The stock market appears to agree with the results of the special Senate election in Georgia. One race was called up by the mainstream media for Democrat Raphael Warnock, while the other race is very close to being called up, but Democrat Jon Ossoff is currently in the lead. If Democrats win both contests, the party will have control of the Senate along with the House and the Presidency when President-elect Joe Biden takes office later this month.
O Dow Jones Industrial Average (DJINDICES: ^ DJI) rose nearly 2% at 1:05 pm EST Wednesday, beating the other major stock indices solidly. Financial stocks rose sharply, with Goldman Sachs, JPMorgan Chase, American Expressand The Travelers Companies arising. Meanwhile, actions of Coke (NYSE: KO) it fell after a third analyst downgraded the stock.
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Financial stocks soar
US government bond prices plummeted on Wednesday after the second round of the Senate election in Georgia, which has pushed yields to the highest levels since before the pandemic began. The 10-year Treasury yield exceeded 1% for the first time since March, the Financial Times reported.
A wider spread between short- and long-term interest rates would help increase bank profits, and higher rates in general are good news for insurers that need to put their float on safe assets. Here’s how the financial components of Dow were doing early Wednesday afternoon:
Data source: Yahoo! Finance.
Credit card giant Visa it is also at Dow, but the company does not lend money directly. Visa’s shares rose just 0.3%, outperforming the general market.
One day it doesn’t create a trend, so these movements may be the case of counting your chickens before they hatch. But if interest rates start to show an upward trend, bank stocks could do very well in 2021.
Coca-Cola loses after another downgrade
Coca-Cola shares fell 2.7% early Wednesday afternoon, after a third analyst downgrade this week prevented shares from participating in the broad stock market recovery. The first relegation came on Monday for evaluation reasons. Tuesday brought another downgrade, this time due to concerns about weak earnings growth after the pandemic.
On Wednesday, German bank stacked with its own downgrade, knocking down Coca-Cola’s stock rating from buying to waiting. This third downgrade in a few days was enough to sour stock investors as the broader stock market skyrocketed.
Coca-Cola’s shares have not fully recovered from their high pre-pandemic, but have largely recovered the lost ground. The recovery, from rock bottom earlier this year, occurred despite persistently weak sales in the out-of-home segment, which includes restaurants. The restaurant industry may face years of turmoil as restaurants fail, so it may take some time for Coca-Cola’s sales growth to return to normal.
The company is responding to the current environment by abandoning many of its weaker brands. It also announced that it is cutting about 2,200 jobs, including 1,200 in the United States. Sales fell 9% in the third quarter, and the global cash volume dropped 4%.
Coca-Cola shares are still trading at about 27 times the analysts’ average estimate for full-year earnings after the fall caused by this week’s downgrade. This assessment of the premium may not be sustained if the company struggles to return to robust growth.