Daily Markets: Gridlock in Washington Continues to Influence Direction of Markets

Congress - erick4x4 for Getty images
Credit: erick4x4 for Getty images

Today’s Big Picture

Equities in Asia finished higher across the board led by the Hong Kong Hang Seng Index and Japan's Nikkei 225 Index, which finished 2.0% and 1.7% higher on the day, respectively. By comparison, European equities were mixed at the halfway point in trading today and U.S. futures point to a lower opening later this morning.

The agenda for investors today is pretty much the same as it was yesterday - gridlock in Washington over the next round of pandemic related stimulus, a plethora of corporate earnings, July economic data releases, questions over how the seasonal Back to School season will fare (assuming there will be an actual "back to school"), and the impact of Hurricane Isaias as it sweeps up the East Coast of the U.S. Barring any major progress in Washington today, we suspect those market drivers will remain the same for most of this week, leading the move in equities to twist and turn based on the latest news of the day. Hopefully, by the time Isaias is finished, we'll have some semblance of progress out of Washington for both pandemic related stimulus and any post Isaias needed emergency aid. Until then, buckle up and try to stay dry!

Data Download


There are now nearly 18.5 million recorded cases and 700,000 lives have been lost to COVID-19. After rising dramatically since mid-May, the 7-day rolling average of daily new cases may possibly be rolling over after peaking at 260,000 worldwide on July 31. The 7-day average of daily deaths may also be slowing after peaking at 5,700 lives lost on June 30. Data tends to be lower after the weekends due to slower reporting, but we’ll take any cause for hope that we can find.

The U.S. reported fewer than 50,000 new cases for a second consecutive day, keeping our collective fingers and toes crossed that this decline continues. California saw fewer than 6,000 cases for the first time since July 6 and Florida managed to have fewer than 5,000 for the first time since June 23. That said, Florida conducted fewer tests over the past two days due to the approach of the tropical storm Isaias.

International Economy

Australia reported sales rose 2.7% MoM in June, better than the expected 2.4%, after the prior month’s 16.9% rise due to the reopening of much of the retail sector. Exports rose 3% after declining 7% in May while Imports rose 1% after falling 6.7% in May.

North Korea is expected to see one of its worst economic downturn on record in 2020 according to Fitch Solutions, which is forecasting an 8.5% contraction.

South Korea’s consumer prices rose for the first time in three months in July, driven by rising prices for fresh foods after heavy rains. Inflation increased to 0.3% in July after sitting flat in June and below zero in May.

Eurozone PPI in June fell 3.7% YoY after falling 5% YoY in May and compared to expectations for a 3.9% decline. Overall the country’s economy contracted 3.3% in the April-June period from the prior three months while exports fell 7% in July - the slowest decline in four months.

Domestic Economy

Yesterday the Institute for Supply Management's Manufacturing Index showed that domestic manufacturing expanded for the third consecutive month to 54.2 in July from 52.6 in June, slightly better than expected. Most of the sub-indices have moved into expansion territory as well, with the only three out of the ten in contraction related to employment or inventories. So while production is ramping up, it is being done with fewer employees, at least for now.

Yesterday Black Knight updated their monthly mortgage data for June. Given that federal foreclosure moratoriums are still in place, the foreclosure rate in June dropped to record low of 0.36%. The wave of delinquent loans continued to become even more delinquent in June with the percentage of delinquent loans that are 90+ days late rising to 44.3% of all delinquencies. Loans 60+ days late fell from 40.1% to 26.3%. If there isn't some sort of extension on the foreclosure moratoriums in the next federal relief bill, there will be a profound increase in foreclosures on a national level. At the same time, mortgage rates are ridiculously low as are inventories of homes for sale, making for a rather hot housing market. The big question is how the market would be affected by a wave of foreclosures.

In June private residential construction fell 1.5% and single-family new construction fell 3.5%. Home improvement spending was down slightly MoM, but remains the highest share of construction spending since February 2017 and the second-highest share since the housing market bottomed out after the last recession.

Outside of the housing market, construction looks pretty awful. June saw manufacturing construction fall 9.1% YoY, lodging was down 14.6% YoY (not a surprise), while despite the crash in tax receipts, public safety construction rose 39.2% YoY and water supply spending rose 18.4% YoY.

U.S. Treasury Secretary Mnuchin told reporters yesterday that Democrats and Republicans appear to be getting closer to agreeing on a package for coronavirus economic aid and that Republicans are potentially open to a “bigger package if we can reach an agreement.” 

The U.S. Treasury is expecting to borrow an additional $2.2 trillion through the end of the year to fund Congress’ relief packages amidst plummeting tax receipts.

Later today we will get the usual weekly Redbook retail report, ISM New York Index, Factory Orders, IBD/TIPP Economic Optimism, and weekly API Crude Oil Stocks.


Yesterday the Nasdaq Composite rose 1.5% for its 29th record close for the year (up 22% YTD), the Dow rose 0.9% and the S&P 500 gained 0.7%, driven once again by tech stocks. Breadth overall was mixed. The dollar enjoyed a second day of gains and Treasury yields rose slightly.

Stocks to Watch

Movie theater company Cinemark (CNK) topped Wall Street consensus expectations for its June quarter following the closure of its theaters on March 18. In late June, the company opened five theaters in the U.S., showing library content, to test its new health and safety protocols with 13,000 patrons having attended. Cinemark targets following out its Cinemark Standard across theaters beginning on Aug. 21. 

