The Week Ahead on Wall Street
January’s Markit manufacturing PMI, ISM manufacturing index, and motor vehicle sales reports will all be released today. In December, US manufacturing accelerated at the fastest rate seen in over six years. Producers of US-made goods had the strongest control of pricing they have had since 2011 as the coronavirus pandemic has disrupted international supply chains.
Tomorrow data on Q4 housing vacancies will be released. Rental housing vacancies dropped 0.4 percentage points to 6.4% in the third quarter of 2020. Similarly, the homeownership vacancy rate dropped 0.5 percentage points to 0.9%. The homeownership rate was 67.4%—2.6% higher than it had been in the third quarter of 2019.
On Wednesday January’s ADP employment report, Markit services PMI, and the ISM services index will be released. Investors will be closely watching the ADP employment report as December marked an end to the seven-month growth streak in private payrolls. Private payrolls fell by 123,000 in December, though economists surveyed by Dow Jones predicted 60,000 jobs would be added.
Initial jobless claims, Q4 Productivity, Q4 Unit Labor Costs, and December factory orders will be released on Thursday. Initial jobless claims rose less than expected last week. The number of Americans who filed for unemployment benefits for the first time totaled 847,000, which was less than economist expectations of 875,000.
On Friday January nonfarm payrolls, unemployment rate, average hourly earnings, as well as December’s trade deficit and consumer credit will be released. Nonfarm payrolls fell by 140,000 in December despite consensus expectations of a 50,000 gain. Those job losses were largely concentrated in the hospitality industry as bars and restaurants were forced to close.
Warner Music Group Corp. (WMG) will report earnings today. Warner recently signed a licensing deal with TikTok to make songs from the music group’s library available on the video-editing and sharing app. The deal added to Warner’s lineup of partnerships with social media companies. The group already has deals with Facebook (FB), Snapchat (SNAP), and others. Warner’s CEO said social media licensing was growing faster than subscription streaming.
Tomorrow Amazon.com Inc (AMZN) will report earnings. Consumer data shows that as of the last day of 2020, over half of Amazon Prime members were on annual subscriptions, which marked the first time that annual subscriptions increased over the holiday shopping quarter. Typically, monthly subscriptions get a boost over the holidays instead. Amazon CEO Jeff Bezos said the retailer has over 150 million members.
On Wednesday Paypal Holdings (PYPL) will release earnings. In January PayPal became the first foreign operator to take full control of a payments platform in China. It acquired the remaining 30% stake in China’s GoPay on the last day of 2020. PayPal already owned a 70% stake in GoPay, which it bought earlier in 2020. The move signaled that PayPal is interested in becoming a larger player in the international online payments market.
Snap (SNAP) will report earnings on Thursday. Late last month, Snapchat announced it would join almost every other app on the market in introducing a new dark mode feature for users in low light. The new feature is not yet available for everyone because Snapchat is doing a phased rollout, but it could increase the app’s popularity among fans of dark mode and people who may want to decrease their exposure to blue light.
On Friday Regeneron Pharmaceuticals (REGN) will hand in its report card. In January the company announced it had reached a deal with the US government to provide 1.25 million doses of its coronavirus antibody treatment. Regeneron’s shares rose 2.6% after the announcement, and hopeful analysts forecast rising revenues for the pharmaceutical giant in 2021.
The Week Ahead at SoFi
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Johnson & Johnson Shares Vaccine Results
COVID-19 Vaccine is 66% Effective
Johnson & Johnson (JNJ) announced the results of its late-stage trial for a one-shot coronavirus vaccine on Friday. According to a statement from the company, the vaccine prevented 66% of moderate to severe cases of COVID-19 in testing among 44,000 participants. The vaccine worked especially well against life-threatening virus cases—it prevented 85% of severe infections and 100% of hospitalizations and death.
Now that the results are in, Johnson & Johnson expects to file for emergency-use authorization in the United States this week. Lead scientists say they will have vaccines ready to ship out in March, when the vaccine could be cleared for use. It is not yet clear exactly how many doses will be ready at that point, but Johnson & Johnson has promised 100 million doses to the United States in the first half of 2021.
What Sets Johnson & Johnson’s Vaccine Apart
While the Johnson & Johnson vaccine does not appear to be quite as effective as competing vaccines from Moderna (MRNA) and Pfizer (PFE), the shot does have several advantages: it requires just one dose and can be kept at more standard temperatures.
Both the Moderna and Pfizer vaccines require two doses for their full benefits to take effect. That requirement has made it slightly more complicated to get the vaccines to as many people as possible as quickly as possible.
Unlike the Pfizer and Moderna vaccines, which must be kept at extremely cold temperatures and thawed and used quickly before they expire, the Johnson & Johnson vaccine can be refrigerated for up to three months. That could make it easier for pharmacies and areas without expensive freezers to distribute the vaccine.
Variants Complicate Vaccination
According to Johnson & Johnson’s test results, the vaccine’s effectiveness varied by region due to the new, regional variants caused by the virus mutating. The vaccine was 72% effective in preventing the coronavirus in the US, but that effectiveness dropped to 66% in Latin America and 57% in South Africa. While the trial did include people infected with B.1.351, the new, more contagious strain found in South Africa, the vaccine appeared to be less effective against such variants.
Dr. Anthony Fauci, the United States’ top infectious disease expert, has expressed concern over the new variants and the protection offered by the vaccines currently on the market. Last Monday Moderna said it was working on a booster shot that could help protect vaccinated people against the South African variant. Pfizer and Novavax (NVAX) also said they plan to test altered vaccines to ward off the new strain.
Blackstone and Allstate Strike Life Insurance Deal
Blackstone to Acquire Allstate’s Life Insurance Arm in $2.8 Billion Deal
Blackstone (BX), the private equity powerhouse, will acquire Allstate Life Insurance Co. (ALL) from Allstate in a $2.8 billion deal. The deal will transfer 80% of Allstate’s total life and annuity reserves to Blackstone. Those reserves amount to $23 billion. The companies aim to close the deal before the end of 2021.
The deal between Blackstone and Allstate is the latest in a series of transactions between financial firms and life insurance businesses. Earlier in January, Sixth Street Partners announced it would acquire Talcott Resolution for $2 billion.
How Private Equity is Shaping Insurance
After the financial crisis in 2008, insurers started narrowing their focus and divesting product lines. Their profits were hampered by ultralow interest rates, so asset-management firms and other types of financial institutions swept in to buy blocks of life insurance policies, annuities, and operating units.
For the financial institutions involved in these transactions, the goal is typically to profit from investment-management fees while also making wise investment choices with the premiums customers pay on their policies.
Meanwhile, insurance companies like Allstate are looking to shed products that are hurting their profit margins. In the first nine months of 2020, as coronavirus raged through the United States, Allstate said its life insurance unit lost $23 million.
PE Firms Bet on Insurance
Investments in insurance companies can significantly boost private equity firms’ assets under management. In a 2020 report, data from PitchBook noted that “insurance companies have the potential to meaningfully add to a general partner’s permanent capital, drive AUM growth, and make solid investments if their float is invested well—just as Berkshire Hathaway has done with many of its insurance holdings.” PitchBook predicts that based on these factors, equity firms will keep rushing toward insurance assets for the next few years.
Even before the Allstate deal, Blackstone had $62 billion in insurance assets under management. That was announced during the company’s earnings call for its second quarter. PitchBook suspects Blackstone “likely sees a healthy runway in growing its insurance solutions business.”