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Wall Street Breakfast: March Madness

Mar. 01, 2021 7:24 AM ETJNJ, PFE, BNTX, MRNA, DIS, NFLX, AMZN, T, RKLB, BRK.A, BRK.B, AAPL57 Comments
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March Madness

Which sectors will make it to the Final Four? That's a question investors are asking as the new month kicks off after things turned south for stocks at the end of February. The biggest monthly rise in bond yields since 2016 injected fresh uncertainty into the market, bruising technology stocks and triggering volatility streaks that saw the DJIA swing more than 1,000 points over three days. Things appear to be turning around this morning as the 10-year Treasury yield fell 4 bps to 1.4%. Futures: Dow +1%; S&P 500 +1.1%; Nasdaq +1.5%.

Quote: "This week is key. I'm expecting turbulence or volatility to remain with us until we have a better understanding of where central banks stand," said Andrea Carzana, a fund manager at Columbia Threadneedle Investments. "Further consolidation is likely in March, but we expect the market to find support shortly and subsequently challenge the recent highs again," added Jeff Hirsch, editor of the Stock Trader's Almanac, noting that April is statistically the best month of the year.

Another area that is taking bets is a potential increase in inflation due to recent stimulus efforts. The House passed President Biden's $1.9T coronavirus relief bill on Saturday, while the Senate is expected to follow suit shortly. The package includes funding for vaccines and medical supplies, an extension of unemployment benefits, a round of $1,400 stimulus checks to individuals, and financial aid to small businesses and state and local governments. As a result, the U.S. Treasury is expected to sell a huge amount of debt in coming months to pay for the measure aimed at supporting the recovery.

Go deeper: Fed Chair Jay Powell has aligned with the administration in waving off concerns about an over-heated economy, saying the job market has ways to go before inflation fears are justified. The support could trigger a strong period of growth, low unemployment and rising wages, though critics argue that it may lead to a cycle of rising prices, higher interest rates and a ballooning national debt. The views don't only have investors sizing up March, but also who will be in the championship at the end 2021.

Third coronavirus vaccine

Traders today are also applauding the FDA approval of Johnson & Johnson's (JNJ) COVID-19 shot, which was the third jab to be approved in the U.S. It's the first to have a single-dose regimen, a key tool in accelerating the vaccination drive. The decision clears the way for immediate distribution and vaccination of the Janssen vaccine to Americans 18 and older, building on a broader rolloiut that's currently utilizing jabs from Pfizer/BioNTech (PFE, BNTX) and Moderna (MRNA).

Bigger picture: Shipments from J&J will be limited at first, with just a few million vaccines going out immediately, but the company has a deal to supply 100M doses by the end of June. The single-shot product had an overall efficacy rate of about 66% in the Phase 3 clinical trial, and the U.S. arm of the trial showed an efficacy rate of about 72% and of 85% when protecting against severe or critical disease. The lower efficacy rate compared than rivals is raising concerns that some people may opt to wait for other vaccines, but shares of JNJ are still up 3.5% premarket to $164.

"Be careful when you try to parse this percent versus that," Dr. Anthony Fauci told NBC's Meet The Press. "They were not compared head-to-head. They were compared under different circumstances. All three of them are really quite good and people should take the one that's most available to them."

Outlook: As of Sunday night, 49.8M people across the U.S. (15% of the population) had received their first coronavirus vaccine, while 24.8M people (7.5% of the population) had received two doses, according to the CDC. J&J has said it plans to ship the vaccine, which contains five doses per vial, at 36 to 46 degrees Fahrenheit. That compares to the ultra-cold freezers that are needed for Pfizer's vaccine - between minus 112 and minus 76 degrees Fahrenheit - as well as Moderna's vaccine, which needs to be shipped at 13 below to 5 degrees above zero Fahrenheit. (111 comments)

Buffett's annual letter

First things first: Berkshire Hathaway's (BRK.A, BRK.B) Q4 operating earnings totaled $5.02B, up from $4.42B in the year-ago quarter, bolstered by its railroad, utilities and energy unit and "other businesses." The conglomerate also bought back $9B of its stock during the quarter (the same amount as Q3), bringing total buybacks for the year to $24.7B. That boosts shareholders' ownership "in all of Berkshire's businesses by 5.2% without requiring you to so much as touch your wallet," Warren Buffett said in his annual letter to shareholders.

