Tuesday,
November 24, 2020

Market recap

Dow Jones

29591.27

327.79 (1.12%)

S&P 500

3577.59

20.05 (0.56%)

Nasdaq

11880.63

25.66 (0.22%)

AstraZeneca

$54.70

-$0.60 (-1.08%)

General Motors

$44.77

$1.73 (4.02%)

Southwest Airlines

$46.83

$1.27 (2.79%)

Amid evolving news + uncertainty surrounding COVID-19, your financial needs are our top priority. For more information on COVID-19 and your finances click here.

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Top Story

AstraZeneca and Oxford Share Trial Results

Vaccine Monday: AstraZeneca and Oxford Share Trial Results

COVID-19 cases are rising in many parts of the country. Families and businesses alike are looking toward what could be a difficult holiday season. However, scientists are hard at work developing vaccines and treatments for the virus and several have recently shared positive news.

AstraZeneca PLC (AZN) and the University of Oxford shared promising results from clinical trials of their COVID-19 vaccine yesterday. The shot’s efficacy ranged from 62% to 90% depending on the dosage given. On average it was 70% effective.

Recently, a shot created by Pfizer (PFE) and BioNTech (BNTX) proved to be over 90% effective, as did one developed by Moderna (MRNA). The AstraZeneca-Oxford vaccine is different from these other two candidates because it does not need to be stored at subzero temperatures, which may make it easier to distribute, especially in developing countries. AstraZeneca and Oxford have promised to distribute their vaccine without a profit during the pandemic. It is expected to cost between $3 and $5 per dose.

Merk Acquires OncoImmune, Plans to Manufacture COVID-19 Drug

Merk, (MRK) the pharmaceutical giant, is planning to buy OncoImmune, a privately-held drug company, for $425 million. OncoImmune developed a medicine called CD24Fc, which has been shown to lower the risk of respiratory failure or death by over 50% for COVID-19 patients requiring oxygen.

The lifesaving drug is in high demand. CD24Fc is a complex medicine to make, and Merk’s resources will allow for more of the drug to be manufactured. Merk has also been busy developing a pill for COVID-19 as well as two potential vaccines.

FDA Grants Emergency-Use Authorization to Regeneron

Over the weekend, the FDA granted emergency use authorization for the COVID-19 antibody treatment developed by Regeneron. (REGN), which was given to President Trump when he tested positive for COVID-19 last month.

The treatment, called REGN-COV2 is part of a group of therapies called monoclonal antibodies, which act like immune cells to fight infections. Scientists who worked on REGN-COV2 have emphasized that it is a treatment for the virus, not a cure, and it works differently for different patients. However, it does give doctors yet another tool to fight COVID-19. While the pandemic is far from over, recent news has provided glimmers of hope.

How to Set Up a Recurring Investment

Recurring investments make it easy to invest regularly, and can prove very helpful toward reaching your financial goals. Here’s a quick video to get you started.


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A New Business Model for Car Dealerships

A Car Supply Shortage

For decades, Americans have visited car lots, chosen a vehicle, and driven home in their new rides. Now this pattern may be permanently changed. The supply of cars at dealerships is about 25% smaller than it was pre-pandemic. During the early stages of the pandemic, car factories shut down. Though most of them are up and running again, there is still a supply shortage.

As a result of this dip in supply, many people purchasing cars are picking out a model, then waiting a few weeks before it arrives. Though this takes away the instant gratification of buying a car and driving it home, leaders in the auto industry and the dealership industry are realizing that this model is boosting their profits.

Rising Demand for Cars

In addition to supply being tight, demand for cars has also spiked during the pandemic. People are feeling wary of public transportation and planes so they are purchasing cars. This has created a seller’s market where car companies are able to charge record high prices and steer consumers toward certain models.

When auto companies have more control over which models consumers are buying, it allows them to offer fewer models, simplify their supply chains, and cut costs. For dealers, the new business model of displaying fewer cars allows them to save space. This is already having an impact on the market for dealership real estate. Dealers are also turning over cars more quickly with this new business model. Last month, the typical new vehicle sold after only 56 days on a lot. This is 27% less time than sales took during the same month a year ago.

Looking Ahead

GM (GM), Ford (F), and Fiat Chrysler (FCAU) all reported strong third-quarter results. Their profit margins in North America hit record or near-record highs. Many dealerships also reported strong results during the summer and fall.

