Today’s Big Picture
Equities in Asia closed the day’s trading mixed following softer-than-expected economic data for the region with both Japan’s Nikkei and Hong Kong’s Hang Seng flat while China’s Shanghai Composite fell 1.3%. By mid-day trading, European equities were mostly higher following the news the German government will extend its wage support program through the end of 2021 and French Prime Minister Jean Castex said that a fiscal stimulus plan will be presented on September 3. U.S. futures point to a mixed opening.
While investors will be eyeing the July Durable Orders report to be published before the open, they will also be closely watching Hurricane Laura, which earlier this morning was upgraded to a Category 4 hurricane. Already more than half a million people have been ordered to evacuate the U.S. Gulf Coast. According to Chuck Watson, a disaster modeler with Enki Research Laura will likely cause between $6-$18 billion in losses. The damage to oil and gas production will be a focal point as will the subsequent impact on oil prices.
As we brace for Laura to hit the Gulf, the Republican National Convention will continue tonight and investors will also be prepping for Fed Chairman Powell’s keynote speech tomorrow at the virtual Jackson Hole monetary policy symposium. Powell is widely expected to “outline a policy where the Fed will commit to keeping short-term interest rates anchored near zero until it achieves price stability and gets the economy back to full employment.” Setting the stage for that speech, this morning Kansas City Federal Reserve President Esther George said the recession that began in February could revisit the economy if the coronavirus pandemic intensifies.
Data Download
International Economy
Japan’s Leading Economic Index rose to 84.4 in June from 78.3 in May versus expectations for an increase to 85.0. The final reading for the country’s Coincident Index rose to 76.6 in June from 72.9 in May and the expected 76.4.
Singapore’s July Industrial Production rose 1.6% MoM, well below the expected 6.0%. On a YoY basis, July Industrial Production fell 8.4% vs. the expected -5.7% and -6.5% in June.
Consumer Confidence in France came in at 94.0 for August, matching both the prior month and the consensus forecast.
Mexico’s GDP growth rate plummeted 18.7 YoY in the June quarter after falling 1.4% YoY in the first quarter of 2020. Later this morning, the country’s Economic Activity reading for June will be published and it is expected to fall 17% YoY following May’s 22.7% YoY contraction.
Domestic Economy
Yesterday was a bipolar day for the economy as Existing Home Sales rose 13.9% to a seasonally adjusted annual rate of 901,000, the biggest increase in 14 years, beating expectations for a decline to an annual rate of 782,000 from June’s 791,000. On the other hand, the Conference Board’s Consumer Confidence Index declined for the second consecutive month, falling to its lowest level in six years, dropping from 91.7 to 84.8. The percent of American’s describing business conditions as “good” dropped from 17.5% to 16.4% while those describing conditions as “bad” rose from 38.9% to 43.6%. Consumers’ view of the job market also worsened with those claiming jobs are “hard to get” rising from 20.1% to 25.2%.
New home sales saw unit volumes up 58% over the past three months to the highest level since early 2007. While inventories are still relatively high compared to the past ten years, they are falling fast, down 7.4% in just three months. Toll Brothers (TOL) reported after yesterday’s close, delivering its strongest fiscal third quarter ever for signed contracts in terms of both units and dollar value.
Today the Census Bureau will deliver the Durable Goods report for July with New Orders for Manufactured Durable Goods expected to rise 4.5%. We will also get the usual weekly MBA Mortgage Applications report and the weekly EIA energy stocks report.
Markets
After a mostly sideways day, both the Nasdaq Composite and the S&P 500 made new all-time highs yesterday as the market was boosted by word that the U.S. and China are back at the trade table, working through issues related to the Phase 1 trade deal. Yields on the 10-year and 30-year rose to 1.18% and 1.4% respectively while gold dropped to $1,934 an ounce.
Stocks to Watch
Specialty contracting services company Dycom (DY) reported mixed results for its July quarter and guided current-quarter revenue below consensus expectations. July quarter EPS came in $1.18, well ahead of the $0.67 consensus despite revenue falling to 6.8% YoY to $823.9 million, missing the $846.7 consensus. For the current quarter, Dycom sees revenue in-line to modestly lower sequentially vs. the $879.71 million consensus.
Redfin (RDFN) shared sales of newly-built homes climbed 10.1% YoY in July, recovering to pre-pandemic levels, while sales of existing homes rose just 5.3%. the supply of new construction homes for sale slid 28.4%, representing the largest drop since at least 2013.
