Speculative Trading Heightens Uncertainty; JNJ Reports Vaccine 66% Effective Globally

Key Takeaways:

• JNJ, Novavax
  NVAX
  release vaccine efficacy results
• Volatility might be heightened by options expiration today
• Visa
  V
  earnings and revenue come in ahead of expectations

The last day of a volatile and heavily traded stock market week opens this morning with investors apparently feeling uneasy given the state of certain speculative trades that have been in the spotlight for days.

At the moment it seems like there is a little bit of turnover in the market, with people trying to determine how all this will shake out. In the meantime, with volatility already heightened, investors may want to be on the lookout for even more volatility because of options expiration.

While the Cboe Volatility Index (VIX) did ease yesterday, it still closed above 30, and this morning is up roughly 14%.

Still, the selling in equities this morning isn’t as pronounced as it was earlier in the week. Even though the VIX is higher along with gold, which is widely considered a safe-haven investment in turbulent times, oil is higher and so is the yield on the 10-year Treasury. The lower demand for U.S. government debt and increased willingness to buy a riskier asset like oil suggests that there is underlying support for the market once the hubbub about short squeezes dies down.

Turning to coronavirus-related developments, vaccine news has been mixed. Novavax (NVAX) said its vaccine showed more than 89% effectiveness, while Johnson & Johnson
JNJ
(JNJ) said its Covid-19 single-shot vaccine was shown to be 66% effective in preventing moderate and severe disease in a global Phase 3 trial but showed 85% efficacy against severe disease. The vaccine was 72% effective against moderate and severe disease in the United States, the company said. The Food and Drug Administration has indicated it would authorize a vaccine that’s safe and at least 50% effective.

That’s a mouthful, but the main takeaway is JNJ’s vaccine looks less effective than vaccines already out there, but it has the advantage of requiring only a single dose. The question is how viable it is as another vaccine when others have more than 90% effectiveness. Will people be OK taking one that’s below that? It remains to be seen, though JNJ is putting a positive spin on the results and some analysts pointed out that 66% effectiveness is better than the flu vaccine.

Adjusting the Dial

Noise. There’s a lot of it in the market these days. But as investors tune in to other aspects of the market besides heightened speculation in certain stocks, it seems they’re hearing things they like.

For one thing, the earning season is generally going better than expected, raising hopes about the economic recovery. (See more on earnings below today’s chart.) In some of the latest mega cap earnings news, Apple
AAPL
(AAPL) hit the cover off the ball as its quarterly revenue surpassed $100 billion for the first time. Facebook
FB
(FB), another FAANG member, also reported better-than-expected sales and profit.

American Airlines
AAL
(AAL), which has been beaten up amid the coronavirus-related travel slump, also surprised to the upside, posting a smaller-than-expected loss on revenue that beat forecasts. Visa (V), which reported after the close Thursday, also beat on top and bottom lines.

The strong start to earnings season comes as investors still retain optimism about the economic recovery despite a slow and uneven vaccine rollout.

Although the government’s first crack at GDP showed the annualized figure for Q4 coming in under expectations, it still showed a 4% gain. Investors and traders apparently thought that was a decent-enough showing that they didn’t feel the need for stocks to sell off on the data.

Meanwhile, initial weekly jobless claims figures decreased for the second week in a row, perhaps stoking some hope that the numbers might keep coming down as vaccinations become more widespread.

Plus, with economic data improving but also showing we’re not out of the woods yet, it seems likely that investors and traders have been reminded for another time this week that the Fed’s easy monetary policy is likely to continue for some time.

Next Week’s Earnings, Economic Data

Next week, earnings season rolls on with high profile reports from companies including Alphabet (GOOGL), Amazon
AMZN
(AMZN) and Alibaba
BABA
(BABA).

Results from Microsoft
MSFT
(MSFT) earlier this week were pretty stellar as growth in its Azure public cloud computing business increased for the third quarter in a row. With AMZN, GOOGL, and BABA all involved in the cloud computing space, it could be interesting to see if cloud computing demand for them also surprises to the upside. 

The economic calendar next week includes manufacturing and service-sector numbers, construction spending data, and figures on factory orders. The weekly jobless claims report on Thursday will probably again be closely watched as a barometer of the health of the economy during the pandemic. And the big data of the week comes on Friday in the form of the government’s non-farm payrolls report.

Earnings Beats: Investors seem to be generally encouraged as this earnings season turns out better than expected. A Wednesday report from Zacks Investment Research said that more than 83% of the 114 S&P 500 Index
SPXC
(SPX) companies that had reported by then had beaten earnings-per-share estimates. More than 77% had beaten revenue estimates, the research company said. “This is a notably better performance than we have seen from the same group of companies in the first three quarters of the year,” the note said. Another research firm, FactSet, said on Thursday that earnings beat rates remain elevated but have trended lower. It seems that trend might be worth watching, but for the moment investors seem generally pleased with this earnings season.

Cautiously Optimistic: In a bit of good news on the economic recovery front, the International Monetary Fund this week upwardly revised its outlook for 2021 global economic growth by 0.3 percentage points to 5.5%. The IMF said it expects a vaccine-powered strengthening later this year and additional policy support from a few large economies. But the IMF was also cautious in its outlook, saying that renewed waves and new variants of Covid-19 pose concerns. “The strength of the recovery is projected to vary significantly across countries, depending on access to medical interventions, effectiveness of policy support, exposure to cross-country spillovers, and structural characteristics entering the crisis,” the IMF said.

Carbon Trading: North America’s small regional carbon markets have been growing, even before news that the United States has begun the process of rejoining the Paris climate agreement. Expectations of policy changes that will result in tighter future carbon market balances helped the overall market value of the Western Climate Initiative and the Regional Greenhouse Initiative to grow by 16% in 2020 over 2019 levels, to roughly $26 billion and about $2 billion respectively, according to Refinitiv. Still, those markets are dwarfed by the European Emissions Trading System, which accounted for about 90% of the roughly $277 billion total value of the global carbon market in 2020.

TD Ameritrade® commentary for educational purposes only. Member SIPC.