The S&P 500 Index (SNPINDEX: ^GSPC) kept its winning streak alive, closing up 18.7 points, or 0.57%, on July 22. This marks the seventh consecutive day the index, which makes up about 80% of the market capitalization of all U.S. stocks, has closed higher.
The biggest news driving markets today is the announcement that the U.S. federal government has reached a deal with Pfizer (NYSE: PFE) and BioNTech SE (NASDAQ: BNTX) to pay $1.95 billion for 100 million doses of the two companies’ jointly developed coronavirus vaccine, if it earns regulatory approval. Pfizer shares gained 5.2% on the news, while the smaller BioNTech’s stock surged almost 14% on the day.
The news spurred big gains by other healthcare and related stocks. Welltower (NYSE: WELL), Ventas (NYSE: VTR), and Healthpeak Properties (NYSE: PEAK), REITs — real estate investment trusts — that specialize in healthcare and seniors housing properties, shares gained more than 4%. Hospital operator HCA Healthcare (NYSE: HCA) reported earnings this morning, beating expectations and sending its stock up 12%.
Today’s biggest S&P 500-related news happened after the bell and came from a company that’s not even in the index — or at least not yet: Tesla (NASDAQ: TSLA). But after reporting a $104 million profit in the second quarter, that’s now set to change.
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U.S. government signs another coronavirus vaccine deal
Some details about today’s deal between Pfizer/BioNTech and the federal government: For $1.95 billion, the two partners will supply 100 million doses to the U.S. Health and Human Services and Department of Defense. The departments also hold the option to buy up to 500 million additional doses, dependent on FDA approval for a coronavirus vaccine candidate from the BNT162 program. According to recent data, there are two candidate drugs in the program, and both have been given fast-track designation by the FDA.
The vaccine candidate designated BNT162b1 is on track to begin phase 2b/3 clinical trials by month-end and would enroll up to 30,000 participants.
This is one of several agreements the government has reached as part of “Operation Warp Speed” to fund accelerated development of a coronavirus vaccine. Prior deals worth nearly $3 billion with other pharmaceutical companies are aimed at both securing hundreds of millions of doses of a successful vaccine and funding development.
While a typical vaccine development takes multiple years to complete because of the necessity of long-term human studies to prevent potential long-term adverse effects, it is expected that the FDA will issue an emergency use authorization for any coronavirus vaccine candidate that shows itself effective and safe much earlier in trials than is typical.
Healthcare stocks rising higher
The vaccine news is helping lift shares of other companies in the healthcare business that deal with some of the most at-risk populations. Welltower, Ventas, and Healthpeak all own seniors housing and nursing homes, and seniors have been by far the hardest-hit demographic by COVID-19. The prospects for a fast-tracked vaccine, with the department of Health and Human Services taking a large number of doses, offers some indication that the government plans to make sure at-risk groups, including physicians, nurses, first responders, and seniors, are given priority access.
Homebuilders roaring higher on strong demand
Homebuilder NVR (NYSE: NVR) reported second-quarter results today. Revenue and earnings were down 10% and 22% from last year — not surprising with stay-at-home orders all but shutting down construction and sales activity early in the quarter. But even with the negative events that saw order cancellations increase, the company said new home orders increased by 13% in the quarter. Investors bought on those positive numbers for continued strong demand, sending shares up 10% on the day.
Following NVR higher were other S&P 500 homebuilders D.R. Horton (NYSE: DHI), Lennar (NYSE: LEN), and PulteGroup (NYSE: PHM), up between 3% and 5% today.
Microsoft antitrust complains overshadows solid earnings
The technology giant’s cloud computing business continues to deliver massive growth. Azure revenue was up 47%, helping drive total revenue up 13% and delivering earnings of $1.46 per share, well above expectations for $1.36 per share.
But the relatively good report was not getting as much favorable attention as the negative implications from a complaint filed with the European Commission by competitor Slack Technologies (NYSE: WORK). In short, Slack alleges that by bundling Teams with its Office suite, Microsoft is unfairly using its scale to force users to install Teams and does not allow it to be removed.
If this sounds familiar to some readers, it’s not that different from prior antitrust complaints about Microsoft’s bundling of its web browser, Internet Explorer, with Windows in the past.
Tesla set to crash the S&P 500 party
With $104 million in net income, Tesla was able to check off the last box to gain eligibility for the S&P 500. The automobile, battery, and solar component maker has made a profit in four straight quarters and is likely to gain entry to the index quickly as a result. And it wasn’t just a profitable quarter because of some accounting moves: Tesla generated strong free cash flow of $418 million, and finished the quarter with $8.6 billion in cash and equivalents.
Up next for Tesla: Start its second U.S. Gigafactory, continue growing production in Asia, and see what happens when index funds with more than $1 trillion under management have to add Tesla shares to their top-15 holdings.
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