Markets

Daily Markets: Investors Brace for Powell's Keynote And Laura's Wallop

Jereome Powell - Jonathan Ernst / Reuters
Credit: Jonathan Ernst / Reuters

Today’s Big Picture

Equities in Asia ended today’s trading on a mixed note with Japan’s Nikkei falling 0.4%, the Hong Kong Hang Seng sliding 0.8% and the China Shanghai Composite finishing 0.6% higher. Despite the U.S. Department of Commerce adding to its list of companies that are not allowed to do business with U.S. firms, China is now proposing to let U.S. regulators audit its state-owned enterprises. This is an interesting turn of events that could help solve a long-running accounting dispute; however, it remains to see how much of the audit results would have to be redacted due to China’s national security concerns.

European equities were down across the board by mid-day trading and U.S. futures are in the red as investors wait for Fed Chairman Powell’s 9:10 AM ET keynote that is expected to reveal conclusions of the Fed’s monetary policy framework review. Powell is also expected to detail a set of measures aimed at pushing inflation higher. Given the timing of the keynote address, we suspect we will see a quick response to Powell’s comments when U.S. equities open at 9:30 AM ET this morning.

Trading during the day is also likely to be shaped by developments associated with Hurricane Laura, which the National Hurricane Center has labeled an “Extremely dangerous Category 4 hurricane.” As damage reports are collected in the coming days, we’ll have a better sense as to the economic damage. Our thoughts and prayers go out to all those folks in the Gulf Region.

Investors will also want to keep an eye on Washington today, not so much because it is the final night of the Republican National Convention, but rather because Republicans are reportedly considering a more narrow COVID-19 relief bill.

Data Download

International Economy

According to the CPB Netherland Bureau of Economic Policy Analysis, world trade volume rose 7.6% MoM in June, with almost all countries experiencing growth except Japan, where imports fell further, down 2.6%. China and Eastern Europe also saw declines. So far this year, world trade has declined 2.7% in Q1 and a further 12.5% drop in Q2. Global production remains 8% below where it was at the end of 2019.

The World Economic Forum announced yesterday that it is postponing its upcoming meeting in Davos, Switzerland due to the pandemic. The annual meeting, which was to be held in January, will be rescheduled to early next summer.

South Korea has temporarily closed its National Assembly today amid fears of coronavirus transmission among the country’s legislators.

China’s Industrial Profits fell 8.1% YTD compared to the same period last year after contracting 12.8% last month.

Japan’s All Industry Activity Index rose by 6.1 percent month-over-month in June 2020, after a revised 4.1 percent fall in May.

France’s Business Confidence increased for the 4th month to 93 in August from July’s 82 and compared to expectations for an increase to 85.

In the Euro Area, loans to households rose 3% YoY in July after rising 3% in June. Loans to companies increased 7%YoY after rising 7.1% in June.

Italy’s Industrial Orders climbed 23.4% in June of 2020, following an upwardly revised 43.8% jump in May. On a YoY basis, Orders fell 11.8% in June after being down 34.7% in May. Industrial Sales rose 13.4% MoM after rising 42.3% in May; on a YoY basis, Industrial Sales fell 16.4% after being down 25.9% in May.

Domestic Economy

Yesterday’s advance durable goods report crushed estimates with new orders rising 11.2% versus the 4.8% expected. Core capital expenditures rose 2.4% MoM, well above the 1.5% forecast. Core shipments rose 7.8% MoM and are now 1.5% above February levels. Total inventory/sales is improving and is nearing more normal levels.

Since this is 2020, category 4 hurricane Laura is now expected to be the strongest storm to ever make landfall along the western Louisiana and North Texas coast, bringing winds of 145 mph and a storm surge of up to 20 feet. According to the National Hurricane Center, “Unsurvivable storm surge with large and destructive waves will cause catastrophic damage from Sea Rim State Park, Texas, to Intracoastal City, Louisiana, including Calcasieu and Sabine Lakes. This surge could penetrate up to 30 miles inland from the immediate coastline.”

