After spending the first half of the trading session down as much as 0.3%, the S&P 500 Index (SNPINDEX: ^ SPX) took the afternoon rally, closing 0.2% on August 27, after news that the US Federal Reserve made what appears to be the biggest change in its policy-making framework in decades. The change speaks well for equities, if not as great for many consumers as investors who have bonds.
In addition, news that broke a positive lift for the market yesterday: Abbott Laboratories (NYSE: ABT) was expected to receive the Emergency Use Authorization from the U.S. Food and Drug Administration for its 15-minute coronavirus test. It has now officially received that authorization.
Between continuing to focus on the low rate of the Fed and the prospects for a cheap, rapid test, investors are piling into stocks that are expected to be beneficiaries of both. Five of the nine largest gains S&P shares today were aviation and cruise shares, while Abbott Labs was the second-largest gain, up 8.2%. The best performing S&P 500 component of today was Live Nation International (NYSE: LYV), with shares up 8.9%.
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Abbott Labs is testing a major breakthrough for rapid testing
Abbott’s BinaxNOW COVID-19 Ag Card test could prove a real game changer. At only $ 5 and takes about 15 minutes to deliver results, this test is both cheap and fast. First responders and essential workers – the groups most at risk of exposure to the coronavirus daily – will be among the first to undergo the test.
But the prospects for wider use are even greater. It is possible that cruise ships, commercial air travel, concerts, and other public events may also be open to larger numbers of people.
Abbott says it will send tens of millions of tests that start within a few weeks and can make as much as 50 million a month in October. At $ 5 per doll, that’s $ 250 million per month in revenue, the company could record as long as COVID-19 remains a public health risk.
There are restrictions. The test must be administered by a health care provider, so there is an additional cost to having trained professionals ready to administer the test that companies must cover. Moreover, there are concerns about accuracy: Data suggest that 3% of those who test positive will be negative, and about 1.5% of people who test positive will actually be negative.
Investors are looking enormous head for cruise, airline, hospitality stocks
Live Nation, one of the world’s largest promoters and producers of live entertainment events, has been launching this business alone this year, so the prospects of bringing back more personal events before the end of the year would be great, Investors keep sure of the prospects, and send their shares, which are still 25% of the 2020 high, sharply up today.
Royal Caribbean (NYSE: RCL), Norwegian Cruise Line Holdings (NYSE: NCLH), United Airlines (NASDAQ: UAL), Carnival (NYSE: CCL), en Alaska Air (NYSE: ALK) shares received at least 5% today.
In addition to the potential prospects of getting a little closer to normal operations through rapid, low-cost testing, these companies would all benefit from the Fed making low interest rates a priority. As a group, these five companies carry more than $ 70 billion in debt, mostly in junk bonds, and this year they have all significantly added to their debt tax, leaving cash simply to be settled.
RCL Total Long Term (Quarterly) Data by YCharts
Today’s big win is on something that can prove meaningful and material, but it’s very unclear how fast – or slow – fast, cheap testing can be rolled out in an important way.
Fifty million tests a month may sound like a lot, but there are tens of millions of essential workers in the US who are likely to be given priority and will be tested regularly, not to mention the tens of millions of students, teachers and other staff who would get priority for access to test before the orders of an airline were filled.
Broad profits offset technical giant sales
Four of the five largest S&P 500 shares – by market cap – fell today, with Call, Amazon, en Alphabet lose 1% or more and Facebook falling 3.5%. Microsoft (NASDAQ: MSFT) was the only trillion-dollar club member to win in value today, closing 2.5%.
These heavy weights are usually the tail that strikes the market dog, so to speak, and it takes a very wide movement through the market as a whole to counter its direction. That happened today, with well over 300 of the S&P 500 shares of components moving higher today, helping the index close in positive territory.
Walmart and Microsoft on TikTok Deal Perspectives
Microsoft shares moved higher, while shares of the mega-cap tech giant fell, after CNBC broke the news that it, along with Walmart (NYSE: WMT) were now the leading bidders to acquire TikTok’s North American and some other geographic operations. While Microsoft has long been considered a top bidder for the Chinese video-sharing platform, the surprising addition of Walmart in a partnership that has confirmed the company has attracted investors. Walmart shares gained 4.5% today.
Whether the partnership of tech and retail giants will result in a winning bid remains to be seen. ByteDance, the Chinese company that owns TikTok, has filed suit against the Trump Administration over the executive order of the president that would essentially ban TikTok in the US, and it is not clear whether a sale will happen or not.
Moreover, investors need to consider whether buying TikTok itself is logical for the two companies as it will provide significant value to shareholders. Stay tuned for more as the story unfolds.
