• York Investment & Finance

Global Markets Overview: North American markets rally

Updated: Sep 11, 2020

From 27 July to 10 August 2020

Over the last week, US equity markets have seen bullish sentiment amid earnings announcements (most notably Shopify and Apple) and further negotiations around a second economic stimulus package to help control the continued effects of Covid-19. The S&P 500, NASDAQ100 and the Dow Jones Industrial Average (DIJA) all ended the week higher at 2.35%, 4.18% and 1.99% respectively.

Apple earlier this week announced their Q3 earnings, becoming the most valuable publicly traded company, surpassing Saudi Aramco, a Saudi Arabian oil behemoth [1]. Released on Thursday last week, the company boasted a quarterly revenue of $59.7bn, an increase of 11% from Q3 2019 and a quarterly earnings per diluted share increase of 18% to $2.58 [2]. As a result, their share price increased by 15.7%, causing their market capitalization to hit $1.88tn. Apple also announced a four-for-one stock split, allowing their stock to become more accessible to a wider range of investors. Apple shareholders prior to August 24th, 2020 will receive three additional shares for every share held [3].

Shopify also announced outstanding Q2 earnings amid the Covid-19 pandemic, as shoppers turned to online shopping as high streets shut down. The Canadian eCommerce company’s revenues increased by 97% compared to the same period last year, boasting revenues of $714.3mn [4]. Another notable statistic was their Gross Merchandise Volume (GMV), a measure of the total spending through Shopify’s store network before fees and splits with store owners, which rose 119% year on year in the second quarter to $30.1bn [5]. Amy Shapero, Chief Financial Officer at Shopify, stated that “GMV growth overall was really driven by the sudden shift of consumer spend from offline to online”.

Stimulus discussions have been at the top of the agenda for the White House and Congress as they try to negotiate a second economic deal that will help support the nation amidst ever increasing Covid-19 cases and the ensuing impact on the economy. The first stimulus deal ran out on July 31st leaving over 25 million unemployed Americans without benefits which were worth $600 a week [6]. Economists have warned that unless a deal is reached on unemployment benefits, there could be further job losses as businesses are hit with a fall in consumer spending.  Areas of the deal have already been agreed between both sides of Congress, including a $1200 direct payment to US individuals to help incentivise spending and reinvestment back into the economy. A major point of disagreement has been whether the deal should either shield businesses from liability for Covid-19 infections, a Republican backed initiative, versus a Democrat backed initiative of providing financial help for local and state Governments [7]. It is said that an agreement over terms will be achieved next week yet officials have stated to the press that a deal is still “far away” [8]. Markets have either priced in future stimuli or ignored the current affairs as there is still strong bullish sentiment amongst all of this.

ByteDance, owner of the popular app TikTok has faced strong words from President Trump earlier last week as he vowed to ban the app in the US as a result of a potential security issue. Earlier in the week, he said that a sale to any party wouldn’t be an acceptable solution [9], however, his opinion has changed and now Microsoft looks set to take over the development of the American development of the app. It is thought that the acquisition is favourable for Trump if Microsoft takeover as it stands to bolster US national security and benefit another American company [10]. In the past, Microsoft has had involvement with Chinese security and surveillance as Bing still survives in China, whilst it is speculated that the CCP (Chinese Communist Party) listens to Skype calls. When the deal was announced, Microsoft added as much as $80bn to its market value. TikTok was reported by Reuters to have been bought for $50bn meaning that Microsoft has got a fantastic deal for the app, if it can stay afloat in the country.

By Hal Bartlett - Analyst at York IFS Global Market Telegraph

This article was first published in University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 4.1 in early August 2020.

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Reference List

[1]. https://www.cnbc.com/2020/07/31/apple-surpasses-saudi-aramco-to-become-worlds-most-valuable-company.html

[2]. https://www.apple.com/newsroom/2020/07/apple-reports-third-quarter-results/

[3]. https://www.apple.com/newsroom/2020/07/apple-reports-third-quarter-results/

[4]. https://www.businesswire.com/news/home/20200729005239/en/Shopify-Announces-Second-Quarter-2020-Financial-Results

[5]. https://www.ft.com/content/f62d84fd-895a-4474-acb4-389d88bb19da

[6]. https://www.ft.com/content/636a74fa-b95a-42af-b49a-91c147cfab28

[7]. https://www.ft.com/content/03ba43f9-5b3b-446d-acf4-25b7f10ae3ea

[8]. https://www.ft.com/content/575ed375-b48a-4012-8acf-fb7ac3e68a65

[9]. https://www.ft.com/content/40368c06-d824-4188-ae1d-ac3d58ea3221

[10] .https://edition.cnn.com/2020/08/04/politics/trump-tiktok-microsoft-deal/index.html


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