Markets

Daily Markets: Return of Covid Restrictions Beginning to Weigh on Investor Sentiment

Customer getting temperature taken outside a restaurant in Tel Aviv
Credit: Amir Cohen - Reuters / stock.adobe.com

Today’s Big Picture

Equity indices in Asia ended the day’s trading mostly higher, spurred on by the 0.9% move higher in both Hong Kong’s Hang Seng and China’s Shanghai Composite. Japan’s Nikkei fell 0.2% on the day, while South Korea’s Kospi rose 1.3%. By mid-day trading, equity indices in Europe were higher across the board despite July Service PMI data that came in below expectations. U.S. futures point to a mixed but little changed market open later this morning following yet another record close for the S&P 500. As the earnings onslaught continues today, and investors digest both the July ADP Employment Report and the July reading on the U.S. Services economy, the impact of the Delta variant and the return of restrictions are a growing factor in investor thinking.

Data Download

Coronavirus

New York City has become the first U.S. city to mandate proof of Covid-19 vaccination to enter specific indoor businesses, including indoor restaurants, entertainment venues, and gyms. The mandate applies to both workers and customers. The specifics are to be finalized by the week of August 16.

Macau will close some entertainment and leisure venues like gyms, cinemas, and bars in a bid to stamp out Covid-19 after the city reported its first cluster of local cases in more than a year, but, for now, casinos will stay open. This news makes the upcoming earnings from casino companies like Wynn Resorts (WYNN) all the more interesting.

Alphabet’s (GOOGL) Google approved 85% of employee requests to work remotely or relocate once its offices fully re-open.

International Economy

Today brings a slew of Service PMIs for July from around the world which indicate the aggregate services economy grew in July but not as quickly as expected:

  • Australia’s Markit Service PMI (final) plunged to 44.2 in July from 56.8 the prior month, marking a 14-month low.
  • China’s Caixin Services PMI climbed to 54.9 in July from 50.3 in June. Anything above 50 is expansionary.
  • The Eurozone’s Markit reached 59.8, up from 58.3 in June and missing the expected figure of 60.4.
  • UK’s Markit/CIPS slipped to 59.6, better than the expected 57.8, but below June’s 62.4, from which it was expected to decline to 57.8.

We also got a bunch of retail sales from around the world:

  • Australia’s retail sales fell 1.8% MoM from 0.4% in May
  • Italy’s June retail sales rose 0.7% MoM from 0.2% in May
  • Eurozone retail sales in June rose 1.5% MoM, slower than May’s 4.6% increase and below the expected slowing to 1.9% for the month.

Domestic Economy

Yesterday Factory Orders for June came in stronger than expected, rising to 1.5% MoM instead of the expected 1.0% gain, and the prior month was upwardly revised to a 2.3% increase.

The IBD/TIPP Economic Optimism for August dropped to 53.6, the lowest since February, with consumers less optimistic about near-term economic prospects and their own financial outlook. The 6-month outlook dropped to a 6-month low of 50.2.

Household debt in the U.S. rose by $313 billion in Q2, the highest dollar amount since Q2 2007, driven mostly by mortgage originations. This was a 2.1% increase, with was the fastest pace since Q4 2013. Non-housing balances rose by $44 billion with a $17 billion increase in credit card balances and a $33 billion increase in auto loans while student loans fell $14 billion.

A new study from Oxford Economics found that while Americans’ savings rose by nearly $4 trillion during the pandemic, about $3.7 trillion of that (70%) went to the wealthiest 20% of Americans.

Later today we will get the monthly ADP Employment Change for July, Markit Services PMI, ISM Non-Manufacturing PMI, and the usual weekly EIA Crude Oil Stocks report.

Markets

U.S. equities closed in positive territory Tuesday, with the Dow and the S&P 500 rising 0.7% while the Nasdaq Composite added 0.4%. The yield on the 10-year Treasury bond was relatively unchanged after falling to a near 5-month low on Monday. After an unimpressive opening trading day last week, shares of Robinhood (HOOD) surged more than 23% yesterday.

Of the 11 S&P 500 sectors, Energy is up the most YTD, 31.8% as of yesterday’s close, but Real Estate is right behind at 27.8%, followed by financials at 25.0%. Digging into the details on occupancy levels for various REIT groups, the average occupancy level for Hotel and Resort REITs is just below 40%, which is about half of where it was in 2019 but well above the 30% level from a year ago. Retail REITs saw occupancy levels drop to just over 92% and are recently showing some minor signs of improvement. Office REITs saw occupancy rates fall from pre-pandemic 93% to 89.95% at the low in Q1 but are improving and now sit at 91.3%.

