The stock market appears to be on board with the results of the special Senate election in Georgia. One of the races was named by Democrat Raphael Warnock by the big media vendors, while the other race is too close, but Democrat Jon Ossoff currently has the lead. If the Democrats win both races, the party, along with the House and the Presidency, will control the Senate, when elected President Joe Biden is sworn in later this month.
The Dow Jones Industrial Average (DJINDICES: ^ DJI) rose nearly 2% at 13:05 EST on Wednesday, beating the other major stock indices. Financial stocks were large, with Goldman Sachs, JPMorgan Chase, American Express, en The travel businesses bultend. Meanwhile, the shares of Coca-Cola (NYSE: KO) dropped after a third analyst downgraded the stock.
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Financial stocks rise
US government bond prices fell on Wednesday after the end of Georgia’s Senate elections, which pushed yields to the highest level since the pandemic began. The 10-year Treasury yield rose for the first time since March, 1%, to more than 1% Financial Times report.
A larger spread between short-term interest rates and long-term interest rates can help increase profits at banks, and higher rates are generally good news for insurance companies that need to place their investments in safe assets. This is how the Dow components fare early Wednesday afternoon:
Data source: Yahoo! Finance.
Credit card giant Visa is also in the Dow, but the company does not borrow money directly. The share in Visa increased by only 0.3%, which outperformed the broader market.
One day does not make a trend, so it may be a case of counting your chickens before they hatch. But if interest rates do start to rise, bank shares could do very well in 2021.
Coca-Cola misses after another downgrade
Shares of Coca-Cola tumbled 2.7% early Wednesday afternoon after a third downgrade by the analyst this week prevented the stock from participating in the broad stock market. The first downgrade took place on Monday over the valuation issues. Tuesday saw another downgrade, this time due to concerns about weak earnings growth following the pandemic.
On Wednesday, Deutsche Bank piled up with a downgrade of its own, which beat its Coca-Cola share rating from buy to hold. This third downgrade in as many days was enough to weaken investors on the stock as the broader stock market soared.
Shares of Coca-Cola did not return to their pre-pandemic highs, but they did cover much of the lost ground. The march since the decline earlier this year has taken place despite persistent weak sales in the segment outside the home, which includes restaurants. The restaurant industry may face years of upheaval as restaurants fail, so it may be a long time before Coca-Cola’s sales growth returns to normal.
The company is responding to the current environment by abandoning many of its weaker brands. The company also announced it was cutting about 2,200 jobs, of which 1,200 in U.S. sales fell 9% in the third quarter, and the total unit fall fell 4%.
Coca-Cola shares are still trading around 27 times the analysts’ average analysis for earnings for the year due to the slump that downgraded this week. The premium valuation may not last if the company struggles to become strong again.