The Oracle of Omaha also didn't reference any elephant-sized acquisitions, but rather stressed the importance of operating earnings. Berkshire's focus is to "increase this segment of our income and to acquire large and favorably-situated businesses." "Last year, we met neither goal: Berkshire made no sizable acquisitions and operating earnings fell 9%," he declared, adding that the company's intrinsic per-share value increased by retaining earnings and repurchasing about 5% of its shares.

Meanwhile, Buffett seemed to indicate that he's more content with acquiring stakes in well-run companies than buying them outright. "What’s out of sight, however, should not be out of mind: Those unrecorded retained earnings are usually building value - lots of value - for Berkshire," he wrote. Those companies that Berkshire invests in "use the withheld funds to expand their business, make acquisitions, pay off debt and, often, to repurchase their stock (an act that increases our share of their future earnings)."

Bottom line: Buffett pointed to Berkshire's investment in Apple (AAPL) as an example of the power of buying back stock. The company paid about $36B for a 5.2% stake in Apple as of mid-2018. Since then, Berkshire has received regular dividends of ~$775M a year and received an additional $11B by selling a small portion of its position. Even with that sale, Berkshire now owns 5.4% of Apple - an "increase that was costless to us, coming about because Apple has continuously repurchased its shares, thereby substantially shrinking the number it now has outstanding."

2021 Golden Globes

Shares of Disney (NYSE:DIS) and Netflix (NASDAQ:NFLX) are ahead by 2% and 1.2% premarket, respectively, after the two emerged as top winners at the 2021 Golden Globes. The studios won 15 of the prizes handed by the Hollywood Foreign Press Association in a broadcast hosted by Tina Fey and Amy Poehler. Things were also a little different this year as presenters and winners appeared remotely due to the COVID-19 pandemic.

Awards? Disney scored the top accolade of Best Motion Picture (Drama) for Nomadland, while Netflix dominated television with hits like The Crown and The Queen's Gambit. Other streaming services also picked up key honors. Borat Subsequent Moviefilm from Amazon Studios (NASDAQ:AMZN) was named Best Picture, Musical or Comedy, and star Sacha Baron Cohen won Best Actor. Daniel Kaluuya meanwhile notched Best Supporting Actor for his work in Warner Bros.' (NYSE:T) Judas and the Black Messiah (also streaming on HBO Max), while Schitt's Creek captured the award for Best TV Series, Comedy or Musical.

The supremacy of streaming services vs. traditional studios doesn't come as a surprise. Over the last year, many theater chains have been shuttered, while the biggest new films have been delayed or put online. Disney+ has gained an explosive 86M subscribers within a year and now expects 230M-260M on its flagship streaming service by 2024. It also temporarily halted its dividend last year following calls from activist Dan Loeb to plunge that cash into original content as it centers its operations around streaming.

In its most recent earnings call, rival Netflix revealed that it had surpassed 200M global subscribers for the first time after topping 100M subs in 2017. The streamer additionally detailed plans to be cash flow positive after 2021 and said would no longer need to tap debt markets to fund its programming (it has borrowed $15B to produce original content over the past decade). Netflix is also considering share buybacks, a practice it hasn't done since 2011, which was the last time the company was cash flow positive.


With 1 in 3 Americans now living in a state where adult marijuana use is legal, Virginia is no longer sitting on the sidelines. Over the weekend, local lawmakers narrowly approved compromise legislation that would make it the first state in the south to allow recreational weed. The bill now goes to Virginia Gov. Ralph Northam (D), who supports legalization, for his signature.

