"Coronaconomy" July 24, 2020- Weekly Market Update
“Civil Rights Legend John Lewis Passes”
After a six-month battle with cancer, U.S. congressman John Lewis passed away last Friday. His death comes right as the nation is still struggling with racial upheaval following the death of George Floyd and the Black Lives Matter protests that are still sweeping the nation.
Lewis was a democrat who served as the US representative for Georgia’s 5th congressional district for over 30 years. He was also widely considered the moral conscience of Congress because of his decades-long nonviolent fight for civil rights. At the age of just 23, he was a keynote speaker at the historic 1963 March on Washington. He will definitely be missed.
Let’s take a look at some other updates from this past week.
Pfizer inks a $2 billion coronavirus deal
On Wednesday, the American pharmaceutical company Pfizer signed a $2 billion dollar deal with the United States government for 100 million COVID vaccines before 2020 is over. Didn’t know that there was a vaccine? Well, that’s because there’s not…
➢ Most vaccines take about 6-10 years to develop (the vaccine for the ebola outbreak in 2014 actually just got approved in December). However, the Trump administration doesn’t want to wait that long.
➢ The administration is paying big bucks to major pharmaceutical companies (NovaVax, J&J, Moderna, and AstraZeneca among others) in hopes that one company will be able to produce a vaccine quickly. This is done by using what’s called an mRNA vaccine that teaches cells to identify and attack the virus.
➢ If Pfizer is able to come up with a vaccine, the U.S. government will get the first 100 million vaccines that they can then distribute to citizens (for free). By paying Pfizer now, they’re essentially calling dibs on the first vaccine available.
Something that is going to be distributed to practically ever U.S. citizen (like a vaccine) is obviously going to have some regulatory hoops to jump through first. This is why it takes so long for vaccines to be made available. However, the Trump administration is hoping to push this process in the fast lane (what with the election coming up in November and everything…)
Airline industry losing altitude
Despite receiving a hefty bailout earlier in the year (to the tune of $25 billion), the airline industry is back in hot water. More so than other industries, they’ve been crippled by the coronavirus (ticket sales down 96%). Part of the reason why is because of their massive overhead. Have you ever felt a cringe at the price when gassing up your car? Imagine gassing up a fleet of 747 jets every day.
Part of the deal of the original bailout was that airlines weren’t allowed to lay off any employees until October. Well, now October is around the corner and...
➢ American Airlines warns of cutting 25,000 jobs.
➢ United told 36,000 employees that they may be furloughed.
➢ Delta is looking at cutting pilots’ pay and the CEO was quoted that the pandemics effet was “truly staggering”
The airline industry was already notorious for having razor-thin margins. Most passengers are happy to just go with the cheapest flight option, which turned the industry into a race for the lowest price (which is good for consumers but not for the businesses).
Now, in the wake of a pandemic, things aren’t looking so hot.
The unlikely winner of the Coronaconomy
Amazon, Netflix, Shopify, and other tech giants’ stocks have all been skyrocketing because their businesses actually benefit from COVID-19 measures (staying at home, working from home, quarantining, etc.). But there’s another unlikely winner who’s currently thriving: Domino’s Pizza.
➢ Sales have surged 16% this year because Domino’s has always thrived on serving customers out-of-store. They’re one of the few chains who handle their own delivery (no Uber Eats or Grubhub) so they get to keep 100% of their mobile orders.
➢ Their stock has surged 30% so far this year and is up almost 250% in the last 5 years.
Aid is on the way
Congressional lawmakers are coming close to finalizing another relief bill. The boosted unemployment benefits (the extra $600) is set to expire in July as there is a new spike in unemployment.
Treasury Secretary Steven Mnuchin said the Republican bill to extend an extremely reduced level of federal unemployment income will also include a second $1,200 direct payment that's very similar to the one sent four months ago. It’s interesting to take a look at the different ways to offer relief:
1. Corporate bailouts - While these tend to get a bad rep, they can actually do a lot of good if they’re used to keep paying employees. It’s essentially the government paying citizens through a corporation so that fewer people lose their jobs.
2. Relief checks - These are the most straightforward and just put money in people’s pockets. The good part here is that consumers get cash immediately to meet their needs.
3. Unemployment benefits - These are good because they last longer, giving the unemployed more time to get back on their feet.
That’s it for this week -- Join us next week for another market update.
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All the views expressed are those of Chris Simpson and not those of Sierra Ridge Wealth Management or NEXT Financial Group Inc. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.