Last week, the colossal names in the digital economy were all tied up in knots. Congress launched the most significant salvos yet toward breaking up names of the four Big Tech companies, saying they all enjoy “monopoly power.”

Yesterday, the stocks had a simple reply to lawmakers: stop us if you can.  They dominated the session, populating the top 15% gainers, with Apple (AAPL) as the very best performer in the S&P 500.

That’s the mood coming from all the hype surrounding today’s launch of the new iPhone. Insiders are pumped, so investors are getting pumped, although it remains to be seen if the consumer will be pumped. Nonetheless, it’s safe to say the replacement cycle, coupled with excitement over the wonders promised from the 5G, will stoke a solid - if not spectacular - demand.

Amazon (AMZN) was the fifth-highest percentage gainer on the day ahead of its two-day spectacle, known as Prime Day. The event is expected to generate billions in sales. And it’s also evolving as a new retail holiday, as many other retailers are jumping on the bandwagon.

So, what happened to all the breakup risks?

Last week, Congress released a 451-page report on these behemoths with Democrats leaning heavily toward breaking them up. Republicans argued for greater budgets for current overseers to make such decisions, as well as reign in future behavior. 

According to the Massachusetts Institute of Technology (MIT) report, Congress flopped big time, save for the idea of stronger budgets and oversight. The biggest problem is these companies are monstrous in size. But they do not meet the Department of Justice (DOJ) 2/3 market share definition of what constitutes a monopoly:

• AMZN: 38% e-commerce share
• AAPL: 40% smartphone share
• GOOG: 29% digital ad share
• FB: 23% digital ad share
• AMZN: 10% digital ad share

Can’t Get Enough

My darling I, can't get enough of your love babe

Girl, I don't know, I don't know why

I can't get enough of your love babe

Oh, some things I can't get used to

No matter how I try

Just like the more you give, the more I want

And baby, that's no lie

Oh no, babe

-Barry White

The United States rose against monopiles back in the day to prevent price hikes, but that’s not what’s happening these days. The MIT report pointed to lower consumer prices, including a 40% drop in the average price of books, and a 40% decline in the cost of digital ads over the past decade.

Here’s the rub: we love these services so much that we can’t get enough of them. The report points to research in the Proceedings of the National Academy of Sciences (PNAS) that shows consumers would have to be paid big bucks to give up the services of these would-be monopolies:

• $17,530 search engines
• $8,414 emails
• $3,648 digital maps
• $0 price to access to all of the above

So, this week it’s back to the investment proposition. Oddly, I think it reflects the breakup proposition. These companies are Juggernauts (sorry to mix Marvel characters), but they’re still not monopolies, and that’s why we invest in them. 

They have to keep getting better to stay ahead of the crowd. And that is the very essence of competition.

The Mouse that Roared

The battle in corralling consumers sparked a major reorganization announcement at Disney (DIS). The Mouse House is folding all media into a single organization that will include content distribution, as sales and Disney’s management says its primary focus for entertainment will be on streaming.

The move is designed to accelerate direct-to-consumer (DTC). And it comes just a week after activist investor Dan Loeb suggested the company drop its dividend to keep up with the content demands of streaming. 

Disney did not join its Communication Services brethren yesterday, which also got a spark when a major firm upped their social media stocks with a specific focus on Twitter (TWTR). But Wall Street loved the news, sending Disney shares soaring in after-hours trading.

Message of the Market

It was all about growth, but Financials got a nice pop, led by Morgan Stanley (MS) and Goldman Sachs (GS).

Computer chip makers rode Apple’s coattails, but many names in the 5G orbit did not fare so well:

• Lumentum Holdings (LITE)
• Keysight Technologies (KEYS)
• Zendesk (ZEN)
• JD.Com (JD)
• Analog Devices (ADI)
• Universal Display Corp (OLED)
• Qorvo (QRVO)

S&P 500 Index	+1.64%
Communication Services XLC	+2.67%
Consumer Discretionary XLY	+1.22%
Consumer Staples XLP	+1.10%
Energy XLE	+0.26%
Financials XLF	+1.19%
Health Care XLV	+0.69%
Industrials XLI	+0.59%
Materials XLB		-0.11%
Real Estate XLRE	+0.47%
Technology XLK	+2.70%
Utilities XLU	+0.61%

Also, after the closing bell, Ethan Allen (ETH) pre-announced better-than-expected revenues for the quarter. Management stated earnings per share would fall in the range of $0.34 to $0.36. The Street was looking for -0.02%.

The CEO’s Update

Our fundamentals remain strong. Retail written orders and backlogs continue to grow, with significant growth both in our design centers and from our e-commerce business. With our manufacturing production now reaching pre-COVID-19 levels, we are increasing capacity and production. Our unique vertical structure, whereby we produce about 75% of what we sell, mostly on a custom made-to-order basis in our own North American manufacturing plants, allows us to maintain stronger service levels with greater control over inventory.  

Hotline Model Portfolio Approach

Our model portfolio is fully vested, as we have been taking positions off the board. They were mostly at solid profits, where the underlying value rationale for owning the position was beginning to change, in part to redeploy capital elsewhere.

Today’s Session

The market is catching its breath after a dazzling session yesterday, and a very strong October, with designs on erasing the September pullback.

Earnings

JP Morgan (JPM) blew away Wall Street consensus.

• Revenue $29.1 billion consensus $28.2 billion
• Earnings per share $2.92 consensus $2.68
• Investment banking $2.19 billion consensus $2.09 billion
• Loan loss provision $611 million consensus $2.3 billion

Johnson & Johnson (JNJ) blew away the street on the top and bottom line, but a pause in Covid19 vaccine testing is weighing on the stock.

• Revenue $21.08 billion consensus $20.2 billion
• Earnings per share $2.20 consensus $1.98
• Revenue guidance $82.8 billion from $81.4 billion
• Earnings guidance $8.05 from $7.95

Small Business Sentiment Rebounds

Small business optimism came in much better than expected, rallying back to pre-pandemic levels.  There is still a large amount of anxiety, but small businesses are gearing up for increasing demand.

NFIB September

Keep watching 10-year yield, which continues to edge higher and momentum could lift it to .90%, which would be very positive for equities.

Comments

Charles PAYNE, FBN, you are the only source we Trust for FACTS, and financial information about investing. Thank you. GOD bless you Charles PAYNE and your wife and family MEMBERS. Ed on 10/14/2020 7:00:01 PM

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