International Game Tech (IGT) reported mixed June quarter results with EPS that missed the consensus forecast despite better than expected revenue for the quarter that fell 48% YoY. For the quarter, global gaming revenue fell 72% YoY while global lottery revenue fell 26%, which was mitigated by the 35% YoY jump in digital revenue.

Lending Tree (TREE) announced Q2 (Jun) earnings of $0.46 per share, $0.31 better than the consensus estimates of $0.15 as revenues fell 33.8% YoY to $184.3 M vs the $181.58 M expectation. The company issued in-line guidance for Q3, seeing Q3 revenue of $200-215 M versus the consensus estimate of $212.39 M.

Sony Corporation (SNE) announced Q1 (Jun) earnings of ¥186.94 per share, ¥110.70 better than consensus estimates of ¥76.24 as revenues rose 2.2% YoY to ¥1968.92 B vs the ¥1648.64 B expectation. The company lowered guidance for FY22, sees FY22 revs of ¥8.3 T versus consensus expectations of ¥8.67 T.

Consumer products company Edgewell Personal Care (EPC) missed June quarter expectations as revenue for the quarter dropped 20.6% YoY with organic sales falling 14.7% YoY. Overall sales performance was most impacted in the months of April and May, with June showing moderating declines, and that improving trend continuing into July. Edgewell also announced it will acquire men’s grooming company CREMO for $235 M.

Composite decking company Trex Company (TREX) bested consensus expectations on its top and bottom line for its June quarter as net sales rose 7% YoY and its gross margin expanded 150 basis points compared to the year ago quarter. The Trex Board of Directors approved a 2-for-1 stock split in the form of a stock dividend to be distributed on September 14 to shareholders of record at the close of business on August 19.

Texas Roadhouse (TXRH) reported better than expected bottom-line results for the June quarter despite revenue falling almost 31% YoY. For the quarter, comp sales fell 32.8% YoY at company restaurants and 32.1% at domestic franchise locations. Similar to other restaurant companies that have reported their quarterly results, Texas Roadhouse also reported improving comp sales throughout the quarter. That said, the company did not provide forward guidance.

Chegg (CHGG) reported strong June quarter results with EPS and revenue that topped consensus expectations. Revenue for the quarter rose 63% YoY with its Chegg Service Revenue accounting for 82% of revenue for the quarter. For the current quarter, the company sees revenue in the range of $140-$145 M vs. the $111.2 M consensus; for 2020, Chegg raised its revenue forecast to $605-$615 M, head and shoulders above the $502 M consensus.

Shares of Take-Two (TTWO) rose in aftermarket trading following the company reporting record quarterly revenue and upping its fiscal 2021 outlook. Net revenues jumped 54% to $831.3 M while bookings jumped rose 136% to $996.2 M, well above consensus expectations. The company’s catalog accounted for $915.5 M of the company’s booking led by Grand Theft Auto, NBA 2K, Red Dead Redemption, Borderlands, Social Point’s mobile offerings, Sid Meier’s Civilization, and the WWE series. For the full year, Take-Two now sees its booking in the range of $2.8-$2.9 B with GAAP revenue of $2.8-$2.9 B.

June quarter results from Freshpet (FRPT) topped expectations and the company boosted its 2020 outlooks. Revenue rose more than 33% YoY to $80 M versus the $77.1 M consensus. Freshpet now sees 2020 revenue of $320 M vs. the $312 M consensus forecast.

Harmonic (HLIT) reported better than expected June quarter results and lifted its guidance above consensus expectations. Commercial deployments for the company’s CableOS solution reached 29 customers, up 81% YoY and deployments tallied 1.7 M cable modems, up 116% YoY. Video software as a service customers jumped 136% YoY to 66 customers.

Hyatt Hotels (H) missed June quarter expectations as comparable system-wide RevPAR fell 89.4% due to the pandemic. For the month of July, preliminary estimates indicate RevPAR decreased approximately 76% for all comparable system-wide hotels YoY despite occupancy rates in China hitting roughly 65% at the end of July.

According to research firm Canalys, companies worldwide spent a record $34.6 B on cloud services during the June quarter, up ~11% QoQ and 30% YoY. Per Canalys, leaders included Amazon Web Services (AMZN) and Microsoft Azure (MSFT), which provide cloud-based collaboration and remote working tools.

Honda Motor (HMC) reported its July US auto and truck sales fell 11.2% YoY to 125,450 units.

After today’s market close, Activison Blizzard (ATVI), Beyond Meat (BYND), Ethan Allen (ETH), LendingClub (LC), Red Rock Resorts (RRR), Twilio (TWLO), Walt Disney (DIS) and dozens of others are slated to report their quarterly results. Investors looking to get a jump on those reports and others to be had this week 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 13: Initial Jobless Claims, Import/Export Prices, Bloomberg Comfort
      • 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, Initial Jobless Claims
      • August 21: Manufacturing PMI, Markit Composite PMI, Services PMI, Existing Home Sales and Options Expiration
      • August 24: Chicago Fed Activity Index 
      • August 25: Case-Shiller Home Prices, New Home Sales, Consumer Confidence, Richmond Fed Manufacturing, 
      • August 26: MBA Mortgage Applications, Durable Goods
      • August 27: GDP, Personal Consumption, Initial Jobless Claims, Bloomberg Comfort, Pending Home Sales, Kansas City Fed Activity
      • August 28: Personal Income and Spending, Trade Balance, PCE Deflator, University of Michigan Sentiment

Thought for the Day

“The most courageous act is still to think for yourself. Aloud.” ~Coco Chanel


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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