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Daily Markets: Investors Await Big Week of Earnings

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Credit: Reuters / Gary Hershorn - stock.adobe.com

Today’s Big Picture

Disappointing key economic data out of China today led to the major equity indices in Asia-Pacific closing mostly lower and will likely be a damper on the U.S. markets today. China’s Shanghai Composite dropped 0.4%, the Shenzhen Component lost 0.9%, Japan’s Nikkei 225 fell 0.3%, South Korea’s KOSPI closed relatively unchanged and Australia’s ASX 200 added 0.1%. By midday trading, European equity markets are down across the board save for the UK, and U.S. equity futures point to declines at the open.

The 10-year U.S. Treasury yield climbed back above the 1.6% mark to start the trading week as energy shortages, labor market turbulence and “transitory” inflation continue to put pressure on the economy. With a light economic and earnings docket today, odds are Apple’s (AAPL) latest special event will be a highlight of the day. As we move through the week and the velocity of quarterly earnings reports increases, company comments on those factors will likely shape the direction of equities this week.

Data Download

Coronavirus

There are now over 240 million confirmed coronavirus cases worldwide and 4.9 million lives lost to Covid-19, according to data from Johns Hopkins. While that sounds horrifying, that may be understating the case as data gathered by the FT on excess mortalities in 2020 (the number of deaths above the historical average), has found that some countries have experienced a loss of life that is more than 50% higher than normal, and for all the countries analyzed, except for Denmark, excess deaths outnumbered official coronavirus deaths. Peru has seen more than double the number of deaths typically experienced in a year while Ecuador has seen more than 67% and Belgium lost 60% more lives than on average. New York City saw a 200% increase in deaths. No wonder so many are rethinking their lives, leading to the Great Resignation.

Globally 6.6 billion vaccine doses have been administered and weekly cases and deaths are trending down. In the U.S., 57% of the population is fully vaccinated. Cases are currently trending up in Florida, Idaho, Vermont, Maine, Iowa, Arkansas, West Virginia, and Delaware. Cases in all other states are either relatively stable or trending down.

The UK reported the highest daily jump in new cases Sunday since mid-July, leading former U.S. Food and Drug Administration Commissioner Scott Gottlieb to tweet, “We need urgent research to figure out if this delta plus is more transmissible, has partial immune evasion?” That’s an official “Ugh” from your authors.

International Economy

China’s economy slowed to more than the expected 5.0% in Q3, falling instead to 4.9% YoY after rising 7.9% in Q2 and compared to expectations for it to have slowed to 5.2%. On a sequential basis, China’s GDP rose just 0.2% QoQ. Industrial Production in the nation rose 3.1% YoY in September after rising 5.3% in August and compared to expectations for slowing to 3.8%. Retail sales in September grew more than the expected 3.5%, expanding 4.4% YoY from 2.5% in August. The country’s unemployment rate in September dropped to 4.9% from 5.1% in August.

Andrew Bailey, Governor of the Bank of England, when speaking to an online panel organized by the Group of 30, said that while he still believes the current spate of inflation is temporary and that central banks cannot counteract the impacts of supply chain disruptions, he thinks officials need to act to prevent higher inflation expectations from becoming entrenched. This entire concept around “inflation expectations” having an ability in and of themselves to drive inflation higher is a growing debate amongst economists and central bankers. If only the expectation of washboard abs could do the same. European Central Bank President Christine Lagarde made it clear she’s on team Transitory on Saturday, saying that while the ECB is paying “very close attention” to potential inflation drivers, “Inflation is largely transitory.”

New Zealanders are feeling the pinch, transitory or not, as inflation there is now at its hottest pace in 10 years.

Supply chain problems persist with 665 container ships waiting to enter ports as of Friday, according to data from Seaexplorer.com. That represents around 10% of the total current in service around the world. Outside LA, ships are waiting for more than 12 days on average before they can pull into port, which is about the amount of time it takes to cross the Pacific from Asia.

