn’t been seen in a single industry in generations.

Here is a brief scorecard of technology stocks:

Alphabet shares rose as earnings indicated a bounce back in the search business. Earnings per share of $16.40 beat the $11.29 expected, on revenues of $46.17 billion. Advertising revenue rose to $37.10 billion, compared to $33.80 billion in the year-earlier quarter. YouTube (+32%) was notably strong.

Amazon posted a blowout third quarter of revenue growth. And it’s poised to capitalize on a record Christmas shopping season. Net income rose to $6.3 billion vs $2.1 billion in the same quarter a year earlier. AWS net sales rose 29% to $11.1 billion. Shares are down.

Facebook shares fell as it posted a decline in North American users and signaled more uncertainty ahead. Revenue rose 22% to $21.47 billion, which beat expectations. Net income was up 29% to $7.85 billion. The shift offline to online among many businesses is a powerful tailwind for advertising earnings. But its shares were priced for lots of growth. So, the drop in core North American users is a concern.

Similarly, Twitter shares got whacked after hours as it, too, posted a disappointing user growth story. Revenues rose 14% to $936 million in the quarter. However, the one million gain in daily active users to 187 million was short of the 195 million expected.

Finally, Apple shares fell after hours as a 20% decline in iPhone revenues weighed on the stock. The lack of any guidance for 2021 was also taken as a negative. Mac and iPad sales rose strongly over the company’s fiscal fourth quarter. But it was not enough to offset the drop in iPhone sales. With the launch of the iPhone 12, the weakness in iPhones should prove fleeting. Earnings of $0.73 a share beat the $0.70 expected. Overall Apple revenues rose just one per cent.

Apple’s services business continues to do well, with revenues up 16.3% to $14.55 billion. Apple continues to be very vulnerable to geopolitical tensions between the U.S. and China.

The Big News

Schools Are NOT Covid Hotspots

Data gathered worldwide increasingly suggests that schools are not coronavirus hotspots. Covid-19 infections did not surge when schools and day-care centers reopened. And when outbreaks have occurred, only a small number of people have become ill. So, unless community transmission is high, schools should remain open, experts say.

The NBA Scores on the Coronavirus

NBA players have helped to provide details of SARS-CoV-2’s life cycle to scientists. When NBA games resumed in July, staff and athletes were regularly monitored using a highly sensitive test that can assess a person’s viral levels. Researchers found that two Covid tests given within two days can indicate whether a person’s viral level is rising or falling. That information is vital in doctors’ treatment decisions.  

Virus Spread on China Animal Farms

The raccoon dog is a canid indigenous to East Asia. Its closest relative is a fox.  Racoon dogs can be infected with SARS-CoV-2 and can spread it among themselves, says a recent study. The study findings suggest that SARS-CoV-2 could spread undetected in fur farms in China. More than 14 million raccoon dogs live in captivity there.   

Covid Clue – the Type of Cough

MIT researchers have found that people who are asymptomatic may differ from healthy individuals in the way that they cough. These differences cannot be detected by the human ear. However, they can be picked up by artificial intelligence. A paper published recently in the IEEE Journal of Engineering in Medicine and Biology explained how. Researchers reported on an AI model that distinguishes asymptomatic people from healthy individuals through forced-cough recordings.    

Taiwan’s Success

Taiwan has achieved a coronavirus record. It has gone 200 days without a locally transmitted case. This island nation of 23 million people did everything right. It closed borders early and tightly regulated travel. Other factors include rigorous contact tracing, technology-enforced quarantine and universal mask wearing. Taiwan’s past deadly experience with SARS has scared people into compliance. 

The Coronavirus Numbers

The U.S. recorded more than 89,000 new cases of coronavirus yesterday alone. That brings the overall total to nearly nine million cases. Here are the numbers from Friday at 8 a.m. ET from Johns Hopkins University:

  • 45,107,107 Infected Worldwide
  • 1,182,272 Deaths
  • 8,947,830 Infected in the U.S.
  • 228,675 Deaths in the U.S.

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What’s Next

Wall Street rallied yesterday as the bulls fell in love with technology stocks again. The S&P 500 index recovered the 3,300 level.

U.S. GDP rebounded a bit more than expected in the third quarter. The annualized 33.1% bounce in the third quarter masks the fact the economy is 15% smaller than it was before the pandemic hit.

The aforementioned Big Tech earnings beat expectations. Yet, shares of most of the technology stocks (except Alphabet) fell after hours.

This weighed on the futures, pointing to weakness to start the trading day, especially for the Nasdaq. It is these tech stocks that have powered the 25% gain in the Nasdaq in 2020.

Oil prices continued to tumble, hitting the lowest level since May. New coronavirus restrictions in Europe are bringing back bad memories of March and April when the industry was crippled by the pandemic.

Stocks around the world had a bad week. As of Friday morning, MSCI’s broad gauge of stocks in developed and emerging markets around the world shed 4.5% this week. This is the heaviest sell-off since concerns about coronavirus gripped markets in March.

This spell of market weakness will likely continue at least until the current exponential rise in the virus spread in Europe and the U.S. slows down.

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Yours in Health & Wealth,

Tony Daltorio

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