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Daily Markets: Investors Keeping a Close Eye on Earnings, Stimulus

Today’s Big Picture

Equities in Asia closed trading today on a mixed note with Japan’s Nikkei down 0.3% while Hong Kong’s Hang Seng and China’s Shanghai Index both finished up 0.7%. By mid-day trading, European equities indices were also mixed and U.S. futures point to modest pullback when those markets open later this morning as investors digest a slew of corporate earnings as well as the latest Republican coronavirus relief plan.

We’ll watch the former while our view on the latter is that we will likely see the usual Washington partisan drama unfold before a second round of economic stimulus is reached. House Speaker Nancy Pelosi says the GOP stimulus plan is “pathetic” and not adequate to the country’s needs, but she is hopeful the two sides can find common ground. With less than 100 days until the presidential election, let’s see what happens as both sides vie for votes like divorcing parents vie for their children’s affection. Is it November yet?

Data Download

Coronavirus

The pandemic life looks to be here for quite some time to come.

Yesterday Google (GOOG) CEO Sundar Pichai told employees that the company is extending its work-from-home option through June 30, 2021, for positions that don’t need to be in an office. According to the Wall Street Journal, this impacts nearly all of the company’s 200,000 full-time and contract employees.

The world’s biggest luxury retailer, LVMH Moet Hennessy Louis Vuitton (LVMUY) has significantly cut spending on store leases, hiring, and advertising after its operating profit fell 68% in the first half of the year.

Last night Major League Baseball’s new schedule had two cancellations, the Marlins’ home game against the Orioles and the Phillies against the Yankees at Citizen’s Bank Park where the Marlins played on Sunday. The cancellations have come after over twelve Miami Marlins players and staff members tested positive for the coronavirus. Just five days after MLB began its modified season, the new season is looking decidedly at risk.

The nation of Kyrgyzstan will hold a day of national mourning on July 30 for victims of the coronavirus. The country has over 33,000 confirmed cases of the virus and has lost more than 1,300 lives to COVID-19, the highest fatality rate in Central Asia.

Belgium announced new limits on social contact amidst a spike in new daily cases. People are limited to a “social bubble” of contact with five people per household starting Wednesday and going on for the next four weeks. The limit had previously been 15 since late June.

Kenya extended its nationwide dusk-to-dawn curfew for an additional 30 days as daily new cases are rising rapidly.

Greece is expected to ban traditional August festivals over fears that crowds could cause an upsurge as the country is already facing rising new cases.

International Economy

Spain’s unemployment rate rose to 15.33% in 2Q 2020, the highest since 1Q 2018 but below market expectations of 16.70%. For the quarter, the number of unemployed increased by 55 thousand to 3.368 million, while employment declined by a record 1.074 million to 18.607 million.

Retail sales fell 19% YoY in Spain during May, a sharp rebound from the 31.6% YoY drop recorded in April. On a seasonally adjusted monthly basis, retail sales surged 19.3 MoM in May helped by the easing of COVID-19 lockdown restrictions.

Domestic Economy

The latest Federal Reserve’s Open Market Committee meeting kicks off today and concludes tomorrow, at which point the rate decision will be announced followed by the usual Chair Powell press conference. This one is unlikely to get much attention as we are likely to be living with 0% rates for some time to come and real interest rates are likely to push well into negative territory.

Tomorrow CEOs from four of the five tech giants will appear before Congress where they will be grilled politely asked about their company’s market dominance. On Thursday all four companies – Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), and Facebook (FB) – will report their June quarter earnings.

Yesterday the Dallas Fed’s July report on the manufacturing sector was mixed with conditions continuing to deteriorate, but at a slower rate while businesses remain cautiously optimistic. The general conditions index remains negative but rose from -6.1 in June to -3.0 while expectations for general business activity six months out is positive. We’d note, however, only 3.1% of respondents responded in the affirmative to the question, “Given your current outlook, how likely is it that your business will permanently shut down within the next 12 months?”

Yesterday’s Durable Goods report found orders rose 7.3% MoM in June with core durables rising more than 16% MoM. Nondefense aircraft orders have been negative for three of the past four months, with the total outstanding orders falling $32.1 billion.

Yesterday Republicans in the Senate unveiled a White House-backed plan for an additional $1 trillion in new stimulus that would reduce the emergency unemployment benefits by two-thirds. and includes $16 billion for coronavirus testing. So far Democrats in the House have said the Republican proposal is insufficient.

Today we will get the monthly Case-Shiller Home Price report, the Conference Board’s Consumer Confidence Index for June, and the July Richmond Fed Manufacturing report, the final of the five Fed manufacturing indices, as well as the usual weekly Redbook retail sales report.

