America, and the world, received a huge shot of hope this week. The 0 billion drugmaker Pfizer announced on Monday that its coronavirus vaccine is 90% effective at preventing COVID-19. As expected, travel and hospitality stocks were the trading session’s big winners. The best performing S&P 500 stock was Carnival, up nearly 40%. Hawaiian Airlines cruised the highest among airline stocks, up an incredible 50%. Only three airline stocks —Singapore Airlines, Air Transport Services and Cargojet—were down for the day. Airline stocks’ daily volatility has historically been ±4%, but on Monday they had a move of 4 standard deviations. Following the positive news, Goldman Sachs was quick to adjust its market forecast for the next 12 months. The investment bank sees the S&P hitting 4300 by the
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The $210 billion drugmaker Pfizer announced on Monday that its coronavirus vaccine is 90% effective at preventing COVID-19.
As expected, travel and hospitality stocks were the trading session’s big winners. The best performing S&P 500 stock was Carnival, up nearly 40%. Hawaiian Airlines cruised the highest among airline stocks, up an incredible 50%. Only three airline stocks —Singapore Airlines, Air Transport Services and Cargojet—were down for the day. Airline stocks’ daily volatility has historically been ±4%, but on Monday they had a move of 4 standard deviations.
Following the positive news, Goldman Sachs was quick to adjust its market forecast for the next 12 months. The investment bank sees the S&P hitting 4300 by the end of 2021, which is an increase of more than 20% from Thursday’s close.
Investors’ enthusiasm was tempered slightly by the realization that Pfizer’s vaccine, although effective, has a couple of serious drawbacks that may prevent it from having a wide reach globally. One, the vaccine requires two doses a month apart, and it’s reasonable to expect that a large percentage of people who showed up for the first shot will not return for the second shot, for various reasons.
And two, the vaccine must be stored at an incredibly frigid -94° Fahrenheit. That’s colder than the average temperature observed at higher elevations in Antarctica’s icy interior. Most countries on earth, including some developed countries, simply do not have the appropriate cold storage, not to mention the supply chain infrastructure, to transport and deploy the vaccine to everyone who needs it.
According to CLSA’s estimate, as much as 50% to 60% of the population needs to be inoculated to stop the pandemic, though some estimates are even higher at between 70% to 75%. “Reaching this level of immunization will not be easy,” the investment group says.
That doesn’t mean it’s impossible, of course. Plus, other promising vaccines are currently in development. Russia claims its own Sputnik V vaccine is 92% effective against the coronavirus, and it’s already begun selling it to other countries, including Brazil, India, Mexico and Egypt.
LVMH’s Arnault Now Only Fifth Person on Earth to Be Worth More Than $100 Billion
It wasn’t just cruise lines and airlines that jumped on the Pfizer news. Luxury stocks like Burberry, Kering and Christian Dior all made strong gains on the hope that international travelers—particularly big-spending Chinese travelers—will return soon to airports and take advantage of duty-free shopping between flights.
Monday’s stock surge was enough to push French luxury titan Bernard Arnault’s wealth above $100 billion for the first time. He joins only four other people—Jeff Bezos, Bill Gates, Mark Zuckerberg and Elon Musk—in the highly exclusive centibillionaire club.
Arnault’s LVMH—the world’s largest luxury goods company, with brands ranging from Louis Vuitton to Sephora to Tag Heur—has shown great resilience during the pandemic. Third-quarter revenue, in fact, increased 12% compared to the same period last year.
The same goes for competitors Hermes and Kering, both of which delivered forecast-beating sales in the third quarter, thanks in large part to Asian consumers.
1.2 Billion Chinese in Middle Class by 2027
Retailers are right to court Asian consumers, particularly Chinese consumers. For proof, look no further than Alibaba’s monster Singles Day sales event this week. In the first 30 minutes on November 11, the giant Chinese retailers did a jaw-dropping $56.3 billion in sales, more than last year’s total haul of $38 billion over a 24-hour period.
