Markets

Daily Markets: Investors Juggle Earnings, Eurozone Recovery Package, and Covid-19 Cases This Week

Mask-wearing man walking past a closed barber shop
Credit: Jason Cairnduff - Reuters / stock.adobe.com

Today’s Big Picture

Equities in Asia started the week off mixed with Japan’s Nikkei up slightly and China’s Shanghai Composite up more than 3% while Hong Kong’s Hang Seng traded off modestly as did South Korea’s Kospi. By mid-day trading in Europe, equities were also mixed, as were U.S. futures with the Dow and S&P 500 pointing to a weak start to the week, while the Nasdaq futures pointed to a modest gain.

Coming into this week, investors have several spinning plates they are watching:

  • The continued resurgence in COVID-19 cases that threatens the return of stricter measures,
  • Uncertainty over the Eurozone’s pandemic recovery package, and
  • A sea of earnings this week, including 78 S&P 500 companies.

When we close the books on July next week, just over 300 of those S&P 500 names will have reported their June quarter results, which means before too long we will have a firm handle on how second-quarter earnings are shaping up and also the degree to which EPS expectations are changing for the second half of 2020. We continue to think the domestic stock market is pricing in a “V” shaped recovery and should any one of those spinning plates crash to the ground, odds are we will see a return of market volatility as investors reassess their expectations for the second half of 2020.

Data Download

Coronavirus

The world is rapidly coming up on 15 million cases of the coronavirus and over 610,000 lives lost. The 7-day moving average of daily new cases worldwide is now over a quarter of a million. The U.S. has around 3.9 million cases and has lost over 140,000 lives to Covid-19. Brazil is the second most affected nation with around 2.1 million cases and 80,000 deaths. India is the third most affected with 1.1 million cases and nearly 28,000 deaths.

The picture of the pandemic is not getting any prettier in the U.S. Florida set a death record for a single state and Texas is preparing refrigerated trucks to handle the number of deaths from Covid-19 that are expected to overwhelm its morgues. The U.S. saw more than 64,000 new cases on Sunday, with California, Florida, and Texas continuing to lead infections. Florida saw its sixth consecutive day of new cases over 10,000.

International Economy

Over the weekend, the 27 members of the EU gathered in Brussels for the first face-to-face meeting in five months, to thrash out a €750B pandemic recovery package aimed at reviving an economy that has been devastated by the coronavirus crisis alongside a renewed EU budget for 2021-2027. The meeting started Friday morning and was initially to have ended Saturday but continued through Sunday as the richer northern nations of Austria, Sweden, Denmark, and the Netherlands clashed with the southern nations that were hit harder by the pandemic and are likely to be the bigger recipients of EU pandemic aid.

Negotiators quarreled over how to police individual countries’ respect for the rule of law and the amount of non-repayable grants the fund can provide. The northern nations are keen to cut the amount to around €350, while the southern lot are thinking something over €400 sounds a lot better. A core battle continues between the Dutch prime minister’s demand to have the ability to unilaterally veto grant payments if a country does not meet reform demands and Italy’s refusal to accept such terms. By late Sunday negotiations were deadlocked, with fears of a breakdown but with plans that talks will resume Monday afternoon in Europe.

Meanwhile, economists at the research firm IHS Markit in their July World Flash Report warned that rising coronavirus infections in many large economies around the world such as Brazil, India, and the U.S. are increasing the likelihood of a more W-shaped recovery versus the much-hoped-for V-shaped. The likely timing of a second economic downturn due to a second wave of closures would be later this year or in early 2021.

Germany's producer prices decreased by 1.8% year-on-year in June 2020, following a 2.2% fall in May, and marked the fifth consecutive drop in the metric.

Domestic Economy

The U.S. housing market continues to rebound faster than much of the rest of the economy. Housing starts rose 17.3% MoM in June to an annualized rate of 1.186 million, back to pre-pandemic lockdown levels, and better than the expected increase to 1.169 million. This came after a 4.3% increase in May. Building permits for new homes, widely considered a leading indicator, rose 2.1% MoM to an annualized pace of 1.24 million after a 14.1% increase in May.

Last week saw Wall Street’s major banks posting their best trading quarter in 10 years as the pandemic, (and possibly work-from-home and stay-at-home boredom) led to highly active trading, giving JPMorgan Chase (JPM)Goldman Sachs (GS)Morgan Stanley (MS)Bank of America (BAC), and Citigroup (Cthe highest combined trading revenues since the first quarter of 2010 with some trading desks reporting trading volumes that were three to five times normal. That boon helped cushion the blow from required loan loss provisions, but executives have warned that there will be a sharp drop-off and that last quarter was a blowout that is unlikely to be repeated.

According to data from Yelp (YELP), around 66,000 businesses have closed since March 1 and even more concerning, from June 15 to June 29, the most recent period for which data is available, businesses were closing at a higher rate than during the prior three months. Researchers at Harvard, using data collected in weekly surveys by Alignable, estimate that nearly 110,000 small businesses in the U.S. shut down permanently between early March and early May. With small businesses accounting for about 44% of all U.S. economic activity, these closures are concerning, to say the least.

