The Threecap
Three things to recap this past week.
Record-Setting Week
The S&P 500 and NASDAQ reached record highs this past week. The S&P 500 and the NASDAQ are up 0.72% and 2.65%, respectively, for this past week. What’s particularly incredible about this record is that the S&P 500, now at 3,397.16, is higher than its pre-corona February high. However, the 50+% gain in the S&P 500 has been uneven — 38% of the S&P 500’s stocks are higher while 62% are lower. The lion’s share of these stocks that are up is concentrated in the consumer staples, healthcare, and tech industries. Today’s market reminds me of a sports team where there are only a few star players and the rest of the team is poor. That team can go on to win games, but only because of the contributions of the few star players who can make a difference. There are also cases when even the star power of those few players are ultimately canceled out by the poor performers. In our case, the best player on the team is the tech sector, and the team is on a roll. The analogy isn’t perfect, but it makes enough sense to begin to understand why the stock market’s gains are so disproportionate. Hopefully, this team can last long enough to win a championship, train its underperforming players, and not flame out.
Additionally, if the stock market right now is a sports team, then the only team it could be is the 1990s Chicago Bulls (of course). The S&P 500’s recovery from the bottom reached on March 23rd to the new high reached this past week lasted about 5 months. That makes it the 3rd fastest recovery in history. Historically, the market takes, on average, 4.5 years to recover losses from a bear market. And if this market is the 90s Chicago Bulls, then Apple is our Michael Jordan. Apple also reached a new record, becoming the first US company to cross $2 trillion in market cap. It was up 5.15% on Friday and 8.2% for the week with its market cap sitting at $2.13 trillion. Apple recently announced it would do a stock split which has incentivized more people to buy into it as its stock price will cheapen. Apple is responsible for the majority of the S&P 500’s and Dow Jones’s Index’s gains during this crisis, fueled by investors who like its strong performance during the crisis and who really now love tech stocks.
Overall, this was a historic week for the stock market, and especially the tech sector.
COVID-19 Update
The coronavirus pandemic still continues. It’s been about 8 months since the first case of coronavirus was diagnosed in the US. According to the CDC, there are currently over 5.6 million cases in the US and more than 175,000 deaths. Just this past week, there were 303,580 new cases in the US. The hardest-hit states continue to be Texas, California, and Florida. For some context, those three states make up about 27% of the entire US population. Yet, they account for more than 32% of cases in the US and accounted for 38% of the gain cases this past week. In Texas, there were 44,000 new cases in just this past week. In Florida, there were close to 28,000 new cases this past week. And in California, there were about 43,000 new cases this past week. Additionally, California experienced some unfortunate weather — a record-breaking heatwave coupled with a dry lightning storm in the Bay Area — that sparked dozens of wildfires. The largest fires are the SLU and LNU Lightning Complexes, which have both burned through 680k acres. The SLU fire is only 10% contained while the LNU fire is 17% contained.
The economic impact of the pandemic is still being felt, as more than 1.1 million people filed for unemployment benefits the week ending August 15th. The effect is still being felt most disproportionately by small businesses. Previously, those who were unemployed were being supported by federal payments of $600 per week. But those benefits ended on July 31st. Congress is now trying to decide how to continue assistance to those who are unemployed. Essentially, it’s a classic Washington story — Democrats want to continue the previous $600 a week assistance while Republicans want a smaller amount of benefits, meaning a cheaper plan to fund. We’ll see what they decide this week.
Tech IPOs and Lawsuits
Beyond Apple’s record week, a couple of other interesting developments in the tech world occurred. Firstly, AirBnB, the popular online rental marketplace, filed for an IPO this past Wednesday. AirBnB was making plans last year to go public in June last year, but it seems like they canceled those plans. This IPO comes at a time when the travel industry is facing huge losses due to the pandemic. In fact, it’s estimated that the travel industry has faced $330 billion in lost revenues since March. AirBnB recently banned house parties and put a cap of 16 guests on any listed house in order to follow recommended health policies. AirBnB hasn’t given any information about the IPO yet, but if it happens, then the public markets could provide AirBnB with some much-needed funding to help them get through the rest of the pandemic.
The more interesting tech development, in my opinion, is the TikTok saga. The story is that on August 6th, President Trump issued an executive order that essentially gave TikTok two options: get bought by a US company or get banned in the US. Because TikTok is owned by Chinese tech company ByteDance, there are concerns about the Chinese government having access to user data on TikTok. It’s no secret that of TikTok’s 100 million or so users, many are young Gen Z Americans. Trump’s executive order claims that because of the Chinese government and its ability to access and influence Chinese companies, TikTok poses a security threat. However, TikTok is preparing to file a lawsuit against the Trump administration claiming that the administration failed to follow due process. Several companies have popped up as potential buyers of TikTok’s US operations, including Microsoft, Twitter, and Oracle. These conflicts are just the most recent in an ongoing tension between the US and Chinese governments on issues regarding tech, data privacy, and corporate influences across the Pacific.
Weekly Stocks to Watch
This week our writer Evan Thomas focuses on index exchange-traded funds (ETFs). Having previously covered growth ETFs, Evan now analyzes various index ETFs, which differ in that they track an underlying stock index such as the S&P 500 or NASDAQ-100. Index ETFs are commonly seen in both expert and beginner portfolios due to their high ability to be bought and sold quickly and being subjected to market risk as opposed to individual stock risk.
Recent Articles
Tesla And The Future Of Electric Vehicles
Tesla has been leading the global change from combustion-engine vehicles to electric vehicles (EV) and increasingly become one of the most well-known companies in the automotive and technology industry. Arvind Mahadevan analyzes how Tesla has been able to dominate EV technology and the company’s future, considering the competition that Tesla will soon face.
M&A Activity during COVID-19
The COVID-19 pandemic has principally altered the condition of the United States economy, prompting a significant deviation from the typical amount of business activity seen in the past few years. Andrew Shutts covers how many companies have attempted to pivot to recent events through mergers and acquisitions — transactions where a company’s ownership changes or transfers to another business.
Upcoming Podcast
Releasing on Wednesday, August 26th, 2020
Latest Podcast
In this episode, Rohan Gupta and Cassandra Ying speak with William “Sandy” Darity Jr. of Duke University about racial economic inequality. They delve into topics like the history of discrimination, present economic inequalities, reparations as a solution, much more!
Concept of the Week
Fractional Shares
Many brokerages offer investors a feature known as fractional shares, which bascially gives investors the opportunity to buy or sell portions of a stock’s share without purchasing or selling an entire share of a company.
Some of the advantages include:
Allows for the investing and trading of higher-priced stocks.
Ability to automate Dividend Reinvestment Program (DRIP)
Provides beginner investors with more investment options.
Team Member Showcase
Alex Patel
Co-Founder & Managing Editor
Management Science & Engineering Major at Stanford University
Daily Routine: My days are usually spent working on projects such as StreetFins, researching markets, reading, hanging out with friends, and playing golf and tennis.
Why you started StreetFins: I joined StreetFins as a Co-founder in June of this year. I had initially started the Financial Literacy Journal, which was aimed at increasing student financial literacy. I met Rohan earlier this year, and we came to the conclusion that merging our publications would help spread our message more effectively. In short, the current lack of emphasis on financial education both nationally and globally is a problem and will cause many problems down the road if not addressed. One of my biggest passions is teaching others about finance, so I'm thrilled to be filling in the financial literacy gap with StreetFins.