Fine print: The law would legalize the use of cannabis by people over the age of 21. It would also allow possession of up to an ounce by anyone over 21 and establish an agency to oversee regulation of the cannabis market. The state is hoping that its commercial recreational marijuana program could generate nearly $1.5B in annual sales within five years of the scheduled start on Jan. 1, 2024.

Specifics of the regulations were punted until next year, when they'll be decided by the legislature. Under discussion are the framework and criminal penalties for several offenses, including underage use and public consumption of marijuana. Currently, people under the age of 21 would face a $25 civil penalty and have to undergo treatment.

More details: Part of the bill is aimed at ending disparate treatment faced by people of color in the criminal justice system. The legislation calls for 30% of marijuana tax revenue to go to a fund aimed at communities historically over-policed for marijuana-related crimes. Some lawmakers and advocacy groups also complained the years-long waiting period needlessly extends unjust treatment, though others argued that going ahead without regulations could boost illegal pot sales.

What else is happening...

Rocket Lab nears deal to merge with Vector SPAC (VACQ) - WSJ.

Biden voices support for Amazon (AMZN) union vote in Alabama.

$15/hour minimum wage cannot be part of stimulus bill in Senate.

SPAC party may come to end soon, hedge fund manager warns.

Digital wallet payments overtake cash for in-store purchases in 2020.

Today's Markets

In Asia, Japan +2.4%. Hong Kong +1.6%. China +1.2%. India +1.5%.
In Europe, at midday, London +1.1%. Paris +1.2%. Frankfurt +0.7%.
Futures at 6:20, Dow +1%. S&P +1.1%. Nasdaq +1.5%. Crude +1% to $62.12. Gold +0.6% at $1739.90. Bitcoin +5.6% to $48033.
Ten-year Treasury Yield -4 bps to 1.4%

Today's Economic Calendar

9:00 Fed's Williams Speech
9:05 Fed's Brainard Speech
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
2:00 PM Fed's Bostic Speech

Companies reporting earnings today »

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Comments (57)

Rates down. Dollar down. Gold down. Stocks up big!
VoiceofSanitySometimes profile picture
NY AG Letitia James is the next in line to fire some shots across the bow of cryptos. (CNBC has a big article on her comments)

Just my opinion, but I think Yellen and she and all the other folks putting out these warnings are trying to give some advance notice that the crackdown is coming
SqueakyToy profile picture
@VoiceofSanitySometimes There was nothing untoward about her comments, as covered on CNBC. She simply warned that unlicensed broker platforms would not be tolerated which makes sense and merely reflects existing law (no illegal basement operations).
Thank god Schitts Creek won an award for best Comedy, Berkshire and Apple are continuing to buy back stock,, all is right with the world
"With 1 in 3 Americans now living in a state where adult marijuana use is legal..."

To point out the obvious, this is not true. It's illegal nationwide. Whether that's a good idea or not, running a business which sells an illegal product faces many hurdles, to put it mildly. Not to mention trying to tax a product which grows like a weed and has a long history of informal distribution.
edaskew profile picture
@ThisIsMyName It's probably time to make it legal nationwide. It's a pointless waste of time and money attempting to keep people who want to smoke weed from smoking it. If it were legal, at the very least that would remove revenue from those who sell it illegally. Then, the various plaintiff attorneys can go about the serious business of suing those who sell it legally. I don't see a downside, do you?

Personally, I think putting any sort of smoke in your lungs is a really bad idea. But I'm not interested in telling people what to do. On the other hand, if my taxes pay for your health care, then I do care. That's the biggest downside.

And just making it legal isn't going to happen. States will set up monopolies and auction off rights to grow and sell. Which maybe you were alluding to with "those who sell it illegally". I think state monopolies are a horrible idea, but unavoidable. Just as unavoidable as informal illegal distribution.

So if there's no harm in it, what would "the various plaintiff attorneys" being suing about?