Current market conditions have been compared to the European model of selling cars. For years, European customers have picked out cars and then waited for significant periods of time before their new ride arrives. Both dealerships and automakers have been trying to shift toward offering fewer models and lower inventory for some time. Now, the pandemic has created these conditions.

Though car companies and dealerships might like these market conditions to stay in place, some analysts expect that eventually car buyers will regain some leverage and brands will shift back to the old model to compete for customers’ attention. On the other hand, consumers could get used to this model and it could be here to stay.

The Pandemic’s Impact on the Future of Business Travel

Leisure Travel Is Likely to Recover

Airlines have suffered severe financial hardships during the pandemic. However, they are expecting that if and when a vaccine is widely available, demand for leisure travel will recover. There could even be a spike in demand for a certain period, because many people have put off vacations and visits to family during the pandemic. When lockdowns became less severe over the summer, airlines saw a significant uptick in leisure travel. A vaccine would likely cause a much larger spike.

In contrast, business travel did not see much growth, even when restrictions eased slightly. Because companies have become so comfortable with videoconferencing during the pandemic, analysts expect that business travel will see a permanent decline of about 15%.

Companies’ Travel Budgets Are Tight

Before the pandemic, business travel was the most profitable sector of the airline industry. Business travelers tend to be more likely to book convenient, high-price flights, and to fly first class or business class. Airline executives expect this could change. Even when some people begin flying for work again, companies’ travel budgets are likely to be tighter as a result of the economic downturn.

Recent data shows that, for the few airline tickets purchased with corporate accounts during the third quarter, the average fare was 45% cheaper than it was during the same period a year ago. Prices are likely to recover somewhat if and when a vaccine becomes available, but analysts expect they will likely not make a full recovery.

Budget Airlines See an Opening

Budget airlines are seeing an opportunity to move into the business travel sector. For mainline air carriers, business travel accounted for about 50% of revenue pre-pandemic. For Southwest (LUV), about 35% of revenue came from business travel. Airlines like Spirit (SAVE) and Allegiant (ALGT) generate about 10% of revenue from business travel.

However, these trends could change. For example, Southwest is expanding its presence at Chicago O’Hare, a major business travel hub for American Airlines (AAL) and United (UAL). Southwest is also making moves to compete with higher-cost airlines in Houston and Miami. Major hubs tend to be more expensive for airlines to service. However, at the moment, these airports are far less busy, so budget airlines may be able to establish a presence in new hubs.

Though there are still many questions about the future of air travel, it is likely that the business travel industry will be permanently impacted by the pandemic.

Not-So-Breaking News

  • CoStar Group (CSGP), a company that provides commercial real estate analytics, will acquire Homesnap for $250 million in cash. Homesnap is an online and mobile software system used by over 300,000 real estate agents across the country. These agents use the platform to optimize workflow, connect with clients, and more.
  • The musical instrument retailer, Guitar Center, has filed for Chapter 11 bankruptcy protection as the COVID-19 pandemic has reduced traffic at its stores. Lenders will cut the company’s debt by $800 million. It has also raised up to $165 million in new equity investment.
  • Joe Biden has picked Janet Yellen, former Chair of the Federal Reserve, to be Secretary of the Treasury, according to people familiar with the decision. If she is confirmed by the Senate, Yellen will be the first woman to hold this position.
  • China Evergrande Group is planning an IPO in Hong Kong for its property management arm. The company will sell 1.62 billion shares and hopes to raise as much as $2.04 billion. Property management IPOs have already raised about $4.59 billion this year, higher than 2019’s record of $3.26 billion.
  • European regulators are preparing to lift the flight ban on Boeing's (BA) 737 MAX passenger jetliner in January. Just last week regulators in the US lifted a 20-month grounding that was triggered by fatal crashes in 2018 and 2019.
  • In the fast & volatile stock market, limit orders let traders control their buy or sell price. Learn about the pros & cons of limit orders & how they differ from market orders.

Financial Planner Tip of the Day

"One struggle investors may contend with is avoiding getting swept up by the moment and deviating from a plan. A good suggestion for almost any situation—don’t let your emotions take the driver’s seat. This can be much easier said than done, so it can be helpful to have a plan to quell reactionary behavior."

Brian Walsh, CFP® at SoFi

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