Market Overview

11 November 2020

Boeing Is Soaring As IT-sector Losing Ground

The "wait and see" mood is once again prevailing on global markets today as Mike Pompeo, the U.S. Secretary of State and a former director of the Central Intelligence Agency (CIA), remarked on Tuesday: "There will be a smooth transition to a second Trump administration". Mr Pompeo told this when answering a question of one journalist, when the transition of power procedures may start and about contacts with Biden's team on this point, the talk suddenly took place at a regular press conference on the routine foreign affairs agenda.

Some European leaders have congratulated Joe Biden already, but domestic American laws are prescribing more complicated regulations, which includes voting of the Electoral College in the middle of December, with the particular numbers of representatives from each state. All of that may start only after issuing the judicial orders on the lawsuits of the sitting President Trump's election campaign on alleged violations with mail-in ballots count and "stolen election" claims.

Regardless of who will reside at the Oval Office of the White House, a fog of uncertainty remains for the two estimated positions in Senate for Republicans in U.S. Georgia state, these seats are also contested, and therefore the stock markets have doubts whether they made the proper bets on a split of Congress even in case of a Democratic presidency. Deadlocking any presidential legislation on corporate tax raising by the Senate seems to be one of the main hopes of a broad market community.

The positive drive from Monday's news on appearing a very effective anti-COVID 19 vaccine from Pfizer remains in the intellectual "piggy bank" of Wall Street but the direct upside momentum is fading. On Tuesday and Wednesday the U.S. major S&P 500 index and high tech Nasdaq futures were trading mixed, as declining IT-sector put pressure on both indexes. "A rotation theme remains evident in equity markets," said National Australia Bank strategist Rodrigo Catril in a note. "Big tech, which has benefited from our virus-driven change in behaviour, is now falling out of favour while small-cap stocks and those that have been most affected by social distancing restrictions have outperformed."

Boeing shares soared as much as 19,6% since last week's close following not only a possible revitalization of the tourism industry and private travelling but also reports that gave some details how the troubled 737 Max has entered the final review stage with the U.S. Federal Aviation Administration (FAA) in evaluating proposed changes to the aircraft. As many as three sources, familiar with the matter, told Reuters the FAA could lift a grounding order on the 737 Max as early as November 18. "We expect that this process will be finished in the coming days, once the agency is satisfied that Boeing has addressed the safety issues that played a role in the tragic loss of 346 lives aboard Lion Air Flight 610 and Ethiopian Airlines Flight 302," FAA Administrator Steve Dickson told FOX Business in a statement. "The FAA continues to engage with aviation authorities around the world as they prepare to validate our certification decision. Even though we are near the finish line, I will lift the grounding order only after our safety experts are satisfied that the aircraft meets certification standards," he added.

"Even before the Max can return to the skies, airlines must update the software on each plane, and pilots must complete retraining classes - both could be upwards of 30 days or more," ZeroHedge.com wrote. Reuters’ sources remarked Southwest Airlines, the largest 737 Max operator, said it would take months to comply with new FAA requirements upon Max's de-grounding order, so the carrier expects to schedule Max flights as early as 2Q21. Max groundings have been in effect for more than 1.5 years, and the company sustains tremendous financial damage, along with a pressure from the pandemic this year, with no new civil demand. 

A confident bearing of multinational retailers such as Wal-Mart, Target or Starbucks, which have been trading clearly better than the market in recent days, has been mentioned more than once. At the same moment, for example, Netflix price lost almost 7% since the start of the week as the earnings of stream media providers are not suffering yet but some investors may decrease their expectations for the next year income in the scenario when more off-line human activities would be possible. Amazon.com Inc was also suppressed after European regulators filed an antitrust suit against the online retailing giant, so that its shares met the largest two-day drop since March, relieved the shares price by 8.33%, but Amazon still has almost 65% gain since January.

Alibaba Group shares lost 8.26% only for one trading session at the New York Stock Exchange (NYSE) even before the largest Chinese online retailer launched its annual Singles’ Day shopping festival on Wednesday. This day of discounted products already prompted the sales exceeding CNY372 billion, or $56.27 billion according to the data at 12:30 am ET. The order rate also hit a record peak of 583,000 per second, the company said. Alibaba started the event earlier than usual this year, with two primary discount periods taking place from November 1 through November 3 and just on November 11. The representatives of the company said they are also calculating gross merchandise volume over the full 11-day period and not the usual 24-hour period, so that a great deal of market expectations could be already included in previous price movements. 