Salesforce (CRM) reported quarterly results that topped expectations with revenue rising 28% YoY. Subscription and support sales for the quarter were up 29% while Professional Services increased 23%. Billings topped the consensus forecast with $4.63 billion versus $4.05 billion. For the current quarter, the company sees $5.24-5.25 billion in revenue, up ~16% YoY with EPS of $0.73-0.74 vs the consensus of $5 billion and $0.77.
Nordstrom (JWN) reported quarterly sales that fell 53% with store closings covering about half of the quarter with another 10 percentage points attributed to the shift of the Nordstrom Anniversary Sale to 3Q from 2Q. Total company digital sales decreased 5%. Excluding the Anniversary Sale event shift impact, digital sales increased approximately 20% in the second quarter and in the mid-teens range on a year-to-date basis.
Urban Outfitters (URBN) reported better than expected July quarter results led by comparable retail segment sales that fell 13% vs. the -28% consensus. By brand, comparable retail segment net sales increased 11% at Free People and decreased 8% at Urban Outfitters and 25% at the Anthropologie Group. Total retail segment sales were down 14% and wholesale segment sales were off 51%.
Data platform company Pure Storage (PSTG) reported better than expected July quarter results but guided current-quarter revenue below consensus expectations. For the July quarter, revenue rose 1.9% YoY to $403.7 million, vs. the $395.3 million consensus but sees revenue for the current quarter flat with the July quarter, which is well below the consensus forecast of $442.9 million, with a negative operating margin near -2%.
Shares of Hewlett Packard Enterprise (HPE) rose in aftermarket trading last night at its July quarter results sailed past consensus expectations and the company offered an upbeat outlook for the current quarter. Revenue for the quarter fell 5.8% YoY to $6.8 billion vs. the expected $6.06 billion. By reporting segment, Intelligent Edge revenue fell 12% YoY to $684 million, Compute was flat at $3.4 billion, High-Performance Compute & Mission Critical Systems rose 3% to $649M, Storage fell 10% to $1.1 billion, Advisory & Professional Services dropped 7% to $226M, and Financial Services slumped 9% to $811 million. For the current quarter, the company sees non-GAAP EPS of $0.32-$0.36 vs. the $0.31 consensus.
July quarter results at homebuilder Toll Brothers trounced consensus expectations and the company pointed to continued strength ahead. The company sees deliveries and its average price per unit rising QoQ with deliveries of 2,400-2,550 homes vs. 2,022 in the July quarter. Backlog at quarter-end was $6.09B and 7,239 units vs. $5.84B and 6,839 units in fiscal Q3 2019.
Shares of Bed Bath & Beyond (BBBY) slipped in aftermarket trading last night following the company sharing it will eliminate 2,800 jobs as part of a restructuring plan to cut costs and streamline operations. The cuts, which are slated to begin immediately affect both corporate headquarters and retail stores.
Cisco Systems (CSCO) announced it will acquire BabbleLabs, using the company’s artificial intelligence to distinguish speech from unwanted noise to improve its video meeting solutions.
Palantir Technologies (PLTR) filed documents with the SEC revealing it intends to list its shares directly with a three-tiered stock structure that gives one vote to class A shares, 10 votes to class B shares and variable votes for "class F" shares that are held by founders Alexander Karp, Stephen Cohen, and Peter Thiel. The filing also showed the company’s revenue grew to $742.6 million in 2019 vs. $595.4 million in 2018, while losses stayed even at more than half a billion dollars a year.
Dyne Therapeutics (DYN) filed a preliminary prospectus for its upcoming IPO. The biotech company develops therapies for genetically driven disorders using its FORCE platform to overcome the limitations of muscle tissue delivery and advance oligonucleotide therapeutics for muscle diseases.
The European Union assigns a provisional deadline of September 30 to rule on BorgWarner's (BWA) acquisition of Delphi Technologies (DLPH).
After today’s market close, Box (BOX), NetApp (NTAP), Splunk (SPLK) , and Williams-Sonoma (WSM) 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:
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- August 27: GDP, Personal Consumption, Initial Jobless Claims, Bloomberg Comfort, Pending Home Sales.
- 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.
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Thought for the Day
“Sometimes you climb out of bed in the morning and you think, I'm not going to make it, but you laugh inside — remembering all the times you've felt that way.” ~ Charles Bukowski
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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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 has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. 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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