Stocks to Watch

Before U.S. equity markets open later this morning, investors will be presented with the latest quarterly results from a number of companies, including those from Cedar Fair (FUN), CVS Health (CVS), Emerson (EMR), EVO Payments (EVOP), General Motors (GM), Honda Motor (HMC), Kraft Heinz (KHC), Lumber Liquidators (LL), and Vulcan Materials (VMC).

Lyft (LYFT) reported a smaller-than-expected June quarter bottom-line loss while revenue for the quarter rose 125.5% YoY to $765 million, well ahead of the $700 million consensus. For the quarter, Active Riders rose 97% YoY to 17.1 million and revenue per Active Rider climbed 14.3% to $44.63. Adjusted EBITDA for the June quarter was $23.8 million, marking the company's first quarterly Adjusted EBITDA profit, two quarters earlier than initially targeted in 2019 and one quarter earlier than Lyft's most recent guidance. Near-term, Lyft expects to maintain higher levels of driver incentives to increase driver supply and to help reduce prices for the rider community, which will impact revenue.

Activision Blizzard (ATVI) topped consensus expectations for its June quarter revenue and EPS but guided its current quarter EPS below consensus expectations. Exiting the June quarter, the company’s total Activision Blizzard Monthly Active Users were 408 million. For the September quarter, the company sees EPS of $0.68 vs. the $0.75 consensus. However, for the full year 2021, Activision is now calling for net bookings of $8.65 billion EPS of $3.76 vs. the $3.75 consensus.

Match Group (MTCH) reported mixed June quarter results that missed on the bottom line despite revenue rising 27.4% YoY to $707.8 million vs the $692.8 million consensus. Of note, Tinder Direct Revenue grew 26% YoY driven by 17% Payers growth to 9.6 million and RPP growth of 8%. Match lifted its revenue guidance for both the current quarter and full-year above consensus expectations with Total Match Group revenue to grow north of 25% YoY in the second half of 2021. Sounds like a lotta swiping going on to us as the re-opening continues.

Shares of bio-based product company Zymergen (ZY) cratered in after-market trading last night after the company said it no longer expects product revenues in 2021 and for revenues to be "immaterial" in 2022. Zymergen recently became aware of "issues with its commercial product pipeline" that will impact the delivery timeline and revenue projections.

Gary Gensler, the chair of the U.S. Securities and Exchange Commission, called on Congress to give his agency additional powers to protect investors in the "Wild West" cryptocurrency markets that are "rife with fraud, scams, and abuse."

After today’s market close, investors will be digesting one of the busiest releases of quarterly earnings in some time. Included among that sea of reports are ones from ADT (ADT), e.l.f Beauty (ELF), Electronic Arts (EA), Etsy (ETSY), Fastly (FSLY), Jack in the Box (JACK), Medifast (MED), MGM Resorts (MGM), Nu Skin (NUS), Ping Identity (PING), Qorvo (QRVO), Roku (ROKU), and Uber (UBER). Those looking to get a jump on other earnings reports in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

  • August 5: Trade Balance, weekly Jobless Claims
  • August 6: Non-farm payrolls, Wholesales Inventories
  • August 9: JOLTs Job Openings and Labor Turnover Survey
  • August 10: Nonfarm Productivity Q2, Unit Labor Costs, API Crude Oil Stocks
  • August 11: Consumer Price Index (CPI), EIA Energy Stocks, Monthly Budget Statement
  • August 12: Producer Price Index (PPI), weekly Jobless Claims
  • August 13: Import & Export Prices, University of Michigan Consumer Sentiment
  • August 16: NY Empire State Manufacturing, Net Long-term TIC flows, Overall Net Capital Flows, Foreign Bond Investment
  • August 17: NAHB Housing Market Index, Retail Sales, Industrial Production, Business Inventories
  • August 18: Building Permits, Housing Starts, EIA Energy Stocks, FOMC Minutes
  • August 19: Philadelphia Fed Manufacturing Index, weekly jobless claims
  • August 23: Chicago Fed National Activity Index, Markit Manufacturing, Services & Composite PMIs, Existing Home Sales
  • August 24: New Home Sales, API Crude Oil Stock report
  • August 25: Durable Goods Orders, EIA Energy Stocks
  • August 26: Jobless Claims, GDP Growth Q2, Corporate Profits
  • August 27: Personal Income & Spending, Wholesale Inventories, PCE Price Index, Goods Trade Balance, University of Michigan Consumer Sentiment Report
  • August 30: Pending Home Sales, Dallas Fed Manufacturing
  • August 31: S&P/Case-Shiller Home Price Index, Chicago PMI, Conference Board Consumer Confidence, API Crude Oil Stock report

Thought for the Day

“Live in the sunshine. Swim in the sea. Drink in the wild air.” — Ralph Waldo Emerson

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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