Meanwhile, California could do with some of that water as around 7000 wildfires ignited by lightning strikes have burned over 1.32 million acres. Cal Fire has reported that over 15,000 firefighters are working combat the fires that have so far killed seven and destroyed 1,700 structures. According to Governor Gavin Newsom, “That puts us not on pace to have a historic wildfire season but actually sets the pace for a historic wildfire season.” Sounds about right in 2020.

Today the Federal Reserve Bank of Kansas City kicks off its Economic Symposium with a speech from Fed Chair Powell. We will also get the second estimate for Q2 GDP, PCE Prices for Q2, pending home sales, and the usual weekly jobless claims report and weekly EIA Natural Gas stocks report.

Markets

Yesterday the Nasdaq 100 gained 2.1%, the Nasdaq Composite 1.7%, and the S&P 500 was up 1.0% (its fifth consecutive day of gains and fourth consecutive record close) as all three closed again at new all-time highs. Despite the new high for the S&P 500, only 219 gained on the day and the S&P 500 Equal-Weight lost 0.1%, the Dow rose 0.3% and the Russell 2000 gained 0.2%. The MSCI All-Country World Index hit a new record intraday high, surpassing its February 12 peak. U.S. equities have contributed mightily to its recovery, with the Nasdaq 100 up 37.1% and the S&P 500 up 7.7% YTD.

The Nasdaq 100 is now 28% above its 200-day moving average, the biggest spread since the tech wreck of 2000. Tech had a phenomenal day with Salesforce.com (CRM) gaining more than 26% (more on that below), Netflix (NFLX) rose 12%, Adobe (ADBE) 9%, and Facebook (FB) 8%.

Gold closed at $1,960 an ounce and the VIX rose 5% to close at 23.3.

The level of investor optimism continues to be usually high. The CBOE’s equity put-to-call ratio, which measures the number of bearish option positions versus bullish ones, for 5-, 10-, and 30-day moving averages are all down at the lowest level since the 1999-2000 bubble.

A level of optimism is warranted as about 95% of the S&P 500 component companies have reported earnings and 82% of them beat EPS estimates, which is the best beat rate since the first quarter of 2007. That said, second-quarter aggregate EPS are down 32% YoY

Stocks to Watch

Today Amazon (AMZN) moves further into the grocery space as it opens its the first location of Fresh, its new chain of grocery stores. The 35,000-square-foot store will debut Dash Cart, a smart grocery cart that tracks shoppers' items and allows them to skip the checkout line, and feature Echo Show devices to ask Alexa where certain items are located. The store will have counter service for people to pick up orders from Amazon.com. Now to see how Walmart (WMT), Kroger (KR), and Albertsons (ACI) respond.

After reporting blowout earnings report Tuesday night that saw EPS beat expectations by more than a factor of 2x and revenues beat by 5% on top of the news that it is being added to the Dow Jones Industrial Average, Salesforce.com gained 26.3% yesterday. The company also announced it would cut 1,000 jobs, just under 2% of its overall headcount.

Builders FirstSource (BLDR) and BMC Stock Holdings (BMCH) announced that they have entered into a definitive merger agreement under which Builders FirstSource and BMC will combine in an all-stock merger transaction to create the nation's premier supplier of building materials and services.

William-Sonoma (WSM) beat consensus expectations for its July quarter with EPS of $1.80 as revenue for the quarter rose 8.8% YoY. Comp sales for the quarter were 10.5% vs. the expected 7.3% and the company’s e-commerce revenue jumped 46% YoY. Net comparable brand revenue growth of 10.5% was had, with sequential and year-over-year acceleration in nearly all brands, including Williams Sonoma at a record 29.4%, Pottery Barn at 8.1%, and West Elm at 7.0%. Total revenue growth in the mid to high single digits is anticipated for the long term. No short-term guidance was issued.