Indeed, China has the world’s largest share of people online, and that share is accelerating. As of October, the country represented 40% of global ecommerce transactions, according to a report by the Brookings Institution.
Brookings’ report also provides startling new data on the size of China’s (growing) middle class, something I’ve written about before. Every year, the country has been adding an average of 60 million people to its middle class—defined as those who spend between $11 to $110 per person per day—and by 2027, Brookings believes the total size of China’s middle class could top 1.2 billion people. That’s approximately 3.5 times as many people living in the U.S. right now.
With the combined spending power of $41 trillion, the Chinese middle class is on track to spend an astonishing $7.3 trillion this year alone, Brookings says. To help put that figure in perspective, 7.3 trillion seconds is the equivalent of more than 230,000 years. That long ago is around when scientists believe Neanderthals appeared in Eurasia.
Foot Traffic Data Proves Home Improvement Boom
As I’ve said before, I’m pleasantly surprised with how well some luxury retailers have done during the pandemic. Back in July, I discussed how sales at home improvement stores were increasing as high-net worth individuals (HNWIs) were spending lockdowns on do-it-yourself (DIY) projects, renovating their homes, building back patios and installing swimming pools.
This week we got even more proof of home improvement’s retail dominance. Placer.ai is a startup that provides retailers with foot traffic analytics and predictive consumer behavior. In a blog post titled “Kings of 2020: Home Improvement,” the group shared findings showing that foot traffic in Home Depot and Lowe’s has actually grown most months during the pandemic compared to the same months last year.
Look at the month of May. Lowe’s saw an almost 50% increase in store visits versus May 2019. Home Depot had 26% more. Although there’s been some slowdown, foot traffic is still substantially up year-over-year. Visits also accelerated from September to October as we head into “what could be an enormous holiday season for these chains,” as Placer.ai’s Ethan Chernofsky writes.
Gold Briefs: First Day of Diwali; Judy Shelton Moves Closer to Fed Confirmation
The price of gold fell 4.5% on Monday, its biggest one-day drop since August. But don’t worry—gold’s daily DNA of volatility is only ±1%. The decline was an attractive buying opportunity I hope you took advantage of.
This weekend marks the start of India’s five-day Diwali celebration. Also known as the Festival of Lights, Diwali is considered an auspicious time for gold buying.
Indian gold demand fell 30% year-over-year in the September quarter as high prices discouraged consumers. The good news is that 2020 was the second straight year of good monsoon rains, which is supportive of India’s rural economy, responsible for about 60% of annual gold demand, according to the World Gold Council (WGC).
Also in gold-related news, Judy Shelton moved one step closer to getting a seat on the Federal Reserve Board. The former economic advisor to Trump supports both longer-for-longer interest rates as well as a return to a gold standard. However unlikely that may be, it’s good to know someone on the Fed has gold in mind.
Shelton could be confirmed by the full Senate as early as next week.
This week spot gold closed at $1,889.20, down $65.15 per ounce, or 3.18%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 8.58%. The S&P/TSX Venture Index came in off just 0.80%. The U.S. Trade-Weighted Dollar rose 0.54%.
|Nov-10||Germany ZEW Survey Expectations||44.3||39.0||56.1|
|Nov-10||Germany ZEW Survey Current Situation||-63.5||-64.3||-59.5|
|Nov-12||Germany CPI YoY||-0.2%||-0.2%||-0.2%|
|Nov-12||Initial Jobless Claims||731k||709k||757k|
|Nov-13||PPI Final Demand YoY||0.4%||0.5%||0.4%|
|Nov-15||China Retail Sales YoY||5.0%||—||3.3%|
|Nov-18||Eurozone CPI Core YoY||0.2%||—||0.2%|
|Nov-19||Initial Jobless Claims||715k||—||709k|
- The best performing precious metal for the week was platinum, off just 0.23 percent on positive price forecast. Spot gold rose as much as 1.5% on Tuesday, recouping some of its losses from Monday after positive news of a coronavirus vaccine was released. The yellow metal also rose on Thursday and appears to have steadied after the dollar fell on news that COVID-19 cases are surging in the U.S.
