After almost two decades, the S&P 500 is adding an 11th sector. Announced in 2014, Real Estate is finally in its own sector. Why create a new sector? And is this a big deal or not?
Market Opens New Week With A New Sector
Market sectors being added to indexes are also an “index” of the times. For example, during the dot com bubble of the late 1990s, there were four sectors in the S&P 500: Utilities, Financials, Industrials, and Transports. Technology, which was the hot commodity of the time, didn’t show up anywhere in the S&P.
It wasn’t until 2001, when the S&P was divided into 10 sectors, that Information Technology became the biggest sector in the index, as it remains today. Stocks are split into sectors to make it easy for investors to find and invest in those stocks. Now that real estate is elevated to its own sector, investors don’t have to work to figure out where to look for certain stocks.
And investors have been looking. More than a net $62 billion has flowed into U.S. real-estate funds since 2001 through the end of 2015, according to Morningstar Inc. data.
So why is this important?
Investors can trade an index as an Exchange-Traded Fund (ETF), which represents a basket of stocks, but traded as one on an exchange. Sector ETFs work the same way. Until now, Real Estate has been grouped into the Financials sector. As a whole, Financials are up just 0.3 percent this year, making it the worst-performing market sector. Without Real Estate, financials would be down about 1.9 percent this year.
Many portfolio managers will now be scrambling to “balance” themselves as far as diversity goes. With Real Estate no longer under Financials, many portfolio managers will have to sell off Real Estate as well as buy under-performing Financial ETFs to make sure they’re not overcommitted to any one particular sector.
While another new grouping is still years away, investors can expect wireless, phone and cable companies to split off into a new sector in the near future. For the present, investors should closely follow the new sector with eager anticipation.
Real Estate is booming, and the new Real Estate Sector ETF (XLRE) will follow.
More from The Capitalist
The statements, views, and opinions of any article, contribution, editorial, or advertisement in this publication are not necessarily those of The Capitalist or its editorial staff, and are not considered an endorsement, sponsorship, or recommendation of any referenced product, service, issuer, or groups of issuers.
This publication provides general information about certain subjects, and should not be construed or taken as advice (legal, financial, investment, tax, or otherwise). Do not construe or take any information in this publication as a solicitation, offer, opinion, or recommendation to buy or sell any securities, bonds, or other financial instruments or to provide any legal, financial, investment, tax, or other advice or service about the suitability or profitability of any financial instruments or investments.
The Capitalist disclaims any liability for the accuracy of or your reliance on any statements, views, opinions, or information in this publication.
Stocks Post Its Worst Day in A Month
Wall Street took a beating Monday as stocks posted its worst day in a month. Rising coronavirus cases and a fading stimulus relief led investors to sell-off.
The Dow Jones Industrial Average closed 2.3% lower. It fell down 935 points during the day before settling 650 points lower. All Dow stocks closed in the red except Apple, which eked out a .01% gain. It was the Dow’s worst day since September 3.
Meanwhile, the S&P 500 closed for the day at 1.9%, marking its worst day since late September. The tech-heavy Nasdaq Composite, which bounced back from its lows in the morning, finished lower at 1.6%.
While all sectors across the board experienced losses, some got crushed more. These include energy, industrials, and financials.
Higher Cases of Coronavirus
With eight days remaining before the elections, investors are starting to get jittery. Despite lots of talks, Congress has yet to approve a stimulus package. Cases of coronavirus are jumping in all states, and it recently hit a daily high average of 68,767 last Sunday.
Meanwhile, big tech companies are set to report earnings later this week. This lot includes Microsoft, Apple, Google, Facebook, and Twitter. Fawad Razaqzada of Think Markets noted that the reports can inject further volatility. In the note, Think Markets believed that “on a more macro level, ongoing US stalemate over US fiscal stimulus and the rapidly spreading Covid-19 is going to determine the direction for the wider markets.”
Tom Lee, head of research at Fundstrat Global Advisors, thinks Covid is a big influence over the market. He said “It’s almost as important as the Fed right now. Covid is suppressing the economy, and it’s essentially offsetting easy money. If we didn’t have Covid, people would be going out and spending money. It’s acting as a huge headwind.”
No Relief in Sight
Brad McMillan, CIO of Commonwealth Financial Network, thinks the reality hit investors hard. He told CNN business: “I think a big difference this time around [is]…there’s been a tremendous amount of hope baked into the market for quite a while, and we saw some things over this weekend that hit those assumptions hard.” The negotiations for a new relief package is gone at least until after the elections. Senate Majority Leader Mitch McConnel adjourned the Senate after confirming new Chief Justice Amy Coney Barrett. They will resume their session on November 9, or six days after the elections.
