MARKETS
Written By: Sarah Lee, Vice President of Investments
ENERGY
Intercepted Missile and Drones at Saudi Arabian Oil Site
On Sunday, Saudi Arabian oil infrastructures came under missile and drone attack, escalating the regional hostilities and pushing up crude prices. The attacks were intercepted and oil output appeared to be unaffected, but the assault came from Iran-back Houthi rebels. Oil prices were push to above $70 a barrel for the first time since January 2020. There was no loss of life or property, but it is confirmed that the oil tank farm in Ras Tanaura terminal was targeted – the world’s largest oil export port. Prior to this attack, last September Saudi oil instillations came under fire through strikes resulting in a cut in production for about a month. This also exposed the vulnerability of the kingdom’s petroleum industry. This attack will further complicate efforts by U.S President Joe Biden to engage in nuclear diplomacy with Iran. Intraday, BRENT is down at $67.96 (-1.40%)
FED
Selloff in U.S. Government Bonds Eroded Demand for Technology Stocks
The Dow Jones Industrial Average climbed Monday to record levels, surging up 306.14 points (1%) to 31802.44, following progress on a new fiscal stimulus bill that is creating optimism in the economy. Meanwhile, NASDAQ Composite fell 2.4% as tech stocks are still on their decline. The result of rising bond yields halt the favoring of growth stocks such as big tech companies. As the economy shifts, value stocks are be favored. Apple shares dropped 4.2%, adding onto their declines for the year to 12%, while Tesla slid 5.8% losing more than 20% in 2021. Within the bond market, yield on benchmark 10-year U.S. Treasuries ticked up to 1.599% on Friday, which is its highest since February 2020. Shaniel Ramjee, a multiasset fund manager at Pictet Asset Management stated, “The underlying strength of the U.S. economy, growing expectations that the stimulus gets fully passed, plus inflation expectations rising because of oil: These are all likely to continue to push bond yields higher.”
REAL ESTATE
Manhattan Apartments Rental Market at a Slump
With the reduced demand of Manhattan apartments during the pandemic, landlords are pulling unrented apartments off the market, tightening inventory while rents are low. This is commonly known as “warehousing,” where the supply of apartments are reduced when demand is at a low. It has come under scrutiny from housing advocates and lawmakers, because it creates an artificial scarcity that worsens the city’s housing shortage. However, landlords say that warehousing is necessary to respond to both regulatory and economic changes. Landlords are using this practice to avoid signed deeply discounted leases, and could be betting on potential price rebounds this spring and summer leasing season when the Covid-19 vaccine is more accessible. The median rental prices are down more than 17% for the year ending in December.
AIRLINE
American Airlines Target to use Frequent-Flier Program to Raise $7.5 Billion
AA and other carriers have found relatively stable cash flows form their frequent-flier programs, and poses as a rich source of collateral for financing. The company said it would raise $7.5 billion back by its program, to repay a loan from the federal government during the peak of the coronavirus as it wiped out demand for air travel. The carrier said on Monday that it would issue $5 billion in notes and seek a $2.5 billion term loan back by AAdvantage. Currently, this is common in the industry as both Delta Air Lines and United Airlines tapped their respective frequent-flier program to land extended financing. The main way airlines earn money from frequent-flier programs is by selling miles to banks and retailers that then award them to customers who sign up for credit cards. Therefore, airlines benefit from every swipe of a co-branded card, whether customers are buying plane tickets or groceries. Airlines stated that this revenue has been more stable than ticket sales as demand for that has withered away.
TECH
IonQ, the Quantum-Computing Startup Plans Public Debut through SPAC Merger
The Quantum-computing IonQ Inc. plants to merge with blank-check firm dMY Technology Group Inc. III, making it the first publicly traded company specifically focused on commercializing quantum-computing hardware and software. On Monday, they stated its intention on filing paperwork in a week with the SEC to go public on the NYSE through a SPAC, valuing the combined entity at about $2 billion. IonQ is in hot competition with International Business Machines Corp., Microsoft Corp., Alphabet, and D-Wave Systems INC., to commercialize quantum computing using various approaches. As of today, there has not been a scalable, commercial-grade quantum computer on the market. It has been projected that by 2023, 20% of global organizations are expected to budget for quantum-computing projects, which is up form less than 1% from 2018. If IonQ’s deal goes through, it will have raised $734 million in funding since its founding in 2015, which includes $300 million through the merger with dMY Technology III and another $350 million in private investment funding from Hyundai Motor Co. Additionally, the company has raised $84 million in venture-capital funding.
