Daily Markets: Busy Week Features Earnings, Jobs & Data Reports, Stimulus Negotiations, and Maybe A Hurricane
Today’s Big Picture
Despite the continued climb in coronavirus cases, equities in Asia closed the day mostly higher while European equities are up in mid-day trading following favorable July PMI data for both regions. The Caixin China manufacturing PMI hit its highest point since 2011 while manufacturing growth returned to the Eurozone for the first time in a year and a half. U.S. equity futures point to a positive open when those markets open later this morning.
If you thought last week was a busy one, you are not going to like what we have to share with you this morning. This week brings not only the start of the July economic data, including reports from ISM and IHS Markit, the July Employment Report and ADP's look at job creation in the private sector during the month. Interspersed will be more than 1,500 quarterly earnings reports including another 125 from S&P 500 companies, which means by the end of the week roughly 88% of the S&P 500 will have reported, giving us a far clearer picture on both June quarter EPS and how Wall Street expectations for the second half stack up.
If all of that wasn't enough, there are seven days until Congress leaves for its summer recess and the folks in Washington are still at an impasse over the next round of pandemic economic stimulus. On top of all of that, Tropical Storm Isaias is expected to be near hurricane strength when it hits the Carolinas in the U.S. Buckle up friends, it’s going to be quite a week.
By Sunday the number of cases of the coronavirus is the U.S. had reached 4.7 million with more than 154,000 lives lost to COVID-19, but yesterday saw the smallest increase in new cases and deaths in weeks. Over the weekend, California became the first state to see more than half a million total confirmed cases.
Million of coronavirus tests that can return results in 90 minutes are being rolled out across the UK starting this week.
An outbreak of the coronavirus has hit a Norwegian cruise liner with 36 staff members and one passenger on the Roald Amundsen have tested positive. Nearly 400 passengers from two cruises in July to the Arctic have to go into quarantines.
The state of Victoria, Australia has declared a state of disaster and is locked down even tighter this week with a total of nearly 12,000 infections in a state of around 6.5 million people.
Eli Lilly (LLY) announced it has initiated a Phase 3 trial of LY-CoV555 for the prevention of COVID-19 at long-term care facilities in partnership with the national institute of allergy and infectious diseases. LY-CoV555, the lead antibody from Lilly's collaboration with AbCellera, is a neutralizing antibody against SARS-CoV-2, the virus that causes COVID-19.
The decline in exports for South Korea slowed further in July, dropping just 7% YoY versus expectations for a 9.7% decline and the previous 10.9% contraction in June.
Japan’s manufacturing sector improve in July with the Jibun Bank Manufacturing PMI rising to 45.2 from 40.1 in June. Production volumes fell at the slowest rate in five months - these days a slowdown in contraction is something to cheer.
China’s Ciaxin Manufacturing PMI for July came in at 52.8, up from the prior 51.2 and besting expectations for an increase to 51.3.
The IHS Markit Eurozone Manufacturing PMI returned to growth in July, hitting 51.8 vs. 47.4 in June and the July flash reading of 51.1. This marks the first growth reading in a year and a half, which was widespread with all market groups registering PMI readings above 50.0.
Australia’s manufacturing sector also saw improvement in July, with the headline index rising to 54.0, its highest level since December 2019, from 51.2 in June. Total new orders also rose for the first time in 10 months in July, with the pace of increase the strongest since February 2019.
Last Friday's Personal Income and Outlays report for June was spectacular but painful given how the economy was forced to, in many states, incur restrictions of some degree again. Since the April lows, Household Consumption is up 21% on a seasonally-adjusted basis (excluding groceries, energy, and imputations), but is still 9% lower than it was in February. The problem is that the Pandemic Unemployment Compensation payments of $600/week have expired and the Fed Bank of New York's Weekly Economic Index has been stalling out recently.
Later today the Institute of Supply Management Manufacturing PMI for July will be reported.
While the Nasdaq-100 underperformed the third full week of July, it came back big the last week of the month, rising 2.6%, outperforming almost every other major U.S. equity index. That said, with the index up by 1.25% Friday afternoon, a full 75% of its members remained in the red, with the gains driven mainly by the biggest companies in the index. The Nasdaq Composite gained 1.5% Friday and is up 20% YTD.
The S&P 500 rose 0.8% on the day with those gains coming only in the last 2 hours of trading, and is up about 1% YTD. Five out of the eleven S&P 500 subsectors were down on the day. Tech now accounts for 27.2% of the S&P 500 sector weightings, almost 2x the next largest sector, healthcare at 14.7%. Energy has the lowest weighting at 2.5%. Tech has its highest weighting since 1999 when it accounted for 29.2%. The five largest stocks in the S&P 500 have added $1.7 trillion in market cap so far this year while the other 495 stocks have lost roughly the same amount at $1.6 trillion. Overall the S&P has seen aggregate market cap rise by just $52 billion this year.
The Dow rose 0.4%. Meanwhile, the safety trade of Gold is up 29% YTD and silver is up 36% YTD.
AAII bullish sentiment last week fell to the lowest level since May 2016 while bearish sentiment rose to 48.5% which is just 3.6 percentage points away from the March 26 high. The bears more than doubled the bulls with the bull-bear spread at its widest level in favor of bears since the first week of May. This spread has been negative for a record 23 weeks and historically when sentiment has been this skewed for this long, it has been positive for stocks over the next year. Go figure.
