Daily Markets: Coronavirus Vaccine, EU Stimulus News Boosts Market's Mood
Today’s Big Picture
Asian indices closed higher across the board today on positive data from trials of potential COVID-19 vaccines and a breakthrough in EU coronavirus stimulus talks - see Data Download for more on both. Those same catalysts have European equities trading higher today and U.S. futures point to a positive open when those markets open later this morning.
As we've become accustomed to over the last 12-18 months, there tends to be another shoe to drop, and potential one this time around is one we've seen before - geopolitical tensions. This morning China warned the UK it will "bear the consequences" if it suspends extraditions and arms sales to Hong Kong in response to China's national security law. Recall, the UK recently ordered the removal of Huawei equipment from British 5G networks by the end of 2027. This follows President Trump's recent comments that he's not even thinking about a Phase 2 trade deal with China.
In digesting all of the above, investors will also have to contend with the sea of quarterly earnings that only grows bigger over the coming days.
We are reaching 15 million confirmed cases of the coronavirus worldwide and over 613,000 lives have been lost. The U.S. is nearing 4 million cases and has lost nearly 145,000 lives to COVID-19. Brazil has over 2.1 million cases, India 1.2 million, and Russia 780,000.
Masks are now required in 28 U.S. states, as well as in some businesses, cities, and counties residing in states without mandatory face coverings. Masks are recommended by the Center for Disease Control (CDC) and the World Health Organization (WHO) to prevent spreading the virus.
We've got some good news on the vaccine front. The World Health Organization's (WHO) executive director of emergency programs said that the newly published data by Oxford University and AstraZeneca (AZN) is good news, "In generating T-cell responses and generating neutralizing antibodies, this is a positive result. But again, there is a long way to go. We now need to move into larger-scale real-world trials." This phase one trial consisted of over 1,000 participants and found that the vaccine produced antibodies and killer T-cells, which combat the infection and lasted at least two months.
Other good news was had from Synairgen plc (SNG:LN), a British pharma company, that reported its new respiratory coronavirus treatment SNG001 successfully reduced the number of hospitalized Covid-19 patients who needed to be placed on a ventilator. The drug is inhaled directly into the lungs through a nebulizer. Patients given the treatment had a 79% lower chance of developing severe disease than those given a placebo in a double-blind trial of 101 patients between March 30 and May 27. Those given the treatment were also more than two times as likely to recover over the course of the treatment period.
Becton Dickinson (BDX) announced additional pandemic orders for needles and syringes from the U.S. and Canada totaling 177 million injection devices. Across the world, the company has now received total orders of 330 million needles and syringes from the U.S., Canada, and the UK.
It appears the coronavirus is the gift that keeps on giving -- and yes, that was some sarcasm. With many school systems electing to continue online learning for the fall, parents who are heading back to the office are having to find child care. Of those companies that are planning to bring employees back to the office, only 32% have a plan to help parents balance child care with work, according to the Society for Human Resource Management.
After days of negotiations and sometimes bitter debate, the heads of European Union nations agreed to a €1.8 trillion spending package to combat the pandemic-induced recession in the region. The package is built around the bloc’s first-ever issuance of hundreds of billions of euros in common debt. The plan includes a €750 billion recovery plan which includes €390 billion in grants and the rest will come in the form of loans. Leaders also agreed to an EU budget of over €1 trillion that will run from next year to 2027. The deal still needs to be approved by the parliaments of member states, which is by no means assured.
South Korean exports are on track for their fifth consecutive month of declines, with the value of shipments from Asia’s fourth-largest economy dropped 13% in the first 20 days of July after falling double digits in June.
South Korea’s PPI fell -0.9% YoY in June after falling -1.8% in May.
Japan’s inflation rate rose 0.1% YoY in June while core inflation was flat YoY and ex-food rose 0.4% YoY.
Congress is back in session this week and will be trying to resolve key differences over how to handle the expiration of the $600-per-week enhancement to unemployment benefits that expire at the end of July.
The Transportation Security Administration (TSA) reported that in the week ended July 19, 4.65 million people passed through security checkpoints at U.S. airports, which is 4% below the prior week and the first weekly decline since April.