- Russia’s finance ministry is proposing allowing its sovereign wellbeing fund to invest in precious metals, according to a draft amendment of the law published on the government’s website. Russian giant Polyus said the prefeasibility for Sukhoi Log, the world’s largest untapped gold deposit, shows annual production of 2.3 million ounces at a cash cost of $390 per ounce, reports Kitco News.
- In more Russian news, the country’s most expensive ever diamond – a 14.83-carat pink gem – was sold for $26.6 million at Sothbey’s in Geneva this week. The diamond was discovered by Alrosa PJSC and named “The Spirit of the Rose”.
- The worst performing precious metal for the week was palladium, down 6.76 percent, tumbled this past Wednesday by nearly 6 percent on little headline news for the day. Gold ETFs had the biggest weekly outflow since March as the prospect of a coronavirus vaccine hurt demand for the haven, reports Bloomberg. Investors sold at least 18 tons of bullion from ETFs this week.
- The London Bullion Market Association (LBMA) sent a letter to countries with large gold markets threatening to blacklist them if they fail to meet standards on money laundering and responsible gold sourcing, reports Reuters. The letter says nations that don’t declare support for LMBA standards by December 11 and share plans on how to implement them by the end of January won’t be able to supply LBMA-accredited refiners. This is the latest initiation to crack down on illegal or unethical gold trading.
- SSR Mining cut its gold production forecast for its Seabee mine for the fiscal year. Production for the third quarter was down 37% year-over-year of 20,249 ounces. Despite the negative news, its stock rose as much as 10% in intraday trading on Thursday due to its start of a 5-cent quarterly dividend policy.
- UBS Group sees platinum at $1,150 an ounce by the end of 2021 due to a resurgence of industrial activity and supply disruptions at Anglo Platinum’s converter plant. UBS also still believes that gold could trade to $2,000 an ounce in the coming months on expectations of another U.S. stimulus package.
- Goldman is also bullish on gold. The bank is targeting gold at $2,300 an ounce next year due to reflation pushing near-term real rates lower. Analysts said in a report that gold is primarily bought as a hedge against dollar debasement, and the bank expects its to be more sensitive to short-term real rates, akin to currency markets.
- Endeavour Mining Corp is in talks for a potential merger of equals with rival Teranga Gold Corp as it seeks to build scale. Bloomberg reports Endeavour is considering an all-stock purchase and may offer a low premium for Teranga, which has seen its stock surge 87% so far this year. This is a positive sign with more potential for deal-making in the industry.
- Diwali began this week but record high gold prices in India could erode demand for jewelry. Festival season in the world’s second largest gold consuming country is usually a strong time for gold buying in the form of jewelry. Record prices and the ongoing pandemic will likely hurt sales this year.
- Quarterly 13 F filing released over the coming days could show that big investors have sold gold positions in the quarter ended September 30. Bloomberg speculates that after bullion peaked above $2,000 an ounce August and then backtracked to below $1,900, big money managers could have sold their gold or gold mining stakes.
- Last week Wall Street legend Bill Miller said he strongly recommend bitcoin, and this week Stanley Druckenmiller revealed he now owns bitcoin. Forbes writes that Druckenmiller, after made headlines last week for his bearish views on the U.S. dollar, said he expects his bitcoin bet to “work better” than gold, though he holds a gold position that is “many, many more times” larger than his current bitcoin holding.
- The major market indices finished mixed this week. The Dow Jones Industrial Average gained 4.08% percent. The S&P 500 Stock Index rose 2.16% percent, while the Nasdaq Composite fell 0.55% percent. The Russell 2000 small capitalization index gained 6.08% percent this week.
- The Hang Seng Composite rose 1.73% percent this week; while Taiwan was up 2.31% and the KOSPI rose 3.20%.
- The 10-year Treasury bond yield rose 7 basis points to 0.895%.
By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors