The Week Ahead on Wall Street
Today the Chicago Fed will release its national activity index for November, a measure of overall economic activity in the United States. The index hit 0.83 in October—a jump from 0.32 the month before. That was the first increase in four months after the index declined in July, August, and September.
Tomorrow the Commerce Department will update its GDP estimate for Q3. Initial estimates showed United States GDP ballooning to 33.1% in the third quarter, a sign that the economy is bouncing back. Wall Street reacted positively to early Q3 estimates, as GDP had fallen at a record rate in Q2. Also tomorrow the December consumer confidence index and November existing home sales will be released.
On Wednesday November personal income, core inflation, new home sale, and the December Consumer Sentiment Index will be released. Consumer spending for November will also be published. Consumer spending—or the purchase of cars, furniture, clothing, food, and spending on health care and education—comprises 70% of GDP. In 2019 Americans’ consumer spending totaled $13.28 trillion. In October US consumer spending rose, but economists suggested that growth might slow in the wake of increasing COVID-19 infections.
Thursday will see the release of initial jobless claims, November durable goods orders, and November core capital goods orders. Data released last Thursday showed that jobless claims hit 885,000 during the week ending December 12. This was higher than economists were expecting. It was also the largest jobless claims figure seen since early September.
No economic data is scheduled for release on Friday due to the Christmas Day holiday.
Earnings to Keep An Eye On
Today FactSet Research Systems Inc (FDS) will release its latest results. The financial data company collects data and portfolio analytics for investment firms like Dow Jones. At the end of November S&P Global announced that it will buy IHS Markit for about $44 billion. The deal highlights the consolidation in the financial data and information space. Some analysts think that Factset may also consider purchases or mergers in the months and years ahead to stay competitive.
Carmax Inc (KMX) and Cintas (CTAS) will release earnings tomorrow. Cintas is primarily a uniform rental company, but analysts have noticed that its sanitation and hygiene facility service offerings make up 10% of the company’s total revenue. Cleanliness is in demand as a result of the pandemic, which has helped Cintas. Near its March low Cintas' stock was trading below $160 per share but since then it has surged to over $350 per share. On the year as a whole, Cintas' shares have gained over 30%.
Carmax, the biggest used-car retailer in the United States, has been hiring heavily this holiday season. The company was not just looking for temporary workers, but more than 25,000 long-term associates around the country. At a time when hiring has slowed around the US, the hiring trend points to potential growth for Carmax.
On Wednesday Paychex Inc (PAYX) will release earnings. Paychex shares have climbed 20.6% in the last six months, outperforming the rest of the outsourcing market. In an effort to stay nimble, Paychez released a cost-effective retirement plan option for small- and medium-sized businesses under the SECURE Act.
No major earnings will be announced on Thursday or Friday due to the Christmas holiday.
The New Coronavirus Relief Bill
Lawmakers announced on Sunday night that they have reached a deal on a $900 billion coronavirus relief package. Here are highlights on what is included in the new bill:
Unemployment insurance: An extra $300 per week for 11 weeks to federal jobless benefits through March 14, 2021.
Small business loans: $248 billion for a new wave of Paycheck Protection Program (PPP) loans for small businesses. $12 billion of this money is to be distributed to minority-owned businesses, and $15 billion is set to go to live venues and independent movie theaters.
Stimulus checks: $600 checks for individual taxpayers earning under $75,000 per year, and an additional $600 per dependent.
Rent relief: $25 billion in rental relief, which can be used for rent and utility payments in the future or for bills that have not been paid since the beginning of the pandemic. The bill also extends the nationwide eviction moratorium through January 31, 2021.
Food assistance: $13 billion in extra funding for the Supplemental Nutrition Assistance Program (SNAP).
Congress is expected to vote on the bill today.
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Tesla Joins the S&P 500 Today
How We Got Here
Today is the day Tesla (TSLA) joins the S&P 500. The EV maker’s shares climbed over 730% this year and it currently has a market value of more than $647 billion.
The company’s road to joining the index has had some twists and turns. Investors hoped Tesla would earn a spot in the S&P 500 back in September because it reported a fourth consecutive profitable quarter—an important requirement for admittance into the broad based benchmark. Tesla did not make the cut for the index’s third quarter rebalance. Then in late November it was announced that Tesla would finally be added to the S&P 500 on December 21, which is today.
Why This Addition to the Index Is Different than Most
Tesla will be the largest company ever added to the S&P 500. Right away it will be the sixth most valuable company in the index, with only Apple (AAPL), Microsoft, Amazon (AMZN), Google (GOOGL), and Facebook (FB) ahead of it. Normally when a new company is added to the S&P 500, it is swapped for another firm of a similar size. But there is no stock that the S&P 500 could conceivably remove to offset Tesla’s entry into the index. When Tesla is added, it will account for about 1.52% of the index.
For this reason, the index considered adding Tesla shares in phases to avoid dramatic changes in the market, but eventually it was decided that Tesla would be added all at once.
Last week traders were preparing for a frenzy on Friday ahead of Tesla’s debut on the S&P 500. Tesla shares ended up 6% higher on the final day of the week—which is a significant leap, but also not the rally that some expected.
Tesla skeptics say the company’s shares may be in the midst of a bubble which could soon pop. Tesla could face much tougher competition in the coming years as the EV industry becomes more crowded.
On the other hand, bullish investors say Tesla could produce $10 billion in net income by 2022, which is up from the $226 million it has earned over the past year. These investors also see the company’s inclusion on the S&P 500 as an important sign that the auto industry and Wall Street take Tesla seriously. Today both critics and fans of Tesla will be eager to see how the company performs during its first day as a member of the S&P 500.
What You Need to Know About the Cyberattack
Experts Say Russia May Have Hacked Top Government Agencies
Last week the Cybersecurity and Infrastructure Security Agency, also known as CISA, said a sophisticated cyberattack that breached multiple government agencies posed “a grave risk to the federal government.” The attack appears to have begun as early as March, and is still ongoing. CISA said it would be “highly complex and challenging” to remove the hackers from “compromised environments.”
While CISA has not revealed those responsible for the attack, former Homeland Security Advisor Thomas Bossert suggested that Russia could be responsible. “The Russians have had access to a considerable number of important and sensitive networks for six to nine months,” he said on Thursday.
While it is not yet clear what the hackers have done since gaining access to government networks, it is clear that at least the Energy and Commerce departments and the National Nuclear Security Administration have been breached.
SolarWinds Software Was an Access Point
According to CISA, the cyberattack was coordinated via an update by a network management software SolarWinds (SWI). As many as 18,000 government workers and other SolarWinds users downloaded a software update earlier this year that had a backdoor coded into it for use by the hackers.
Last week CISA told federal civilian agencies that they should “immediately disconnect or power down affected SolarWinds Orion products from their network.” It is also possible, however, that the hackers used other access points to infiltrate the networks. CISA said it is investigating “evidence of additional access vectors, other than the SolarWinds Orion platform.”
Microsoft Users Targeted in Attack
Microsoft (MSFT) products were also breached in connection with the SolarWinds management software. According to Microsoft, more than 40 client organizations were impacted by the attack. Most of those clients are United States organizations, but Microsoft said customers were impacted in seven other countries as well.
Microsoft President Brad Smith said, “This is not espionage as usual.” The attackers in this hack have managed to impair the “technology supply chain for the broader economy.” President-elect Joe Biden said he would impose “substantial costs” on the perpetrator.