In terms of U.S. economic data, today brings the Chicago Fed National Activity Index for June, which is expected to increase to 4.0 from the prior 2.6, and the weekly retail data from Redbook. We’d note that following the receipt of last week’s retail sales, housing starts and industrial production reports for June, the New York Federal Reserve’s Nowcast report now projects 2Q 20 GDP of -14.3% vs. its prior view of negative 15.3% and the forecast for -35.5% exiting May. In terms of the current quarter, over the last few weeks, the GDP forecast has risen steadily and now calls for growth of 13.2% vs. 10.1% last week and negative 12.5% roughly a month ago. Given that we have a relatively small amount of economic data to chew through this week, odds are those forecasts won’t change much in the very near-term.
Yesterday was a weird one. The Nasdaq Composite rose 2.5% for its 28th record close in 2020, the S&P 500 rose 0.8% to break back into the green for the year, while the Dow was essentially unchanged. Interestingly, the Nasdaq has been up more than 2% to a 52-week high with less than 53% of stocks on the index rising that day only 7 times in history. Six of those times were in 1999 - 2000. The 7th time was yesterday. Hat tip to @pboockvar for pointing out that between 12 pm ET and the market's close, the market cap of Tesla (TSLA) grew by Ford’s (F) entire market cap. Amazon (AMZN) rose 8% and Microsoft (MSFT) gained 4%. What caught our attention was the lack of news from any of those companies to explain the gains. Only 125 of the S&P 500 component companies closed higher on the day and only 3 of its 11 sectors rose on the day.
U.S. Equity markets of 1960-70 gave us the "Nifty Fifty," a group of bulletproof Blue Chip stocks. It seems like even equities have managed to become smaller, faster and more powerful because in the 2010-20s it seems that we now have the "Fantastic 5" otherwise known as MSFT, AAPL, GOOGL, FB, and of course, AMZN that are seemingly unable to falter. Some of you will be thinking we have overlooked TSLA but for this group, we are looking at names that have not only consistently provided "value" to shareholders but are doing so consistently with less than stratospheric headline risk. While it is some comfort to have leadership in these markets, the narrowness of that leadership is something we are keeping an eye on.
Yesterday morning the yield on the Bloomberg Barclays Investment Grade index dropped to 1.98%, the first time on record that that yield has fallen below 2%. Silver rose above $20 an ounce during the day’s trading for the first time since September 2016 and gold closed near the top of its recent range at $1,818 an ounce. The VIX dropped below 25 for the first time in six weeks.
Stocks to Watch
Philip Morris International (PM) surprised with better than feared quarterly results that included EPS of $1.29 and a 13.6% YoY drop in revenue to $6.65 B versus the $6.54 B consensus. In terms of product mix, cigarette, and heated tobacco unit shipment volume fell 14.5% with the 17.6% drop in cigarette shipment volume more than offsetting the 24.3% gain in heated tobacco unit shipment volume for the quarter. Philip Morris issued 2020 guidance calling for EPS of EPS of $4.92-5.07 vs. $4.93 consensus; as a reminder in April the company withdrew its 2020 outlook that called for EPS of $5.50.
The Coca-Cola Company (KO) reported June quarter EPS of $0.42, a penny better than the consensus forecast despite revenue for the quarter coming in at $7.2 B versus the $7.26 B consensus. The company’s revenue for the quarter reflects a 22% decline in concentrate sales and a 4% decline in price/mix; global unit case volume declined 16% for the quarter. Per the company, “The revenue declines were primarily driven by pressure in away-from-home channels, which represent approximately half of the company’s revenues.” While Coca-Cola did not provide formal guidance it shared expectations for a 3% to 4% currency headwind for its 2020 revenue.
Novartis AG (NVS) reported June quarter EPS that was ahead of the consensus forecast despite revenue falling YoY to $11.35 B as compared to the $11.77 B consensus. Sales were mostly affected by lower new patient starts and significant reduction inpatient visits to physicians as a result of the pandemic. The company guided 2020 net sales to grow mid-single digits with core operating income expected to grow low double digits.
UBS AG (UBS) announced Q2 (Jun) earnings of $0.33 per share, beating consensus estimates of $0.30. The company reported a 2.5% drop in YoY revenues to $7.68 B as compared to estimates of $7.41 B. Company management cited COVID-19 as a source of both current global business disruption and unemployment as well as impacting their ability to predict timing and results of any future outcomes. While citing the high quality of existing clientele as a buffer of sort the company stated that, “Going forward, the pandemic, along with seasonality, may have an impact on client activity levels."
Paper-based packaging company Graphics Packaging (GPK) reported June quarter results that came in modestly ahead of consensus expectations. During the quarter, net organic sales increased 1.5% in Q2 and 3% in the first half of 2020 versus the prior year periods.