Domestic Economy

Friday’s Retail Sales came in stronger than expected, rising 0.7% MoM in September following an upwardly revised 0.9% increase in August, well above the expected 0.2% decline. Ex autos sales were up 0.8%. Despite having recovered to only around 80% of the pre-pandemic level of employment, spending is around 12% to 13% above the pre-pandemic trend according to economist Scott Brown of Raymond James.

According to the Energy Information Administration, nearly half of U.S. households that use natural gas to heat their homes can expect to pay an average of 30% more on their bills this winter than last year.

Today’s economic data releases include September Industrial Production, NAHB Housing Market Index, Net Long-term Tic Flows, Foreign Bond Investment, and Overall Net Capital Flows.

Markets

Friday’s better than expected September quarter Retail Sales report and continued strength in financial company earnings led the S&P 500 to gain 0.8% even though the 10-year Treasury yield rose to 1.58%. The Dow Jones Industrial Average rose 1.1%, while the Nasdaq Composite increased just 0.5% and the Russell 2000 fell 0.4%.

European stock markets also enjoyed their best week in the past few months, driven in part by mining companies that have benefited from rising metal prices.

Crude oil futures closed above $82/bbl on Friday, a new seven-year high, as a natural gas supply crunch in Europe and optimism about demand in the U.S. continued to propel the recent rally.

Stocks to Watch

Before U.S. equity markets open this morning, Albertsons (ACI), Philips (PHG), and State Street (STT) are expected to report their quarterly results.

When it reported its quarterly earnings report late last week, JB Hunt Transport Services (JBHT) shared that bottlenecks on the West Coast are going to “intensify further peak-season capacity needs into November and December."

Later today Apple will hold its latest virtual event at which is it is expected to introduce its latest M1 powered Macs and potentially updated Air Pods.

Walmart (WMT) announced the return of its month-long savings event, “Black Friday Deals for Days” in early November.

Stellantis NV (STLA) and LG Energy Solution entered into a memorandum of understanding to form a joint venture for lithium-ion battery production in North America.

Toyota Motor (TM) announced it will invest approximately $3.4 billion to develop and localize automotive battery production in the U.S. through 2030.

Ford Motor (F) will spend up to £230 million (~$315 million) to turn a transmission factory in northwest England into a plant to produce electric power units for cars and trucks sold throughout Europe.

Zillow (Z) reached its home-flipping capacity for the year and will hold off on agreeing to buy any more homes.

Facebook (FB) announced it will hire 10,000 engineers in the European Union as part of its effort to build the Metaverse, an immersive, shared digital worlds, where multiple people can interact in a 3D environment.

Dividends and More

Bitcoin rallied hard earlier this morning to over $62,000 after dropping over the weekend to nearly $59,000 as the first futures ETF tied to it may debut today. Late Friday asset manager ProShares field an updated prospectus with the SEC to the Bitcoin Strategy ETF (BITO) with today as the approximate launch date.

After Today’s Market Close

Hexcel (HXL), Steel Dynamics (STLD), and Zions Bancorp (ZION) are slated to report their quarterly results. Those looking to get a jump on the earnings reports to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

  • October 19: Building Permits, Housing Starts
  • October 21: Weekly Jobless Claims, Philly Fed Manufacturing Index, Existing Home Sales
  • October 22: Markit Service and Marketing PMIs (flash)
  • October 25: Chicago Fed National Activity Index, Dallas Fed Manufacturing Index
  • October 26: S&P/Case-Shiller Home Price Index, New Home Sales, CB Consumer Confidence
  • October 27: Durable Goods Orders, Wholesale Inventories, Durable Goods, Goods Trade Balance
  • October 28: Q3 GDP (advance estimate), Weekly Jobless Claims, Pending Home Sales
  • October 29: Personal Income & Spending, PCE Price Index, Employment Cost Q3, Chicago PMI, Michigan Consumer Sentiment

Thought for the Day

“Experiences shape the brain, but the brain shapes the way we view experiences, too.” ~Helen Fisher

Disclosures

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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