The market is underpricing the possibility of a vaccine, Goldman Sachs strategists say

French engineer-virologist Thomas Mollet looks at 24 well plates adherent cells monolayer infected with a SARS-CoV-2 virus at the Biosafety level 3 laboratory of the Valneva SE Group headquarters in Saint-Herblain, near Nantes, France, on July 30, 2020.

jean-francois monier/Agence France-Presse/Getty Images

The market is underpricing the possibility of a vaccine, Goldman Sachs strategists say.

Forecasts are assuming a nearly 40% chance of a vaccine being broadly available by the first quarter of 2021, and the strategists, led by Kamakshya Trivedi, say there is a good chance that at least one vaccine will be approved by the Food and Drug Administration by the end of November and broadly distributed by the middle of 2021. “This kind of timeline could see a substantial boost to GDP [gross domestic product] relative to a ‘no-vaccine’ case, particularly for the U.S., which is likely to lead the vaccine race and is likely to experience worse outcomes than in Europe without a vaccine,” the strategists say.

The steep rise in vaccine probabilities is one key reason that the equity market has managed to make new highs even without definitive improvement in U.S. health outcomes, the strategists add, with the other reason being the fall in inflation-adjusted bond yields.

The S&P 500

has climbed 49% from its March lows, and the technology-led Nasdaq Composite

has registered 31 records this year.

The current equity market level is consistent, they say, with a 60% chance of no vaccine.

“On these estimates, options markets may be underpricing the fatness of both ‘tails,’ especially the upside case. Out-of-the-money call options on the S&P 500 (and some other indices) still look attractively priced given our view of the vaccine timeline outcomes,” they say.

The strategists also say the U.S. election is being underappreciated, not for its impact on domestic policy but for international relations. The “international implications both in the run-up to the election and beyond will be equally important for market direction in coming months,” they say. While the slow-motion decoupling of the U.S. and China will probably continue regardless of who wins, “a Biden administration would likely use different tactics, including more cooperation with traditional allies and less aggressive use of tariffs.” This, in turn, could lead to another leg of the dollar

falling, particularly against the yuan

A vaccine could spark a renewed rotation toward traditional cyclicals, steeper bond-market yield curves, and outperformance in emerging market currencies and equities. “We suspect that it is still too early to position aggressively for that shift, but think that options exposure in some of these areas may already make sense,” they say.

School reopening risks, they add, may continue the theme of low real rates, tech leadership, and the defensive rally of the past month. “But with some of these moves getting stretched, investors should be open-minded about the possibility of a shift in leadership across global markets in the months beyond, especially if the news flow on the vaccine front continues to be encouraging,” the strategists said.

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Jeff Bezos, Elon Musk would pay tens of billions each under this whopping one-time tax proposal

Sen. Bernie Sanders

AFP/Getty Images

A new bill co-sponsored by Sen. Bernie Sanders would impose a one-time windfall tax on the wealth that billionaires have accumulated during the coronavirus pandemic, using the proceeds to pay for free out-of-pocket health-care costs for all Americans for a year.

The “Make Billionaires Pay Act,” introduced Thursday by Sanders and Democratic Sens. Ed Markey of Massachusetts and Kirsten Gillibrand of New York, would slap a 60% tax on the roughly $731.8 billion that the 467 richest people in America have accumulated since March 18 — a period in which more than 50 million Americans have applied for jobless aid, 5.4 million lost their health insurance and the nation’s economy has been thrown into shambles.

Proceeds from the one-time tax would allow Medicare to cover all out-of-pocket health-care costs for every American, including prescription drugs, for one year, the senators said.

In a statement, Sanders, the Vermont independent, said the bill would “tax the obscene wealth gains billionaires have made during this extraordinary crisis.”

 “At a time of enormous economic pain and suffering, we have a fundamental choice to make,” Sanders said. “We can continue to allow the very rich to get much richer while everyone else gets poorer and poorer. Or we can tax the winnings a handful of billionaires made during the pandemic to improve the health and well-being of tens of millions of Americans.”