Shares of NetApp (NTAP) surged in aftermarket trading last night following the company’s quarterly earnings beat. The company reported EPS of $0.73, $0.32 ahead of the consensus forecast. Revenue rose 5% YoY to $1.3 billion, also beating the consensus. Billings for the quarter rose 6% to $1.15 billion and the company sees current-quarter revenue in the range of $1.225-1.375 billion vs. the $1.24 billion consensus. The company also announced it would reduce its worldwide headcount by 5%.

Splunk (SPLK) shares came under pressure last night after missing quarterly expectations and guiding the current quarter below consensus forecasts. Revenue for the company’s second-quarter fell 5% YoY to $492M, missing the consensus forecast by about $29 million. Growth in Cloud sales was offset by the decline in License revenue to $167.8 million from $279.3 million in the year-ago quarter. Splunk forecasts current-quarter revenue of $600-630M, below the $639 million consensus.

Despite reporting better than expected quarterly results, Raven Industries (RAVN) announced it has suspended its dividend indefinitely as it looks to reallocate capital to supplement and accelerate investments in Raven Autonomy, Raven Composites, and Raven Thunderhead Balloon Systems.

Movado Group (MOV) inked a license agreement with PVH (PVH) subsidiary Calvin Klein for the design, product development, distribution, and marketing of Swiss-made and fashion timepieces and fashion jewelry.

Fastly (FSLY) announced it will acquire Signal Sciences for $200 million in cash and approximately $575 million worth of Class A stock in a move that would expand Fastly’s security portfolio.

NXP Semiconductors (NXPI) announced that the first multi-device vehicle wireless charging solution driven by a single MWCT controller is now available in production vehicles.

AMC Entertainment (AMC) is set to reopen an additional 170 U.S. locations starting tomorrow, bringing its open theatre count to about 300 in total. AMC plans to have more than 400 locations open leading up to the release of the Warner Bros. film Tenet on Sept. 3.

Rolls-Royce (RYCEF) intends to sell its Spanish unit ITP Aero and other assets to raise at least £2B ($2.6B) to boost its balance sheet that has come under pressure as a result of the coronavirus pandemic.

The SEC charged BorgWarner (BWA) for materially misstating its financial statements from 2012-2016 by failing to account for over $700 million in liabilities associated with future asbestos claims.

Philips (PHG) signed an agreement to acquire Intact Vascular, Inc., a US-based developer of medical devices for peripheral vascular procedures.

Speaking at the virtual SMU Steel Summit, Steel Dynamics (STLD) CEO Mark Millett said he sees the steel market is at an inflection point and the industry will see upward momentum in the next month. In particular, Millett sees warehouse construction staying strong through 2020 and into 2021 as consumers move toward more online purchasing.

After today’s market close, Dell (DELL), ForeScout Technologies (FSCT), Gap (GPS), HP (HP), Smith & Wesson Brands, and Ulta Beauty (ULTA) among others are expected to report their quarterly results. Investors looking to get a jump on those reports and other upcoming ones to be had this week should visit Nasdaq’s earnings calendar page.

On the Horizon

  • Dates to mark:
      • August 31: Before the market open, Salesforce.com (CRM) will replace Exxon Mobil (XOM), Amgen (AMGN) will replace Pfizer (PFE) and Honeywell International (HON) will replace Raytheon Technologies (RTX) in the Dow Jones Industrial Average.
      • September 1: Before the market open, S&P SmallCap 600 constituent Lithia Motors (LAD) will replace LogMeIn (LOGM) in the S&P MidCap 400, and BankUnited (BKU) will replace Lithia Motors in the S&P SmallCap 600. Trupanion (TRUP) will replace Ring Energy (REI) in the S&P SmallCap 600.

Thought for the Day

“Life's as kind as you let it be.” ~ Charles Bukowski

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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