While retail sales from March to June definitely experienced a V-shaped drop and recovery, the higher frequency data such as restaurant reservations (using data from Open Table) and gasoline demand are showing signs of flatlining. The University of Michigan’s Consumer Sentiment Survey for July, released Friday, found that future expectations have dropped significantly while current conditions have remained fairly steady.

There are no economic data points expected to be published for the U.S. today.

Markets

Friday the major U.S. equity indices were little changed with the Nasdaq Composite and the S&P 500 closing up 0.3% and the Dow down 0.2%. Last week was the first down week for the Nasdaq in the past three while the S&P and Dow enjoyed their third consecutive week of gains. Year-to-date the Nasdaq 100 is up 21.9%, the Nasdaq Composite 17.1%, the S&P -0.2%, the Dow -6.5%, and the Russell 2000 -12.0%.

Stocks to Watch

Halliburton Company (HALreported mixed June quarter results this morning, beating bottom-line expectations but missing on the top line. For the quarter, North American revenue fell 57% YoY while International revenue dropped 17% YoY.

Cal-Maine Foods, Inc. (CALM) beat June quarter EPS expectations despite modestly missing revenue expectations for the quarter. Year over year, the company revenue jumped more than 60% as consumers purchased more eggs for preparing meals at home in response to the COVID-19 pandemic. Cal-Maine warned that ongoing uncertainties and supply chain disruptions related to the COVID-19 outbreak, weather fluctuations, and geopolitical issues surrounding trade agreements and international tariffs may lead to further egg price volatility.

Koninklijke Philips N.V. (PHGAnnounced Q2 (Jun) earnings of €0.35 per share, beating analyst estimates of €0.23. The company reported a 5.9% YoY drop in revenues to €4.39 B as compared to the €4.33 B consensus estimate.

Old National Bancorp (ONB) announced Q2 (Jun) earnings of $0.33 per share, beating consensus estimates of $0.24. The company reported loans at $13.7B at June 30, 2020, as compared to $12.4B in the March 2020 quarter driven by roughly $1.5B in outstanding PPP loan balances.

Quest Diagnostics (DGX) received emergency use authorization (EUA) from the U.S. Food and Drug Administration (FDA) to use specimen pooling with its proprietary molecular diagnostic test for COVID-19.

Walt Disney (DIS) has slashed its Facebook (FB) advertising spend. According to research firm Pathmatics, Disney was Facebook's top U.S. advertiser for the first six months of 2020, spending $210 million on Facebook ads for Disney+.

The Wall Street Journal reports eBay (EBAY) is in advanced talks to sell its classified-ads business to Norway’s Adevinta AS (ADE:NO), the company behind payment processor Vantiv.

Chevron Corp. (CVX) will buy Noble Energy (NBL) for about $5 billion, in what would be the largest oil-patch tie-up since the coronavirus pandemic delivered a shock to the industry.

Trane Technologies (TTsubsidiary Thermo King, announced a new hybrid refrigeration system for trucks and high loaders that is being delivered to customers across Europe. The new hybrid refrigeration systems seamlessly switches between diesel and electric mode, allowing transporters to operate in inner cities, residential areas, and low emission zones with the unit's diesel engine turned off.

Despite some improvement in June, French carmaker Renault (RNSDF) reported its global vehicle sales fell 34.9% in the first half of 2020 with the company fingering COVID-19 as the primary cause. Of note to us, its ZOE electric model sales rose nearly 50% during the period.

Ant Group, the fintech arm of Chinese e-commerce company Alibaba (BABA) has started the process of a concurrent initial public offering on Shanghai's Nasdaq-style Star Market and the Hong Kong Stock Exchange. Ant did not disclose the size, timetable, or other details of the offering.

Ford Motor (F) announced it will bring Intel’s (INTC) Mobileye's EyeQ sensors to its Co-Pilot360 suite of active safety technology and driver-assist systems. Along with sensors that support features like lane-keep assist, automatic emergency braking, and adaptive cruise control, Mobileye will provide its vision processing software to Ford for inclusion in future vehicles.

Gasoline engine manufacturer Briggs & Stratton (BGG) has entered into a definitive stock and asset purchase agreement with KPS Capital Partners, LP. To facilitate the sale process and address its debt obligations, Briggs filed for a court-supervised voluntary reorganization under Chapter 11. The company has also obtained $677.5 million in DIP financing, with $265 million committed by KPS and the remaining $412.5 from the Company's existing group of ABL lenders.

After today’s market close, International Business Machines (IBM), Cadence Design Systems, Inc. (CDNS), Limelight Networks (LLNW), and many others will report earnings. To get the 411 on those reports as well as get ready for this week’s earnings maelstrom, investors should visit Nasdaq’s earnings calendar page

On the Horizon

  • Dates to mark:
      • July 21: Chicago Fed Activity
      • 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

“When you step into your power and your true, authentic self you shine.” ~ Anonymous

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.

Read Chris's Bio

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.

Read Lenore's Bio

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.

Read Mark's Bio