Also read: This ‘dire’ economic situation ‘deserves to be called a depression — a pandemic depression’

According to the statement, after the tax, the richest 0.001% of Americans would still be left with more than $310 billion in collective wealth gains this year.

Some big names were singled out:

— Inc.

CEO Jeff Bezos, the richest individual on the planet and whose wealth has risen 63% during the pandemic to more than $190 billion, would pay a one-time tax of $42.8 billion.

— Tesla Inc.

CEO Elon Musk, whose wealth has nearly tripled as Tesla stock has skyrocketed in recent months, would pay $27.5 million.

— Facebook Inc.

CEO Mark Zuckerberg, whose wealth has risen by nearly $40 billion during the pandemic, would pay $22.8 billion.

— The Walton family, heirs to the Walmart Inc.

fortune whose wealth has grown by $21 billion, would pay $12.9 billion.

“Incredibly,” the senators said in a statement, “these billionaires currently pay a lower effective tax rate than teachers or truck drivers.”

No one with a net worth of less than $1 billion would pay the tax, they said.

“Requiring billionaires to pay their fair share will help support workers and families dealing with job losses, food insecurity, housing instability and health care,” Gillibrand said. “Not only is this a common-sense proposal, but it’s a moral one and Congress should be doing all we can to assist Americans struggling right now.” 

Taxing the ultra-rich has become a popular cry for Democrats following the Trump tax cuts of 2017. Last year, Sen. Elizabeth Warren, D.-Mass., proposed a tax on “ultra millionaires” as part of her presidential campaign.

It should be noted that, as MarketWatch reported earlier this year, starting the clock at March 18 lacks some context, as investors started worrying about the pandemic in February, leading to the stock market’s temporary but steep tumble.

For the year, the Dow Jones Industrial Average

is down 4%, while the S&P 500

is up nearly 4% and the Nasdaq Composite

has gained 24%.

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A ‘golden cross’ has formed in the Dow Jones Industrial Average

A golden cross formed in the Dow Jones Industrial Average
more than five months after a bearish chart pattern materialized in the aftermath of the carnage wrought by the COVID-19 pandemic.

A golden cross occurs when the 50-day moving average for an asset price trades above the 200-day MA, while a so-called death cross, comparatively, is when the 50-day falls below the long-term average.

On Thursday, the Dow’s 50-day stood at 26,251.34, and the 200-day moving average was at 26,229.91, according to FactSet data, marking the first time the short-time moving average has punched up above the longer-term average since March 20, and forming a chart pattern that is widely regarded as signaling that a trend higher for stocks appears to be at hand.

As MarketWatch’s Tomi Kilgore notes, crosses, overall, aren’t necessarily good market-timing indicators, however, as they are well telegraphed, but they can help put an asset’s move into perspective.

The last golden cross for the Dow occurred on March 19, 2019 and led to a steady rally for stocks until the death cross that formed nearly exactly year later in the wake of the pandemic.

Read: MarketWatch’s snapshot of the market for Thursday

The golden cross for the Dow comes about a month after a similar cross occurred in the S&P 500 index

Despite continued weakness in the economy, with the spread of the COVID-19 epidemic in many parts of the U.S. and the world, stocks have still climbed, boosted by government spending and Federal Reserve support for markets.

Technology names have been at the vanguard of the rally from the lows that were put in U.S. markets back in March as they benefited from work-from-home orders while businesses were shut down. However, the perception that technology-related companies are better situated to prosper in the aftermath also has helped the tech-heavy Nasdaq Composite Index

to register 32 record closes so far in 2020 while the S&P 500 and Dow have lagged behind.

The Dow, made up of 30 companies, has the lowest concentration of so-called technology or technology related companies and is a price-weighted gauge so its performance has been slightly weaker than those for the S&P 500 and the Nasdaq.