Without a clear stimulus plan, the US economy could start to double-dip. And if the rise in coronavirus cases continues, the business will shut down again. This nightmare scenario is haunting the market at present. Steven Wieting, the chief strategist at Citi Private Bank, sees dimmer prospects. “The ability to fight the virus further right now is very much in question, and it’s a political question.” Wieting believes that Washington could take months before anything gets done. This made investors tentative.
Tom Lee added that “We have a lot of things to be anxious about in the next couple of weeks. That’s why this is a pre-election market. But post-election, I think a lot of things that make people nervous turn into a tailwind. The post-election stimulus is a when not an if. Even if it’s a mixed Congress, I think there’s still some common ground. It’s just the scope that’s different. It would be a smaller package.”
Eight Days Remaining
The final eight days before the elections usually brings good vibes for Wall Street. This year, the bulls will need some extra running following Monday’s selloff spree.
Sam Stovall, chief investment strategist history, observed this bull phenomenon. Since 1944, the S&P 500 rose on average 2.5% in the eight days before elections. The index is up 17 out of 19 times, or 89%. The biggest rise came during the recent financial crisis, with the S&P 500 roaring back 18.5% in a bear market rally. That year, Democrat Barack Obama won over the GOP’s John McCain. The market sunk back to new lows after the election. It bottomed out four months later. The first decline in 1968 (-0.8%), happened as Richard Nixon won over Democrat Hubert Humphrey. The other was in 1988 when Republican George H.W. Bush won against the Dems’ Michael Dukakis.
Wall Street needs to get its act together with eight days remaining. A short, decisive victory by either party can help uplift America’s image. And with all the drama removed, maybe the market can go back to its winning ways.
Watch this as Stocks fall sharply at open amid Covid-19 resurgence:
Stock investors of The Capitalist, are you selling off right now, or are you holding off for a bigger payday? Do you think the market will rally in the next few days, or do you foresee better days after the elections? Share with us your stock scenarios as we count down to the elections. Leave your thoughts in the comment section below.
Market Volatility Rises As Election Polls Show Tightening Race
The relatively calm markets earlier this month are giving way to more volatility as we approach the election. This is according to a team of strategists at JPMorgan.
“While it is perhaps true that during the first two weeks of October risk markets were supported by a widening of US presidential odds, which by itself implied a lower probability of a close or contested US election result, over the past week or so these odds have started narrowing again,” said a team of strategists at JPMorgan Chase, led by Nikolaos Panigirtzoglou.
According to recent polls by RealClearPolitics, in key battleground states, Democratic nominee Joe Biden leads President Trump by 3.9 percentage points, 49.1 vs. 45.2. That lead has shrunk from a 5 percentage point advantage for Biden about a week ago.
A general election nationwide poll by RCP shows a wider 8.6 percentage-point lead for Biden. However, there are many who feel those polls are not correcting for sampling bias.
MarketWatch recently interviewed Phil Orlando, the chief equities strategist at Federated Hermes. There, he said he doesn’t believe the polls accurately reflect how close the race is. In relation to this, he pointed to the surprise win by Trump against Democrat Hillary Clinton in 2016.
“Our base case is that the polls are wrong, there’s an oversampling biased error that a lot of polls aren’t correcting for,” Orlando said.
With a tightening race for the White House, volatility has returned to the market. It will also likely increase in the final two weeks leading up to the election.
A report put out yesterday by SentimenTrader showed that the CBOE Volatility Index or VIX, jumped to levels last seen during the Great Financial Crisis, and tends to rise as stocks fall as it is typically used as a hedge against market downturns.
Market analysts use the ratio to measure how speculative traders are getting. A rise in the put/call ratio means that investors are expecting plenty of volatility between now and November 3.
The VIX, which measures investor bullish or bearishness on the S&P 500 for the next 30 days, is currently near 29, well above its historical average between 19 and 20. This week alone the VIX jumped 6.3%.
Source of Volatility
Jeffrey Mills, the chief investment officer at Bryn Mawr Trust, said some of the volatility likely comes from investors trying to position their portfolios based on who they perceive will win the election. “There could be some front-loaded selling but I do feel like that’s a near-term phenomenon,” he said. But he says no matter who wins, there’s really only one place to invest, and that’s the stock market.
“There is going to be this continued pull toward equity markets — where else are you going to go when you need to earn a certain percentage to fund retirement, fund education?”
If investors are moving money today based on who they think will win the election, Daniel Clifton, head of policy research at Strategas Securities said each candidate will likely benefit different sectors.
A Biden victory will be good for stocks in the infrastructure, renewable energy and technology sectors, said Clifton.
If President Donald Trump is reelected, Clifton said there’s “huge upside” in some sectors. These include defense, financials and even the for-profits like prisons, education and student loan lenders.