Stocks to Watch
Clorox Company (CLX) reported June quarter EPS of $2.41, $0.40 ahead of the consensus forecast as revenue for the quarter jumped 21.5% YoY. Organic sales for the quarter rose 24% YoY vs. the 17.1% consensus forecast. In what will be no surprise to anyone, the YoY sales increase was attributed largely to COVID-19 with double-digit gains across all reporting segments.
Mack-Cali Realty (CLI) reported June funds from operations (FFO) of $0.28 per share, $0.03 below the expected $0.31; revenues fell 16.2% YoY to $72.6 million, well below the expected $98.91 million. As of June 30, the company’s core office portfolio was 80.3% leased, with the Waterfront at 78.6%, class A suburban portfolio at 89.5%, and Suburban at 77.4%.
McKesson Corporation (MCK) announced Q1 (Jun) earnings of $2.77 per share, beating the consensus estimate of $2.39 as revenues fell 0.1% YoY to $55.68 B versus the $54.16 B expectation. The company raised guidance for FY21, seeing EPS of $14.70-15.50 from $13.95-14.95, as compared to the $14.39 consensus forecast.
Global Payments Inc (GPN) reported Q2 (Jun) earnings of $1.31 per share, beating the consensus estimate of $1.20 as adjusted net revenues of $1.52 B exceeded the expectations of $1.47 B.
Per Bloomberg, an unnamed Apple (AAPL) vendor is considering shifting its production facilities from China to India which, if correct, is expected to bring approximately 55,000 jobs and $5 B in exports to India. Partners of both Apple and Samsung have pledged to establish mobile phone production centers in India including such names as Foxconn Technology Group (HNHAF), Wistron Corp (WICOF), and Pegatron Corp (PGTRF).
Marathon Petroleum (MPC) reported a Q2 (Jun) loss of $1.33 per share, still $0.43 better than the consensus estimate of ($1.76) as revenues fell 54.9% YoY to $15.2 B versus the $17.49 B expectation. The company announced that it and certain of its subsidiaries have entered into a definitive agreement with 7-Eleven, Inc who will acquire Speedway for $21 billion in cash. The transaction is expected to close in the first quarter of 2021 and result in after-tax cash proceeds of approximately $16.5 billion that the company expects to use to both repay debt and return capital to shareholders. Specific details will be announced at the time of the transaction close. Marathon stated the arrangement includes a 15-year fuel supply agreement for approximately 7.7 billion gallons per year to Speedway.
Microsoft (MFST): Following a conversation between Microsoft CEO Satya Nadella and President Donald J. Trump, Microsoft is prepared to continue discussions to explore a purchase of TikTok in the United States. The company stated it will move quickly to pursue discussions with TikTok's parent company, ByteDance, in a matter of weeks with discussions ending no later than September 15, 2020. A potential deal would involve a purchase of the TikTok service in the United States, Canada, Australia, and New Zealand and would result in Microsoft owning and operating TikTok in these markets.
Google (GOOGL) will invest $450 million in ADT (ADT) in a partnership that will combine Nest's hardware and services, powered by Google's machine learning technology, with ADT's installation, service, and professional monitoring network. In exchange for its investment, which will give it a 6.6% ownership stake in ADT, Google will receive shares of a newly created Class B common stock having all of the rights and preferences of ADT's common stock.
Chinese electric vehicle company Nio Inc. (NIO) reported July vehicle deliveries that rose 322.1% bringing its YTD deliveries to 17,702, up 111.3% YoY.
Shares of International Game Technology (IGT) are moving higher in premarket trading following the gaming company announcing a sports betting and iGaming agreement with FanDuel Group across the U.S. through September 2024.
Shares of Heineken N.V. (HEINY) are down in pre-market trading following the beer company reporting a plunge in profits as UK pubs were closed during the lockdown period, leading overall beer volumes to fall 11.5%.
Menswear retailer Tailored Brands (TLRD), the parent company of Men's Wearhouse and Jos. A. Banks, filed for Chapter 11 bankruptcy protection Sunday. Over the weekend, Lord & Taylor also filed for bankruptcy.
After today’s market close, American International Group Inc (AIG), Ringcentral Inc (RNG), Take Two Interactive Software Inc (TTWO), Chegg Inc (CHGG), Trex Company Inc (TREX) and a host of other companies will be reporting earnings. To learn more about these and other earnings announcements investors should visit Nasdaq’s earnings calendar page.
On the Horizon
- Dates to mark:
- August 5: ADP Nonfarm Employment and ISM Non-Manufacturing PMI
- August 7: Nonfarm Payrolls and Unemployment Rate
- August 10: JOLTs report
- August 11: PPI
- August 12: Core CPI
- August 14: Retail Sales
- August 17: NY Empire State Manufacturing, TIC Net Long-Term
- August 18: Building Permits, Housing Starts
- August 20: Philly Fed Manufacturing
- August 21: Manufacturing PMI, Markit Composite PMI, Services PMI, Existing Home Sales
Thought for the Day
"Every time one person buys, another sells, and both think they are astute." - William Feather
- Trex Company Inc (TREX) is a constituent in the Tematica Research’s Cleaner Living Index.
- Microsoft (MSFT) is a constituent in the Tematica Research's Thematic Dividend All-Stars Index.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.