Market Overview

3 februarie 2021

Can Amazon and Google Cocktail Catalyse Markets?

While the cool down of volatility on the part of flash mob retail traders from Reddit's WallStreetBets during this week raised the confidence of many market participants that the situation could become more stable, there was a lack of fresh and clear drivers.

One of the drivers could be the particular statistical fact cited by Bloomberg that the number of Americans who received at least one dose of the vaccine is now more than 26.5 million, which exceeded the 26.3 million who have been diagnosed with the disease so far. This is a sign that the United States is making faster progress in the severe battle against the coronavirus. Although the pace of vaccinations in European countries is rather slow, as less than 5% of the population has received a shot of any vaccine producer in each of the continental countries, the good news from the US improves the general outlook for the world economy, which looks set to recover in the foreseeable future.

The stock market sentiment could also be boosted by announcements that Democrats in the US Congress have taken their first steps to agree on a $1.9 trillion stimulus plan without Republican support. At the end of last week, a group of ten Senate Republicans proposed a much smaller $600 billion package, trying to exclude such "a pig in a poke" items of cost as $350 billion of "aid to state and local governments", $130 billion package to help reopen schools, $35 billion for higher education measures plus additional unemployment benefits of $400 per person instead of the current benefits of $300. The Republicans are now a minority in Congress, and they also insisted on less direct payments per person, and that payments should be targeted at people who earn less than $50,000 per year, or families that earn less than $100,000.

Discrepancies of the two parties are also embracing the areas of small business where Democrats want $15 billion in grants and $35 billion in low-interest loans as Republicans are ready to give the enterprises only $50 billion of loans, rental assistance program to extend a foreclosure moratorium until September 30 and provide an additional $30 billion in rental and utility-bill aid; $5 billion in housing for the homeless, as Republicans just say "no". Among Joe Biden's promises after inauguration were also to raise the minimum wage to $15 per hour in all states, to give $20 billion for veterans' health and health-insurance subsidies, $20 billion for public transit, $20 billion for American Indian tribes, $10 billion for cyber defence programs, $4 billion for mental health and substance abuse services, but only the latter point has been agreed on with the Republican side for now.

Biden's plan would also require companies and the federal government to offer paid leave for workers concerned about the coronavirus and cover the cost for small and medium-sized businesses. His party also presented a plan to expand tax credits to help families cover up to $3,600 in child-care costs, at a cost of $120 billion; provide $25 billion for child care providers and $15 billion in block grants, as the Republican’s plan provided only $20 billion in block grants. As seen from these examples, the democratic camp offered much higher costs to the debt-burdened budget, which may further encourage the markets , however. As well as the willingness of the Democrats to adopt the plan on their own, and not to coordinate it for weeks with their opponents, an effective result has not yet been reached.

The activity of some hedge funds and ordinary private investors in replenishing their portfolios with rather cheaper stocks has already increased slightly against this background. For example, many shares of the U.S. banking sector rose again on Wednesday, in the range of 1.5% to 4.5%, including Bank of America (BAC), Citigroup (C), Morgan Stanley (MS) and Goldman Sachs (GS). Shares of Disney (DIS) rose again from the recent $162 to $177 preparing of a probable bright Q4 financial report on February 11. The first signs of recovery also appeared in Netflix (NFLX) shares, which jumped almost 18% after the streaming service's financial report was released, but then fell almost to their previous position last week on profit taking and general volatility of the broad market.

However, this recovering puzzle clearly needed some more crucial pieces to fall into place, and the last reports of Google (GOOG) and Amazon (AMZN) giants after the market close on Tuesday were maybe just the proper ones. Google shares were up 9.5% this year already, and they rose another 6.95% to the stratospheric $2,053.75 per share at pre-market today. Google's parent Alphabet Inc beat main fourth-quarter sales expectations after advertising customers had not scrimped on budgets for the holidays. Google's advertising business, including YouTube revenues, accounted for 81% of $56.898 sales, which rose 23% compared with a year ago. All budget cuts by travel or entertainment advertisers during the pandemic were made up for by new spending from retail and other clients driven online by the circumstances. The quarterly profit of Google rose 43% to $15.2 billion, or $22.30 per share, that is exceeded by almost half compared with the average estimate of $10.895 billion, or $15.95 per share.

The only formal weakness in the report was that the full-year Cloud operating loss widened 21% to $5.6 billion. However, all the costs look like a reasonable price to pay for a multiple expansion of the number of advertisers, since Google has become more than ever before, a business to promote other companies' businesses, and therefore get even more income from the scaling of the business process. Also some "fair trick" was that before sharing Cloud costs and operating income, Google started disclosing Cloud and YouTube advertising sales. In spite of some analyst's concern about potential revisions to content moderation laws under Joe Biden's administration and the ongoing criticism about Google's "underperformance" in hiring and retaining women and racial minorities, antitrust investigations, and charges that the company is facing in different parts of the globe, the giant company continues to generate more money, and the new historical height of Google's "business consisting of businesses" shares may also inspire the invest community to widen their portfolios.

About the same could be reasonably said on the effect of a fresh jump in the price of shares of the retail giant Amazon (AMZN), to the level of $3400 on the pre-market today so far. Experts from different funds and banks like Morgan Stanley or Goldman Sachs have already moved their target levels for Amazon up to $3,700 or even $3,800 for the horizon of 2021. Amazon beat average estimates for holiday-quarter sales, with all-time historical records of $14.09 per share in profit on revenue of $125.56 billion. The previous record in Q3 2020 was "only" $12.37 of equity per share on $96.15 billion of revenue. Preliminary average estimates on Bloomberg for Q4 were only $7.16 per share on revenue of $119.68 billion.

It also greatly reconciled shareholders over concerns about "too much" spending. Amazon was spending billions of dollars on employee safety and to hire additional workers, increasing their salaries, to conduct medical tests for employees and to improve delivery times. The e-commerce giant reported in October that it employed more than one million workers of new personnel, with 1,125,300 full and part-time workers at the end of the quarter, up 50% from a year ago. But the costs incurred during the pandemic are paying off handsomely. Amazon’s shares have a chance to set the tone for the rest of the market, as the company promotes products from a huge number of manufacturers, and Amazon's results say a lot about the pace of recovery in effective demand.


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