US Close – Reality Check Tuesday, Apple delivers, Earnings, Vaccine and antibody doubts, Stimulus, Big-Tech Events, Oil rises, Gold slumps

Tuesday’s reality check quickly settled in after a setback with both J&J’s COVID-19 vaccine trial and Eli Lilly’s antibody trial, Apple investors took some risk off the table following Monday’s surge, and stimulus talks failed to break the impasse.  The US stock market stimulus gas tank is running empty.  The stalemate over fiscal support is being met with too much political posturing now that the election is three weeks away.  The need for more fiscal support is there: supplemental unemployment insurance benefits expired in July, the paycheck protection program for small businesses is gone, and the majority of stimulus checks were given in April and May.

President Trump wants more stimulus than either side wants, Republicans disapprove of large-scale aid, and Democrats have a flurry of objections, but mainly do not want to give the President any momentum before voters head to the polls.

Apple

Following Monday’s heavy buying, Apple’s stock was perfectly set up for a “buy the rumor/sell the event” reaction.  The most important Apple event in many years went as planned, with the launch of iPhone 12 with 5G capabilities.  The new A14 ionic chip will be the fastest smartphone chip, roughly 50% quicker.  The A14 chip is made with 5 nanometer production and delivers up to 11.8 billion transistors.

Apple announced the Lidar scanner on iPhone 12, which will improve accuracy and focus in low lighting settings. Wireless charging improvements and a new dual camera system were some of the key highlights.  Video recording just got a lot better and this will likely entice people to upgrade their phones.

Pricing of the phones went as expected, with the iPhone 12 max starting at $1,099.  Apple’s offering has phones starting as low as $399 with iPhone SE.  The new iPhone 12 pricing begins at $699, and the iPhone 12 Pro at $999.

Apple shares remained near session lows after no big surprises were announced.  Investors should have seen that coming after the September 15th event unveiled Apple One service bundles, the new iPad Air, the 8th-generation iPad, Apple Watch SE, and launched iOS 14.  The bar is high for Apple, so some might be disappointed with the event, but it doesn’t change the bull-case for Apple over the next couple of years.  Apple’s 5G phone announcement was good enough to keep analysts with aggressive multi-year bullish calls.

JNJ

Johnson & Johnson became the second manufacturer to pause their COVID-19 vaccine trial due to an unexplained illness in a study participant.  AstraZeneca was the first manufacturer to halt their vaccine trial but have resumed everywhere except the US.  Many health experts were hoping J&J’s vaccine would win the race since it has easier storing requirements and requires only one dose.

The northern hemisphere is seeing infections rise before we enter the peak of flu season.  Colder weather is coming, which means more people indoors could mean cases are rising higher before we see a surge.

US hopes for a quick vaccine are now down to Pfizer and Moderna.  Health experts are still confident vaccines are coming, but setbacks with coronavirus vaccine trials from AstraZeneca and now J&J will push back expectations on when economic activity will come close to returning to pre-pandemic behavior.

Amazon

Amazon Prime Day will pull forward many holiday sales.  Amazon is trying to sell as many products early in the fourth quarter to free up inventory space for Black Friday and Cyber Monday.  Amazon’s logistics during COVID saw difficulty fulfilling orders which forced many customers to go to many competitors.  It is hard to imagine a scenario that does not see Amazon hit a home-run with Prime Day.

Earnings

Blackrock Inc. crushed earnings.  Strong revenue and earnings beats, record assets under management, and a diverse platform helped Blackrock deliver the strongest earning results of the day.

JP Morgan posted impressive top and bottom line results after provision for credit losses improved from $10.5 billion to $611 million.  Net interest income fell 9% year-over-year and equity and fixed income trading posted strong results.

J&J also posted strong earnings, but today’s price action was all about the pausing of their vaccine trial.

Data

US small business optimism improved better-than-expected in September, but the uncertainty index jumped to a three-year high.

Any fears of inflation were put to rest after US consumer prices in September increased at the slowest pace in four months.  Overall prices eased, with rent inflation in freefall and as used-car prices continue to rise.  The Fed can continue their ultra-accommodative stance with no worries as inflation does not seem to be happening anytime soon.

Oil

Crude prices shrugged off a stronger dollar and climbed higher after Chinese oil purchases rose for the first time in three months.  China remains the template for economic activity post-COVID for the rest of the world.  Recent Chinese data suggests oil demand is almost at pre-pandemic levels and that should help thwart the growing demand pessimism with the virus spread with the rest of the world.  The last couple of weeks have been nothing but bad news for crude demand given the virus surges across the northern hemisphere.

OPEC + is not messing around this time as the Saudis and Russians seem to be on the same page.  Russian President Putin and the Saudi Crown Prince spoke on the phone today and are showing a united stance in upholding the OPEC+ production agreement and subtly reminding investors they will keep oil prices firm.

Gold

Gold prices slumped after the dollar got its groove back tentatively as Europe battles a second virus wave, Brexit concerns return, and as the ECB ponders action at the October 28-29th meeting.  Gold has struggled after several weeks of US fiscal stimulus talks have yielded nothing.  Gold is seeing a trifecta of bearish drivers right now:  A stronger dollar thanks to a worse virus situation in Europe (US seeing a clear trend higher, while European cases rise dramatically), the fiscal stimulus stalemate in the US will unlikely get resolved before the election, and safe-haven bets from election uncertainty have eased as Wall Street grows comfortable with a blue wave.

Gold might be in for a rough couple of days until the dollar rebound ends.  The path higher for gold is still there, more easing from the ECB, US fiscal support is only delayed, and the ‘Fed put’ will prevent the dollar from any serious rallies.  Gold will see massive support around the $1850 level.

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