Markets

Daily Markets: Stocks Keep Up Their Push-Pull Battle for Direction

Bull and bear statues are pictured outside Frankfurt's stock exchange in Frankfurt, Germany
Credit: Ralph Orlowski - Reuters / stock.adobe.com

Today’s Big Picture

Equity indices in Asia ended the day’s trading mixed, with modest declines in Japan’s Nikkei, China’s Shanghai Composite, and Hong Kong’s Hang Seng offset by the 1.7% rise in India’s Sensex and the 0.4% gain in South Korea’s Kospi. By mid-day trading, equity indices in Europe were modestly higher across the board while U.S. futures point to a positive open later this morning. We continue to see equity markets grappling with the push-pull of concerns over the speed of the global economy, rising input costs and supply chain disruptions, and the spread of the Delta variant, up against the rising vaccination rate and June quarter earnings that in aggregate are coming in better than expected. As such, we see investors looking to devour the other half of the economic data plate to be served up later this week.

Data Download

Coronavirus

U.S. Senator Lindsey Graham tested positive for Covid-19 yesterday after falling ill over the weekend, despite being vaccinated. He described his symptoms as mild and will quarantine for 10 days.

San Francisco and six other Bay Area counties including Marin, San Mateo, and Sonoma, have reinstated universal mask mandates for indoor public places effective today. They join a growing list that includes LA county, Washington DC, Miami-Dade, St. Louis, and most counties in Nevada. New York City has issued a “strong recommendation” for indoor masks, regardless of vaccination status.

The U.S. has now administered at least one dose of a Covid-19 vaccine to 70% of adults, just one month later than originally targeted.

They say that if you wait long enough, fashion comes back around again. This time, it didn’t take very long for masks. Home Depot (HD) announced yesterday that effective immediately, all workers will be required to wear masks indoors at its stores, and customers are “asked” to do the same but are not required. Effective today, Target (TGT) is shifting from recommending masks for unvaccinated employees and customers to requiring they be worn in areas with substantial or high transmission of the virus. Last week Walmart (WMT) reinstated its mask mandate for employees in areas with high rates of transmission. Disney (DIS) reinstated its indoor mask requirement on July 30.

The United Arab Emirates approved the use of the Chinese-produced Sinopharm vaccine for children aged 3 to 17.

International Economy

South Korea’s Inflation Rate rose more than expected to 2.6% YoY in July from 2.4% in June, where it was expected to remain.

Japan’s Tokyo CPI fell to -0.1% YoY in July from 0.0% in June. Core CPI rose to 0.1% from 0.0% where it was expected to remain.

The Eurozone PPI increased 10.2% YoY in June from 9.6% in May, a shade less than the expected increase to 10.3%.

Reports suggest recent floods in Europe and China are exacerbating already strained global supply chains posing an additional headwind to the 2021 holiday shopping season that is poised to be characterized by out-of-stock goods and shipping delays.

Domestic Economy

The growth of the U.S. manufacturing sector unexpectedly slowed for the second consecutive month in July, driven by shortages and worker absenteeism, as the ISM’s manufacturing index dropped to 59.5 from 60.6 in June versus expectations for an increase to 60.9.

Construction Spending also came in weaker than expected, rising just 0.1% MoM in June after May’s -0.2%contraction, but well below the expected increase to 0.4%.

Yesterday’s Q3 Senior Loan Officer Outlook Survey found that the biggest increases in demand coming from credit card loans (+97.2% YoY), Commercial Real Estate (CRE) Multifamily Residential Structures (+95.2%), and CRE nonfarm residential loans (+82.9%). On the end of the spectrum, GSE-Eligible Mortgage loan demand dropped 38.5% YoY, Government Mortgage down -23.9%, and QM Non-Jumbo, Non-GSE-Eligible Mortgages down -13.6%. At the same time, lending standards are reportedly loosening for Credit Card Loans, Commercial & Industrial (C&I) Loans from Large and Middle-Market Firms, QM Jumbo Mortgages, and C&I Loans from Small Firms.

Later today we will get Factory Orders, IBD/TIPP Economic Optimism, and the usual weekly API Crude Oil Stocks.

