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The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Monday, August 31, 2020 Headlines

1. US markets end mixed to close best August in decades

2. Apple and Tesla keep rising after stocks split

3. China manufacturing slows a bit in August

4. Winners and losers for the month

5. Shipping shows slight signs of recovery

Markets Closed

Dow
28,430.05
−223.82 (-0.78%)

S&P
3,500.31
−7.70 (-0.22%)

Nasdaq
11,775.46
+79.82 (+0.68%)

VIX
26.41
+3.45 (+15.03%)

Bitcoin
11,705.08
−4.26 (-0.04%)

US 10-Yr Yield
0.693
−0.036 (-4.94%)

Image courtesy GettyImages/skynesher

Markets Today

U.S. markets closed out the month on an uneven note as the DJIA fell for the first day in five and the S&P 500 failed to make yet another all-time high. The Nasdaq did manage a new record high, spurred on by the big tech stocks that have led it all year long. Shares of Apple (AAPL) and Tesla (TSLA) both closed higher after their stock splits took effect this morning. Tesla hit a new all-time high (on a split-adjusted basis), as there seems to be no end in appetite for shares of the electric car maker.

Warren Buffett's Berkshire Hathaway announced a slew of investments in Japanese trading firms that the conglomerate has been adding to all year. Buffett, who turned 90 over the weekend, loves to preach investing in America, but he clearly sees opportunities in the East.

Perhaps the Oracle of Omaha can sense the pick up in shipping activity — particularly in Asia. It's happening as the largest economies in Asia continue with their recovery.

What a month it has been for U.S. equity investors. The DJIA closed out its best August since 1984, while the S&P 500 had its best August since 1986. That's the good news. What typically happens next — especially in election years — is not so good, according to LPL Financial. September is typically the worst month of the year for stocks, going all the way back to 1950. September and October are historically bad in presidential election years.

Chart courtesy LPL Financial

[NEW READER SURVEY: We are running another two-week survey of our U.S.-based readers to gauge your sentiment and see what moves, if any, you have been making with your money given the market recovery and current economic conditions. We'll share the results, as always, and we thank you for your time and participation.]

Headlines:

China's manufacturing PMI dropped slightly to 51 in August from 51.1 in July, as new export orders continue to shrink. Manufacturing activity, which missed expectations in August, has been in expansion territory (above 50) for six months in a row now. PMI for the non-manufacturing sector rose to 55.2 for August, compared with 54.2 in July, according to the National Bureau of Statistics (NBS).
The Chinese government has made it harder for ByteDance to sell TikTok's U.S. assets to an American buyer by Sept. 15. On Friday, it added "personalized information push service technology based on data analysis" and "artificial intelligence interactive interface technology" to its list of technologies that are subject to export bans or restrictions, meaning ByteDance will need China's approval first.
Zoom Video Communications (ZM) shares rose as much as 5% in extended trading on Monday after the company reported fiscal second-quarter earnings that were better than analysts had expected. Revenue grew 355% on an annualized basis in the fiscal second quarter, which ended on July 31, and income neared $186 million, according to its earnings release.
Warren Buffett's conglomerate, Berkshire Hathaway, has acquired slightly more than 5% of the outstanding shares in five of the leading Japanese trading companies. The companies are Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo, and the stakes were bought by insurance subsidiary National Indemnity Company over a year through regular purchases on the Tokyo Stock Exchange. The announcement about the recent moves was made in a press release a day after the famed investor celebrated his 90th birthday.
United Airlines is canceling the $200 change fee for domestic flights and said that, beginning in 2021, customers can fly standby for free if a there's an available seat on the same day as their previously planned flight. U.S. air travel is only at 30% capacity six months after the pandemic was declared. American Airlines and Delta dropped their $200 cancellation fee today, as well.
Nestlé is buying the remaining 74.4% of California-based Aimmune Therapeutics in a deal that gives it total enterprise value of $2.6 billion. Nestlé currently owns a 25.6% stake in the biopharmaceutical company focused on food allergy treatment. The $34.5 per share acquisition price represents a 174% premium to Aimmune's closing share price on Friday.
J.C. Penney's lenders plan to take ownership of the retailer after talks with potential outside buyers have so far failed, an attorney for the company said in a bankruptcy court hearing Monday. The company will continue exploring outside bids, but the retailer's advisers will now work with lenders to negotiate a debt-for-equity swap in the next 10 days, the company said.