Chinese tech shares, including those of Alibaba, were falling down after the Communist Party unveiled draft regulations to root out monopolistic practices in the national internet industry. The State Administration for Market Regulation (SAMR), as the antitrust watchdog, is seeking feedback until the end of November on the regulations to curb any kind of anti-competitive behaviour, such as collusion on sharing consumer data, alliances that squeeze out smaller rivals and offering some services at below cost to eliminate competitors. The regulations could also require companies that operate a variable interest entity, used by virtually all major Chinese IT-companies to attract foreign investment and stock exchange lists overseas, to apply for specific operating approval. "I literally gasped when I first read these guidelines. The timing, on the eve of Singles’ Day, the forcefulness and the resolve to remake the tech giants is startling,” Joint-Win Partners securities attorney John Dong told Bloomberg.

And Facebook shares lost up to 9% at some dip point over a two-day period, and eventually closed Tuesday's trade with a result of -6.2% since the beginning of the week, while Bill Russo, a deputy communications director for Joe Biden's campaign, posted a series of tweets criticizing Facebook’s way of "handling of misinformation and calls for violence" related to the election. Russo specifically mentioned posts by Steve Bannon, a former advisor to Donald Trump, and the news outlet Bannon previously ran, Breitbart. CNBC commented that Facebook banned a network of pages linked to Bannon on Monday for “artificially boost[ing]” the number of people who would get to see their posts on the platform. A group originally called “Stop the Steal”, which amplified Trump’s claims about election fraud, was among the pages Facebook found to have violated its policies and removed. According to Russo, the ban action was made too late. The group had "already exposed thousands of users to the baseless theories and several more popped up after its removal," said Bill Russo.

Mr Russo also criticized Facebook for maintaining Bannon’s own page on its platform after Bannon called for the beheading of government infectious diseases-expert Dr. Anthony Fauci and Federal Bureau of Investigation Director Christopher Wray in a podcast. Twitter suspended the podcast from its platform and Google-owned YouTube also took down the episode, CNBC official site elaborated. Mr Russo contrasted Facebook’s approach with Twitter’s, which has more aggressive policies for labelling any "potentially misleading" information. He claimed while Twitter "prevented election misinformation from Trump from being spread widely, Facebook continued to actively promote the posts in feeds.”

"If you thought disinformation on Facebook was a problem during our election, just wait until you see how it is shredding the fabric of our democracy in the days after”, that was in one of Bill Russo tweets, and his approach to the liberty of speech or freedom of discussion seems to be quite different from the views of European philosophers as Bill Russo's almost namesake Jean-Jacques Rousseau or Voltaire who once said: “I disagree with what you say, but I will defend to the death your right to say it”. "The criticism [against Facebook] could be an early indication of ... Joe Biden’s approach to the social media platform and potentially the tech industry at-large. Biden has given few hints about how he would handle the laundry list of concerns around the tech industry, which span from content moderation to antitrust issues," Lauren Feiner wrote at CNBC.

Facebook has already been under investigation by the Federal Trade Commission and a coalition of states over antitrust concerns for well over a year. The paradox is that Donald Trump has also railed several times against Twitter and Facebook, as well as other social media networks, claiming they have not treated him fairly. Right now Nathan Simington, a senior Trump administration official, is nominated to a seat on the Federal Communications Commission (FCC) but Democratic representatives signalled they would block the nomination unless Mr Simington agreed not to take part in an effort to impose new regulations on social media companies. FCC Chairman Ajit Pai said in October that he would move to set new rules to define protections for social media firms under Section 230, a provision of the 1996 Communications Decency Act that shields social media companies from liability for content posted by their users and allows them to remove lawful but objectionable posts. For many months each of the big and famous social networks like Twitter or even Facebook may feel itself as a pig in the middle, or just between a rock and hard place, and this kind of situation may also disturb the holders of their shares to a certain degree.


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Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.


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