Markets

The S&P 500 fell 0.2%, the Dow dropped 0.3% while the tech-heavy Nasdaq Composite rose 0.1% for the first day of trading in August. The yield on the 10-year Treasury note fell to 1.162% from Friday’s 1.239%, dropping to the lowest levels since February 8. Brent crude futures dropped over 3%.

Stocks to Watch

Before U.S. equity markets open today, investors will have a smattering of corporate earnings reports to chew through including those from Alibaba (BABA), Clorox (CLX), Cummins (CMI), DuPont (DD), Henry Schein (HSIC), Marriott (MAR), Nikola Corp. (NKLA), Ralph Lauren (RL), and Under Armour (UAA).

Shares of Tencent (700:HK) and NetEase (9999:HK) tumbled earlier today following an article published by Economic Information Daily, a Chinese state-run publication, that compared online gaming to “opium” and called for further restrictions to prevent addiction and other negative impacts on children. The article was taken down and then republished, with the "opium" line removed.

NXP Semiconductor (NXPI) reported June quarter results that topped expectations as revenue for the quarter jumped 43.1% YoY. Automotive sales were up 87% YoY and 3% QoQ to $1.3 billion. Industrial and IoT increased 31% YoY to $571 million while Mobile rose 36% to $347 million. Communications Infrastructure and other was down 8% on the year and 1% on the quarter to $416 million. For the current quarter, the company sees revenue of $2.775-$2.925 billion vs. the $2.7 billion consensus and we expect management will shed more light on this outlook on its earnings conference call this morning.

Take-Two (TTWO) also reported better than expected June quarter results and issue EPS guidance of $0.35-$0.45 vs. the $0.27 consensus. However, for its fiscal 2022, the company sees revenue in the range of $3.2-$3.3 billion vs. the $3.4 billion consensus. During the June quarter, the company’s total Net Bookings fell 29% to $711.4 million with Grand Theft Auto Online and Grand Theft Auto V; NBA 2K21 and 2K20; Red Dead Redemption 2 and Red Dead Online; Borderlands 3; the WWE series; Dragon City; Two Dots; Sid Meier's Civilization VI; and Monster Legends being the largest contributors.

AP Moeller-Maesrk (AMKBY) reported Q2 revenues that came in 3.1% higher than expected but EBIT margins were a miss of about 55 basis points. EBITDA was a beat and guidance for the full-year EBITDA was raised by one-third at the midpoint. Volumes were up 15% YoY and freight rates up 59%. It’s quite rosy in the shipping world.

Stellantis NV (STLA) warned that increases in raw-material prices were likely to get worse in the second half and a global shortage of chips is likely to continue to weigh on production.

AT&T (T) closed its transaction unloading DirecTV and its AT&T TV and U-verse video services in a deal with TPG Capital that creates the new DirecTV company. Exiting the June quarter, the new DirecTV had about 15.4M premium video subscribers. AT&T continues to own HBO Max and the regional sports networks, U-verse network assets; and its investment in Sky Mexico.

Yesterday, Alphabet (GOOGL) shared its forthcoming Pixel 6 and Pixel 6 Pro smartphones will include new the company’s own Tensor chips when they go on sale later this year. Google had previously used Qualcomm (QCOM). processors in all of its Pixel phones since the first models launched in 2016. With this move, Alphabet joins Apple (AAPL), Facebook (FB), and Amazon (AMZN). Despite its smartphone success with the Android OS, reports suggest its smartphone market share in the US is roughly 2% vs. 54% for Apple and 26% for Samsung.

Amazon is quietly expanding its Amazon Multi-Channel Fulfillment (MCF) to ship for the likes of Etsy (ETSY) and Walmart (WMT).

After today’s market close, Activision Blizzard (ATVI), Akamai (AKAM), Caesars Entertainment (CZR), Denny’s (DENN), Green Dot (GDOT), and Noodles & Co. (NDLS) will be among the scores of companies reporting their latest quarterly results. Those looking to get a jump on earnings reports to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

  • August 4: ADP Employment Change, Markit Services PMI, ISM Non-Manufacturing PMI, EIA Crude Oil Stocks
  • 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

“Some of the best memories are made in flip-flops.” — Kellie Elmore

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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