Tesla Keeps Streak Intact, Posts Profitable 3rd Quarter
The winning streak continues Tesla posts a profitable 3rd quarter, it’s fifth consecutive. The EV company posted a net profit of $331 million for the three-month period ended Sept. 30. Tesla also confirmed its goal of delivering 500,000 vehicles within the year. CEO Elon Musk calls the latest quarter as Tesla’s “best quarter in history.” The company posted a record of $8.77 billion in revenue against estimates of $8.28 billion. This is an increase of 39% from a year ago. Analysts surveyed by FactSet expected sales of $8.28 billion. Shares went up over 3% at about $438 in after-hours trading. Since January, Tesla shares have grown 500%.
500,000 Deliveries on Target
Despite the pandemic, the company will proceed with its original goal of 500,000 cars in 2020. In a statement, Tesla affirmed its goal. “While achieving this goal has become more difficult, delivering half a million vehicles in 2020 remains our target,” it said. This entails building more cars at its Shanghai factory, and improvements in logistics and delivery.
Earlier in October, Tesla reported 139,593 vehicle deliveries in the quarter. This places the 500,000 targets is within reach. Model 3 and Model Y took up the bulk of deliveries and growth during the period. The more expensive Models S and X dropped by 12% compared to 2019. As such, Tesla started slashing prices for its higher-end models to increase demand. The Model S reduced its prices twice to $69,420.
China Remains the Crucial Market
China remains the key market for Tesla’s profitable 3rd quarter. Tesla’s auto sales in China climbed nearly 13% in September, their sixth straight monthly gain. The company’s Shanghai Gigafactory raised production due to demand. Demand for the Model 3, especially in China, led to a retooling. From 150,000 units per year, it now handles 250,000.
China’s “Golden September, Silver October” is the country’s high point in car purchases. Sales reached 2.57 million vehicles last month. The China Association of Automobile Manufacturers (CAAM) said that sales were still down. For 2020, 17.12 million vehicles got sold, which is 6.9% below last year.
Electric vehicles enjoyed brisk sales during the period. Sales increased by 67.7% to 138,000, which is the third straight month of gain. Tesla reduced its Model 3 prices by 8%, down to 249,900 yuan ($36,805).
Based on September sales, the momentum looks to carry over to October. Haitong International analyst Shi Ji expects even better numbers this month. He said: “Based on our dealer channel checks, the growth in momentum extended into the October Golden Week, as retail sales exceeded dealers’ expectations”
A Decrease in Credit Sales
While revenue rose, regulatory credits fell down from $428 million to $397 million. Ben Kallo of RW Baird observed that “Regulatory credits are a big part of the EPS beat. But that’s part of the game: Tesla’s competitors are paying them, and Tesla is reinvesting that into their factories in Berlin and Texas.”
Tesla generates extra income by selling credits. Manufacturers buy these credits to comply with carbon-emissions standards. They come from all over California, Europe, and other areas. Investors prefer seeing profits from the core business of selling cars. A Bloomberg analyst thinks that the S&P snub might be due to credit sales. Analyst Michael Dean noted “question marks about the sustainability of regulatory emission-credit sales, which are currently underpinning earnings.”
For 2021, Tesla aimed for even more increases in production. This includes its all-electric semitrailer truck and its pickup truck. The company hopes to get more cars out of its China factory. It also expects its newest plants in Berlin and Texas to start churning cars. Musk estimates the 2021 production could reach 840,000 to 1 million vehicles.
The company also laid out plans during its recent “Battery Day” event. Musk announced that the company will start making its own “tabless” batteries. These batteries improve the cars’ range and power. The improvements will help bring down the cost to produce a car. Soon, Tesla hopes to launch a vehicle priced under $25,000.
Watch this as Yahoo! Finance reports on Tesla earnings: Tesla posts a profitable 3rd quarter, it’s fifth consecutive and EPS estimates:
Are you thinking of buying an electric vehicle? If so, will you get a Tesla? Or do you see yourself holding out for more choices in the near future? Let us know what you think about EVs, and if you’re planning on getting one soon? Drop a line on the comments section below.
Investing1 year ago
How To Invest In Drones
News6 years ago
How to Invest in Graphene
News6 years ago
The Federal Reserve Is A Ticking Time Bomb
Business1 year ago
Why is Small Business in America Dying?
News6 years ago
How To Invest Money in Oil and Gas Today
Dividend Stocks1 year ago
Mcdonalds the Worst Slump in a Decade
News6 years ago
3 Reasons to Invest in the Russian Stock Market Right Now
Commodities1 year ago
Latest Update On Oil – Expected to Settle Between $45 and…