And we really don't know if it's actually useful medically since research has been suppressed for decades. Maybe that's changing some.

But I agree, it's unproductive and impossible to try and stop people. So on balance, I'd say make it legal.
@ThisIsMyName don’t need to smoke it. Most of the medicinal use is focused on edibles.
There are many positive things going on , but the most important one is that the previous administration took the vaccine challenge head on and engaged the private sector to get going with the Feds footing the bill. Without that we would be still deep in recession.
10 year bond yield hit almost 1.5%. What if it exceed 1.5%?? I am very wondering now.
techy46 profile picture
@Miracle Maker

Maybe not today but well before 1 year.
Invader from Earth profile picture
As always true the higher the minimum wage the lower the employment. There is a terrible loss of jobs that has long been associated with rising labor costs. Our beloved Main Street businesses, Congress is purportedly trying to save from this terrible pandemic, will have to fire employees or not hire them back as wages pop.
@Invader from Earth as with every policy, there is a trade-off. Raising the minimum wage can benefit many people, including those that already make more than $15 an hour, through wage increases. It would definitely cost some jobs, but the general idea is that the benefits outweigh the costs.
techy46 profile picture
@Invader from Earth

Banks as well as others replacing jobs with AI and robotics.

Why waste time with a teller when an apps way smarter?
@Invader from Earth The real minimum wage is $0...
Invader from Earth profile picture
I notice that the Treasury auction this past week continues to be not reported. Why? Several things converge at these auctions that result in a change to interest rates.... anyone? Yes, higher bids or lower bids may change the average interest rate. Also, the amount that the Treasury decides it needs to borrow changes the rates. The more being borrowed, the higher the interest rates go. The less being borrowed the smaller the interest rate. This is an auction. Bids are placed at various interest rates and the Treasury takes the low bids first.
techy46 profile picture
@Invader from Earth

Fed's eating their paper and ink while banks fill up.

Banks pay 0% interest and while charging 3-6% for loans.

What's not to like if you're long $BAC and $WFC?

Banks will be raising buybacks and dividends while lowering epxenses.
I wish this commentator would read the script and stop trying to make it his own report. Can't follow along when he does it and find I'm better off just reading the report rather than wasting time with guy.
blueline profile picture
"bolstered by its railroad, utilities and energy unit"

Buffett does very well hauling oil from Canada. That revenue would have gone away if the pipeline were operating because it's cheaper (and safer) to move oil by pipe than it is to move it in rail cars.
@blueline even if its through pipelines Buffett makes money, he owns big stakes in the pipeline companies
@blueline Soooo how much did Buffett have to pay Jimmy Bidden to shut down the pipelines i say we get an investigation going on that
UpagainDownagain profile picture
@blueline Not if the Orifice can spend enough on the "right" candidate and get the pipe line stopped.
SqueakyToy profile picture
While it is anachronistic to pretend "the south" in 2021 includes Virginia, the capitulation of yet another state to the long-overdue decriminalization and legalization of marijuana bodes well for the future of MSOS stock picks.
Good for the stocks and logic and reason. The illegality of marijuana is one of the most absurd and illogical law in the US
Invader from Earth profile picture
@SqueakyToy In the past, laws were meant to protect the good citizens of the states. Now, the murder of our children is legal. Alcohol was made universally illegal due to health concerns. Now, it is legal again. Tobacco was known to be harmful for centuries and remains legal and subsidized by a marketing program of the USDA. Pot is now legal in many states and may or not be worse for our health than tobacco, but certainly not less harmful than tobacco. Life long smokers, like Rush Limbaugh and the great Senator Dole from North Carolina are dead or dying from tobacco. Shame on us. Is this our culture now? Are we now “hippies?”
@Invader from Earth Peopl don't just die from alcohol and tobacco. Shortened life expectancy yes. Rush Limbaugh should have died from the opiates...
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deercreekvols profile picture
Open invitation to Brunch.

Hope you are able to stop in after Breakfast and see what is on the table.

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