COVID-19
CDC New Guidelines Direct Fully Vaccinated People Can Gather Privately Without Masks
The Centers for Disease Control and Prevention stated people who are fully vaccinate against the new coronavirus can gather privately in small groups without masks or physical distancing. The agency left its travel guidance unchanged, and said vaccinated people should continue to hold off on long trips. New cases, hospitalizations and deaths related to Covid-19 have fallen in recent weeks following a winter surge, but public-health officials say people should remain cautious. President Biden stated last week that the U.S. would have enough vaccines for all American adults by the end of May, and encouraged Americans to wear masks while some states have lifted restrictions. A person is considered fully vaccinated two weeks after receiving the second does of the two-shot vaccines made by Pfizer and Moderna, or after two weeks of receiving the Johnson & Johnson vaccine.
TECH
Pandemic Leading to a Surge in Day Trading, Making TikTok and Discord Users the New Wall Street Trading Desks
Through the pandemic, the influx of day trades have flooded social media sites as they help push stocks to record highs and turning companies into market sensations. Platforms such as TikTok, Twitter, YouTube, Reddit, Instagram, Facebook and Discord have become the “new Wall Street trading desks as retail investors gather to talk about hot stocks such as Tesla. More than talking about trades, they piggyback on each others’ ideas and trades, bringing momentum to dying stocks. Shares of Chinese electric-vehicle maker NIO Inc. are an example as the stock has received enduring interest from individual investors.
Many young investors on TikTok have been swamping the app with video snippets under the tag #nio with an accumulated 35 million views, as they question if it’s the new Tesla. On Twitter, it was mentioned nearly 6,800 times on a single day in November. Social media platforms have power to influence many, and new investors are not missing out. Young day traders state that they spend around 5 hours a day scrolling through TikTok, YouTube and other platforms for ideas on what to trade.
WORKS CITED
Abbott, Brianna. “CDC Says Fully Vaccinated People Can Gather Privately Without Masks.” Wall Street Journal, 8 Mar. 2021. www.wsj.com, https://www.wsj.com/articles/cdc-says-fully-vaccinated-people-can-gather-in-small-groups-without-masks-11615219222.
Castellanos, Sara. “Quantum-Computing Startup IonQ Plans Public Debut in $2 Billion SPAC Merger.” Wall Street Journal, 8 Mar. 2021. www.wsj.com, https://www.wsj.com/articles/quantum-computing-startup-ionq-plans-public-debut-in-2-billion-spac-merger-11615201201.
Frankl-Duval, Caitlin McCabe, Gunjan Banerji and Mischa. “TikTok and Discord Are the New Wall Street Trading Desks.” Wall Street Journal, 11 Jan. 2021. www.wsj.com, https://www.wsj.com/articles/tiktok-and-discord-are-the-new-wall-street-trading-desks-11610361004.
Hirtenstein, Ana. Stocks Diverge as Bond Yields Rise - WSJ. https://www.wsj.com/articles/global-stock-markets-dow-update-03-08-2021-11615192681?mod=hp_lead_pos1. Accessed 8 Mar. 2021.
Maidenberg, Micah. “American Airlines to Use Frequent-Flier Program to Raise $7.5 Billion.” Wall Street Journal, 8 Mar. 2021. www.wsj.com, https://www.wsj.com/articles/american-airlines-to-use-frequent-flier-program-to-raise-7-5-billion-11615217163.
Nereim, Vivian. “Saudi Arabian Oil Site Attacked, Stoking Regional Tensions.” Bloomberg.Com, 7 Mar. 2021. www.bloomberg.com, https://www.bloomberg.com/news/articles/2021-03-07/saudi-coalition-intercepts-five-drones-from-yemen-pursuing-more.
Parker, Will. “Manhattan Landlords Take Apartments Off Market During Rental Slump.” Wall Street Journal, 7 Mar. 2021. www.wsj.com, https://www.wsj.com/articles/manhattan-landlords-take-apartments-off-market-during-rental-slump-11615140000.