Chart courtesy YCharts

August's Winners

There were plenty of large-cap technology stocks driving market returns throughout August, to be sure. The FANGMAN stocks (Facebook, Apple, Netflix, Google, Microsoft, Amazon, and Nvidia) all did their part. But a few of the top performers of the month show the dislocation between a company's stock performance and what's fundamentally happening inside that company.

L Brands (LB), August's best performer, recently announced a 15% reduction in its workforce and the closure of 400 stores. Those moves will save the company more than $400 million this year, but its business is in deep trouble.
Shares of Royal Caribbean (RCL) climbed 38% in August, but the stock is down 48% year-to-date, and recently announced it will postpone cruises until 2021. Passengers will eventually return if and when there is a vaccine, but Royal Caribbean and its competitors face a very challenging future.

Chart courtesy YCharts

August's Losers

August's worst performers were clustered around the healthcare, vaccine/virus prevention, and energy industries. The declines were not as steep as the gains made by the winners, which is a nice reversal from March and April, but there were some notable losers.

Occidental Petroleum (OXY) has been suffering from the decline in oil prices, excessive supply, and its purchase of Anadarko Petroleum last year, which has saddled the company with $36 billion in debt.
Gilead Sciences (GILD) fell 11.5% in August, but it is down 21% since the end of April when investors started to doubt the effectiveness of remdesivir, its antiviral medicine, in treating patients with COVID-19. The FDA granted the drug emergency-use authorization from the FDA last Friday, so it may reverse the trend.

Courtesy BankofAmerica

Shipping News

Ships ahoy! Container traffic is slowly increasing across the planet's oceans, and major ports are getting busier after fading in July. According to Clarksons Shipping Intelligence, global shipping activity by number of port calls is down -11% from a year ago, but up off the lows in May when port calls were down 20% year-over-year.

Buffett's timing is looking good!

More News:

General Electric (GE) Approaches Key Decision Point

Anheuser-Busch Stock Could Be Set Up for a Decline

Berkshire Hathaway Reveals 5% Stakes in Japan's Top Trading Firms

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(chart courtesy YCHARTS)

Shares of Advanced Micro Devices are up by over 6% amid the semiconductor company releasing its new entry-level graphics card: AMD Radeon RX 5300. Apple's stock price rose by over 3.5% today as shares have begun trading on a split-adjusted basis.

Oil stocks, including HollyFrontier, Phillips 66, and Marathon Petroleum, fell today amid continued fuel oversupply and demand uncertainty. Shares of MGM Resorts International are down by over 5% after the global hospitality and entertainment company laid off 18,000 employees—indicating the dire conditions in the travel and tourism industry.

Word of the Day

Split Adjusted

Split adjusted refers to how historical stock prices are portrayed in the event that a company has issued a stock split for its shares in the past. When reviewing price data, whether in tables or on charts, split adjusted data will reflect the increase in price as if there had been no split in the shares. It does this by anchoring the current price and working backwards. This gives the false impression that historical prices may appear lower than they actually were at the time. However, it gives a more correct representation of the amount of growth those shares have experienced from the past until the present day.

Photo credit DallasMorningNews

Today in History

Aug. 31, 1998:

The Dow Jones Industrial Average lost 512.61 points, its second-worst point drop ever (but not even in the top 20 losses by percentage). The front page of The New York Post screamed: KISS YOUR ASSETS GOODBYE! By year end, the Dow was 21.8% higher.

The New York Post, Sept. 1, 1998, p. 1.