Today’s Big Picture
Equities in Asia finished the day’s trading mixed with Japan’s Nikkei down 0.2% while Hong Kong’s Hang Seng closed up 0.1% and China’s Shanghai Composite rose 0.4%. Equities in China were likely bolstered by the news China has ramped up its purchases of American crude ahead of the anticipated trade deal review with the U.S. This follows reports based on data from General Administration of Customs that showed Chinese imports of U.S. goods during the first six months of 2020 reached about 23% of the total target under the trade agreement for 2020. By mid-day trading the European bourses were up across the board, shrugging off a resurgence in regional coronavirus cases.
U.S. futures are mixed ahead of the July Housing Starts and Building Permits report that will be published at 8:30 AM ET. We are seeing some potential movement in Washington for a next round of coronavirus relief as Senate Republicans are planning to introduce a “skinny” coronavirus relief bill. It is expected to include $300 in boosted weekly federal unemployment benefits until December 27, another round of money for the Paycheck Protection Program, and an additional $10 billion for the U.S. Postal Service and liability protections. Senate leadership told GOP aides on a call Monday afternoon that the text for this “skinny” bill would be released in the next 24 hours. In other Washington facing news, the House is expected to vote this Saturday (August 22) on legislation that would provide $25 billion to address funding shortfalls and organizational changes at the U.S. Postal Service. That bill is expected to be released “in the coming days.”
There are no major economic data points for the international economy being released today. Given the swath of economic data to be had later this week, enjoy this rare moment.
Yesterday brought the Empire State Manufacturing Survey, the first regional Federal Reserve manufacturing index for August and its headline number came in at 3.7, well below expectations for 15.0, declining on a month-over-month basis for the first time in four months. The index dropped 13.5 points, the nineteenth largest on record, for those keeping track. The region’s manufacturing sector is still in expansion territory, but at a slower pace than in July. The index for future expectations declined for the second consecutive month. Breadth was overall weak, with only three of the 10 individual components improving. Not one index for future expectations rose in August.
Overall, the results mean current conditions are slowing and optimism is fading. Most concerning for the labor market is that while businesses are increasing hiring, work hours continue to fall with the average workweek index continuing to be in contraction now for seven consecutive months.
On a more optimistic note, yesterday’s NAHB Housing Market Index gained again in August, rising 6 points to hit 78, higher than the pre-pandemic high of 76 in December of 2019 and is now tied for December 1998’s reading for the highest level on record. The increase of 6 points is also noteworthy, in the top 95th percentile of all monthly gains and the biggest 1-month gain since March 2017. Every sub-index and every region rose month-over-month, with many near or at record highs.
Now before we get all excited about the housing sector, let’s not forget that per yesterday’s quarterly Mortgage Bankers’ Association data, over 8% of mortgages are delinquent – higher than any other period outside the global financial crisis. This might not be immediately obvious because less than 0.03% of loans are entering foreclosure, a record low, thanks to the pandemic-induced foreclosure moratoriums.
Air travel is also seeing a rebound with TSA passenger throughput for the seven days through Sunday down just 67% YoY. By itself, that sounds pretty awful, but compare that to the 96% YoY decline just four months ago. This past week was the least bad for passenger volume since March 22.
Capitol Hill looks to continue to be deadlocked over a new stimulus package, but some glimmers of hope are on the horizon.
Later today we will get Housing Starts and Building Permits for July along with the usual weekly Redbook retail sales report and the weekly API Crude Oil Stock report.
Yesterday the Nasdaq 100 gained 1.3%, the Nasdaq Composite 1.1%, the S&P 500 rose 0.4%, the NYSE Composite gained 0.3%, and the Dow dropped 0.2%. The market darlings once again took the lead, with Amazon (AMZN) gaining 1.4% on the news that it wants a minority stake in Rackspace Technology (RXT), which gained 10.5% on the day. Alphabet (GOOG) and Microsoft (MSFT) both enjoyed gains of 0.6%. Consumer Discretionary was the top-performing sector for the day, gaining 1.3%.
Following yesterday’s NAHB Housing Market Index report, the S&P 500 Homebuilders group hit a new all-time high, breaking through the first new all-time high from last week when it beat the prior high from back in 2005. We hate to pour cold water on a good time, but it might be of interest to those watching the housing sector to note that lumber has just had its best 90-day trading stretch on record and has gained around 175% since its April 2 low. When it comes to the homebuilders, it means watching both the revenues and the cost of goods sold line.
Overall breadth isn’t so hot in the markets. While the S&P 500 is at a record high on a total return basis, less than 5% of the market hit a new 52-week high as of last Friday. For a historical perspective, on average since 1990, when the S&P 500 total return is hitting an all-time high, a median of 12.6% of the index hits new 52-week highs with 11.4% on average (hat tip Bespoke Investment Group).
Given the record levels of debt the U.S. Treasury is issuing to pay for the pandemic stimulus packages, it is worthwhile to note that the Treasury International Capital System found that in June, foreign buyers were increasingly sellers of U.S. Treasury bonds and buyers of U.S. equities, sellers of U.S. corporate bonds and buyers of mostly mortgage-backed securities. Keep in mind that we’ve seen a record $1.3 trillion in private investment-grade debt sales this year.