More than half of the Nasdaq comprises tech-related companies while more than a quarter of the S&P 500 consists of tech names.

Only a fifth of the Dow is tech, including Microsoft Corp
Cisco Systems
International Business Machines

and Intel Corp.

Those behemoth companies have helped the overall market mount a recovery from the coronavirus-induced lows, and as a result tech-leaning indexes have risen by the most.

The Nasdaq has surged by nearly 62% since its March 23 low and the S&P 500 has climbed almost 50%.

The Dow, isn’t far behind, and has gained 47% since its late-March nadir.

That said, the golden cross formation may suggest to some that the 124-year-old blue-chip index isn’t far from notching its first record since Feb. 12. The Dow stands about 7.3% from its all-time high, while the S&P 500 is about 1.1% from its Feb. 19 record closing high.

To be sure, a rejection of the golden cross isn’t unprecedented. A golden cross formed in January of 2016 but the Dow fell back into a death cross before carving out a new high, according to Dow Jones Market Data.

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Fastly stock drops 20% as analysts weigh in on how TikTok may affect the edge-computing platform’s growth

Fastly Inc. shares pulled back from their recent lofty heights Thursday, as analysts weighed in on how the popular video-sharing platform TikTok will affect the edge-computing platform’s growth as more businesses migrate functions to the cloud.


shares fell as much as 21% Thursday, and were last down 17% at $90.40, on volume of more than 23 million shares, compared with a 52-week average daily volume of 3.4 million shares.

Late Wednesday, Fastly reported quarterly results and an outlook that topped Wall Street estimates, but revealed that TikTok was the company’s single largest customer, accounting for 12% of revenue. Fastly is a so-called “edge-based” cloud-computing platform that allows developers to get the best possible performance from their applications.

TikTok has come under fire from President Donald Trump, who has suggested banning the service as a national-security risk because of ownership by the Chinese company ByteDance. Trump has also suggested that the U.S. Treasury should get a cut of the purchase price if TikTok is acquired by Microsoft Corp.
Also of note, organized TikTok users were credited with helping to wildly inflate attendance expectations of Trump’s ill-attended Tulsa, Oklahoma rally back in June.

Even with Thursday’s drop, Fastly shares have soared 324% from their opening on the New York Stock Exchange in May 2019, with shares skyrocketing 294% in the past three months. In comparison, the tech-heavy Nasdaq Composite Index

has gained 25% in the past three months, and the S&P 500 index

has risen 17%.

Oppenheimer analyst Timothy Horan downgraded Fastly to perform from outperform and said TikTok was a “major risk” to the elevated stock price.

“A TikTok ban in the U.S. could prevent FSLY from hitting 3Q/FY20 guidance,” Horan said. “TikTok is FSLY’s largest customer and is likely ~15% of revenues in 1H20, with about half that generated in the U.S. We do think a TikTok/ MSFT deal is far from certain, and long-term MSFT could move TikTok delivery on its own edge infrastructure.”

For the third quarter, Fastly forecast an adjusted loss of a penny a share to net income of a penny a share on revenue of $73.5 million to $75.5 million. Analysts, who had previously forecast a loss of 4 cents a share on revenue of $72 million on average, now expect earnings of a penny a share on revenue of $74.8 million.

Read:Facebook’s TikTok rival comes as Chinese company’s future is in limbo

William Blair analyst Jonathan Ho, who has an outperform rating on the stock, said weakness could make a good entry point given its recent performance, even with a possible U.S. ban of TikTok.

“Third-quarter guidance calls for sequentially flat revenue growth, which appears conservative but also reflects some unknowns around TikTok and continued COVID-19-driven demand as global economies reopen,” Ho said. “Fastly remains a stock we would want to own given broader themes around digital transformation and edge compute, and we would take advantage of weakness in the shares.”

Raymond James analyst Robert Majek, who rates the stock as market perform, said TikTok “remains a double-edged sword” for Fastly.