According to CEO Gary Kelly, around 17,000 employees of Southwest Airlines (LUV) have signed up for partially paid extended leaves of absence or outright buyout.
Distributed network and services company Limelight Networks (LLNW) reported June quarter results that topped top and bottom line consensus expectations and boosted its 2020 revenue guidance to $230-240 million versus the $221.1 million consensus.
IBM (IBM) delivered a June quarter beat with EPS of $2.18 per share on revenue of $18.12 billion vs. the $17.7 billion consensus. Of note to us was the comment from the company’s CFO on its earnings conference call - "Many clients continued to delay projects, defer purchases, and favor OpEx over CapEx spending in this environment."
Shared of Hibbett Sports (HIBB) climbed in after-market trading last night following the company sharing its expectation that June quarter total comp sales were up more than 70% YoY. For the quarter, brick and mortar comparable store sales are expected to increase approximately 60% while digital comparable sales are forecasted to increase approximately 200%.
Medical device and spine technology company NuVasive (NUVA) reported preliminary June quarter revenue of $202-$205 million, down ~30% YoY, due to the shutdown of elective surgical procedures and stay-at-home orders as a result of the pandemic.
Ulta Beauty (ULTA) will close 19 stores and now expects to open about 30 new stores in fiscal 2020, compared to its late May expectation of opening between 30 and 40 new stores in 2020. Ulta expects to resume new-store openings in August, and enter Canada in mid-2021.
Synaptics (SYNA) signed a definitive agreement to acquire DisplayLink, a leader in high-performance video compression technology, for $305 million in an all-cash transaction. DisplayLink's software compression technology enables universal docking and casting of high bandwidth video from any device to any display using any transport medium such as USB, Ethernet, or Wi-Fi.
Fortinet (FTNT) acquired OPAQ Networks, a Secure Access Service Edge (SASE) cloud provider whose Zero Trust Network Access (ZTNA) cloud solution protects organizations' distributed networks, from data centers to branch offices, to remote users, and Internet of Things devices.
Microsoft’s (MSFT) LinkedIn will lay off approximately 960 workers, or about 6% of its workforce, as the professional networking site contends with falling demand for recruitment amid the Covid-19 pandemic.
Toyota Motor Corp. (TM) announced it won’t hold media briefings for its fiscal first- and third-quarter results this year as the automaker reviews its procedures following the coronavirus outbreak. The company will hold press conferences for half- and full-year results, spokeswoman Kayo Doi said. Toyota hasn’t made decisions about briefings beyond this fiscal year.
Ford shared it is developing the Mustang Mach-E 1400, a racing version of its upcoming all-electric Mustang Mach-E crossover with 1,400 horsepower. Why? To show the potential performance of all-electric vehicles as it invests $11.5 billion in electric vehicles worldwide through 2022.
After today’s market close, Capital One (COF), Snap (SNAP), Texas Instruments Incorporated (TXN), Canadian National Railway Company (CNI), Interactive Brokers Group, Inc. (IBKR), United Airlines (UAL), and many others are scheduled to report earnings. To get the 411 on those reports as well as get ready for the continuing earrings maelstrom that has kicked off this week, investors should visit Nasdaq’s earnings calendar page.
On the Horizon
- Dates to mark:
- July 22: MBA Mortgage Apps, FHFA Home Prices, Existing Home Sales
- July 23: Initial Jobless Claims, Bloomberg Comfort, Leading Index, Kansas City Fed Manufacturing
- July 24: Preliminary Markit PMIs, New Home Sales
- July 27: Durable Goods, Capital Goods, Dallas Fed Manufacturing
- July 28: Case-Shiller Home Prices, Consumer Confidence, Richmond Fed Manufacturing
- July 29: MBA Mortgage Apps, Trade Balance, Wholesale Inventories, Retail Inventories, Pending Home Sales, FOMC Rate Decision
- July 30: GDP, Personal Consumption, Jobless Claims, Bloomberg Comfort
- July 31: Personal Income and Spending, PCE, Employment Cost Index, Univ of Michigan Sentiment
Thought for the Day
“Money is in some respects life's fire: it is a very excellent servant, but a terrible master.”~ P.T. Barnum.
- Coca-Cola (KO), Microsoft (MSFT), Philip Morris International (PM) are constituents in the Tematica Research's Thematic Dividend All-Stars Index.
- Fortinet (FTNT), IBM (IBM) are constituents in the Foxberry Tematica Research Cybersecurity & Data Privacy Index.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.