Stocks to Watch
Walmart (WMT) bested July quarterly expectations led by US comp sales that rose 9.3% YoY reflecting strength in general merchandise and food sales, and eCommerce sales that jumped 97% YoY. Sam’s Club comp sales rose 13.3%, eCommerce sales grew 39% YoY and the segment’s new member count increased by more than 60%. Walmart International net sales were $27.2 billion, a decrease of 6.8%. Changes in currency rates negatively affected net sales by approximately $2.4 billion. Excluding currency, net sales would have been $29.6 billion, an increase of 1.6%.
Home Depot (HD) reported July quarter EPS of $4.02 per share, well above the expected $3.38 per share as revenues surged 23.4% YoY to $38.05 billion vs. the $32.13 billion consensus. Overall comp sales for the quarter rose 23.4% YoY vs. the expected 10.9% for the quarter; US comp sales up 25.0% YoY.
Kohl’s (KSS) reported a July quarter loss of $0.25 per share, far better than the expected -$0.88. Revenue for the quarter fell 23.1% YoY to $3.41 billion vs. the expected $3.07 billion. In its earnings press release, the company shares it is “planning for the crisis to continue to impact our business in the near-term” and we suspect that comment will be a key focal point during Koh’s quarterly earnings conference call later this morning.
Advance Auto Parts (AAP) shares are moving higher in pre-market trading following the company’s 2Q 2020 quarterly results that topped expectations led by comp sales growth of 7.5% YoY, its strongest comp sales growth in nearly 10 years. The company shares that through the first five weeks of its third quarter, it continues to see strong growth in DIY Omnichannel and positive comparable store sales in Professional.
Bloomberg reports Daimler AG (DDAIF) could face a sales ban in Germany after Nokia (NOK) won its first court ruling in a larger patent dispute, giving it leverage in its fight with the carmaker over mobile technology used in new vehicles.
Boeing (BA) is reportedly preparing to once again this year offer voluntary buyouts to its employees in a move that would extend its workforce cuts beyond the original 10% target unveiled in April.
Jewelry company Pandora A/S (PNDZF) reported its business stalled during its latest quarter and shared its organic sales could contract as much as 20% in 2020 as the coronavirus suppresses demand in some of its key markets.
Reports inform that CBL & Associates Properties (CBL), the owner of more than 100 shopping malls across the US, is preparing to file for bankruptcy. Among the company’s top tenants at the end of 2019 were Dick’s Sporting Goods (DKS) and specialty retailer of apparel for women and tween girls Ascena Retail (ASNAQ).
America’s Car Mart (CRMT) reported better than expected top and bottom-line results last night shrugged off lower customer traffic and sales volumes led by a 12.2% increase in the average retail sales price combined with a $3.3 million increase in interest income.
Citibank (C) reported its July credit card net charge-off rate fell to 2.42% from 2.63% in June and 2.91% in July 2019. The delinquency rate of 1.43% for the month inched lower compared to 1.47% in June and 1.57% in July 2019.
Amazon Web Services will help Japan’s Toyota Motor Corp (TM) build a platform to help manage and monetize data gathered from the automaker’s global vehicle fleet. This follows an AWS announcement last month that it will work with Volkswagen to co-develop a marketplace for industrial applications.
Amazon shared it plans to create 3,500 new tech and corporate jobs across six cities in the United States and will expand its Tech Hubs in Dallas, Detroit, Denver, New York (Manhattan), Phoenix, and San Diego.
Alibaba’s (BABA) fintech arm Ant Group and one of China’s core mobile payments platforms plans to team up with Nanyang Commercial Bank and intelligent transport services firm China TransInfo Technology to set up a consumer finance business.
Shares of Rackspace jumped in trading yesterday following reports Amazon is in preliminary talks to invest in the company.
Shares of Barrick Gold Corp (GOLD) rose 11.6% Monday on the news that Warren Buffet’s Berkshire Hathaway (BRK.A) had purchased nearly 21 million shares during the second quarter, valued at around $625 million based on yesterday’s closing price.
After today’s market close, Agilent (A), Cree (CREE), and La-Z-Boy (LZB) among others will be reporting their quarterly results. Investors looking to get a jump on those and other upcoming reports should visit Nasdaq’s earnings calendar page.
On the Horizon
- Dates to mark:
- August 20: Philly Fed Manufacturing
- August 21: Manufacturing PMI, Markit Composite PMI, Services PMI, Existing Home Sales and Options Expiration
- August 24: Chicago Fed Activity Index
- August 25: Case-Shiller Home Prices, New Home Sales, Consumer Confidence, Richmond Fed Manufacturing
- August 26: MBA Mortgage Applications, Durable Goods
- August 27: GDP, Personal Consumption, Initial Jobless Claims, Bloomberg Comfort, Pending Home Sales
Thought for the Day
In honor of the heatwave facing much of the country:
“God, it was hot! Forget about frying an egg on the sidewalk; this kind of heat would fry an egg inside the chicken.” – Rachel Caine
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.