Majek said one “area of perceived softness” in Fastly’s results was slowing growth in its large enterprise customers, which could reflect a COVID-19 related pullback in spending, but noted the addition of a very significant customer.

“We note that the gross adds included one very meaningful customer, Amazon
which we believe is using Fastly to deliver ~90% of its image content across the 20 global cities we tested,” Majek said.

Stifel analyst Brad Reback, who has a buy rating and hiked his price target to $98 from $30, noted that while 12% of Fastly’s revenue came from TikTok, half of that came from outside of the U.S., and that digital transformation trends, prompted by COVID-19 adaptation, would drive more organizations to “re-platform their applications” using Fastly.

“The banning of the app in the US would create short-term uncertainty around Fastly’s revenue contribution from ByteDance; however, management believes it has the ability to backfill the majority of this potentially lost traffic,” Reback said.

Of the 11 analysts who cover Fastly, five have buy or overweight ratings, four have hold ratings, and two have sell ratings, and an average target price of $93.25, according to FactSet data.

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Coronavirus collapse is nothing less than ‘a depression — a pandemic depression’, warn top economists

Statues of unemployed men standing in line during the Great Depression at the Franklin Delano Roosevelt Memorial.

Agence France-Presse/Getty Images

‘This situation is so dire that it deserves to be called a “depression”—a pandemic depression … It seems disrespectful to the many losing their jobs and shutting their businesses to use a lesser term to describe this affliction. ‘

— Economists Carmen Reinhart and Vincent Reinhart

That’s the bleak assessment delivered by economists Carmen Reinhart and Vincent Reinhart in an article published online Thursday that will appear in the September/October issue of Foreign Affairs. Carmen Reinhart, a well-known Harvard economist, was appointed chief economist at the World Bank after completing the article. Vincent Reinhart was a top staffer at the Federal Reserve under Alan Greenspan and is now chief economist at BNY Mellon.

The memory of the Great Depression of the 1930s has made many economists reluctant to use the term to describe the current situation, they wrote. While the Great Depression was “wrenching in both its depth and its length in a manner not likely to be repeated,” they said, the 19th and early 20th centuries were, in fact, “filled with depressions.”

They noted that in recent global downturns, some engines of growth remained intact. Most recently, for example, emerging markets, notably China, were key source of growth in the 2008 financial crisis. “Not this time,” they said. “The last time all engines failed was in the Great Depression; the collapse this time will be similarly abrupt and steep. ”

The U.S. economy contracted at an annualized pace of 32.9% in the second quarter, according to official data, the sharpest since at least the late 1940s.

Some economists have argued, however, that the sharp contraction created as the pandemic forced the near-shutdown of the U.S. and other major economies will give way to a quick rebound and that the accompanying recession may have already ended. The stock market has roared back from its pandemic-induced plunge in February and March, with the S&P 500

ending Wednesday less than 2% below its all-time closing high from Feb. 19.

The authors acknowledged that some important economies are reopening, reflected in improving business conditions across Asia and Europe and in a turnaround in the U.S. labor market. “That said, this rebound should not be confused with a recovery ,” they wrote.

In the worst financial crises since the mid-19th century, it took, on average, eight years for per capita GDP to return to the precrisis level, they noted, while the median was seven years. Historic levels of monetary and fiscal stimulus might allow the U.S. to fare better, but most countries don’t have the capacity to offset the economic damage from the pandemic, they said, which means the rebound “is the beginning of a long journey out of a deep hole.”

They see three reasons for a long slog back to economic growth: the hit to global demand from border closures and business lockdowns that have hit export-dependent economies hard; a sharp rise in unemployment that’s likely to remain stubbornly high; and the regressive impact of the crisis, which has seen hit those with lower incomes the hardest.

“There is no one-size-fits-all solution to these political and social problems,” they argued. “Officials need to press on with fiscal and monetary stimulus. And above all, they must refrain from confusing a rebound for a recovery.

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