Markets

After experiencing its worst 2-week stretch since March, the Nasdaq Composite came back with a bang to start this busy earnings filled week. Yesterday the Nasdaq 100 rose 1.8%, the Nasdaq Composite 1.7%, the S&P 500 0.7%, the Dow 0.4%, and the small cap Russell 2000 fell 1.5%. The US Dollar weakened to its lowest level since September of 2018 and is down 3.5% since the end of June.

Stocks to Watch

Altria (MOannounced Q2 (Jun) earnings of $1.09 per share, narrowly beating consensus estimates of $1.06 as revenues fell 2.5% YoY to $5.06 B versus expectations of $5.08 B. The company reinstated 2020 guidance, projecting EPS of $4.21-4.38, as compared to the consensus of $4.30 but stated it is “not reinstating its 2020 to 2022 compounded annual adjusted diluted EPS growth objective at this time.”

JetBlue Airways (JBLUannounced a Q2 (Jun) loss of $2.02 per share vs. the consensus estimate of ($1.97); revenue for the quarter fell 89.8% YoY to $215 M versus the expectation of $208.51 M. The company noted it saw improvements in traffic volumes through the back half of the quarter and that it had reduced its capacity by 85% YoY to minimize the balance sheet impact of the COVID-19 pandemic. The company stated its current cash position including CARES Act PSP proceeds represented approximately 42% of 2019 revenue ($3.4B). The company indicated a Q3 daily average cash burn of $7 – $9M.

McDonald’s (MCDreported mixed June quarter results, modestly beating revenue expectations for the quarter but missing on the bottom line as comp sales for the quarter fell 23.9% vs. the expected 22.8%. Comp sales in the US and International markets improved throughout the quarter but remained negative during the quarter. Exiting June, nearly all of the company’s restaurants around the world were open to serve customers through drive-thru, delivery, and/or take-away with a limited menu. Roughly 2,000 restaurant dining rooms reopened with reduced seating capacity in the US.

Raytheon Technologies (RTXannounced Q2 (Jun) earnings of $0.40 per share, handily beating consensus estimates of $0.12 as revenues rose 24.1% Yoy to $14.06 B versus expectations of $13.39 B. Management commented that it expects “the pressures in commercial aerospace to persist as OEM production levels and aftermarket activity remain low.” Backlog at the end of the quarter was $158.7 billion, of which $85.6 billion was from commercial aerospace and a record $73.1 billion was from defense.

3M (MMMannounced Q2 (Jun) earnings of $1.78 per share, $0.01 away from consensus estimates of $1.79 while revenues fell 12.2% YoY to $7.18 B versus expectations of $7.29 B. As with many other companies, uncertainty surrounding the COVID-19 pandemic, the company stated it, “is not able to estimate the full duration, magnitude and pace of recovery across its diverse end markets with reasonable accuracy” which has led them to withhold any forward guidance. That being said the company did state that it will continue to provide monthly reporting of sales information during the third-quarter.

MSCI (MSCIreported better than expected June quarter EPS as revenue for the quarter matched consensus expectations. Management noted the increase in recurring subscription revenues was primarily driven by strong growth in core products and factor and ESG/Climate index products.

June quarter results at Laboratory Corp. (LHtopped top and bottom line expectations, but the company did not provide specific guidance for the back half of 2020 but commented the pandemic continues to weigh on both its Diagnostics and Covance Drug Development businesses.

Pfizer (PFEannounced Q2 (Jun) earnings of $0.78 per share, beating consensus estimates of $0.66 while revenues fell 11.0% YoY to $11.8 B versus expectations of $11.55 B. The company issued raised guidance for FY20, seeing EPS of $2.85-2.95 versus expectations of $2.72 and FY20 revenues of $48.6-50.6 B versus the $48.11 B consensus estimate. The company reiterated its position that “Our strong performance in the first half of the year highlights the resiliency of our business even during the most challenging times.” and stated that it expects to close its acquisition of Mylan NV (MYL) in the fourth quarter.

Homebuilder MDC Holdings (MDC) crushed consensus expectations for its June quarter led by a 25% increase in unit deliveries to 1,900. Exiting the quarter the dollar value of the company’s backlog rose 23% to $2.37 billion. For the current quarter, the company sees 1,900-2,100 home deliveries with an average price in excess of $460,000. Competitor DR Horton (DHI) also reported stronger than expected June quarter results with the company commenting it “continued to experience strong increases in net sales orders in July compared to the same month in the prior year.” Shareholders and prospective ones will want to tune into the company’s earnings conference call, which is where it tends to share its outlook.

NXP Semiconductor (NXPI) reported June quarter results that topped expectations and guided current quarter revenue to $1.9-2.1 billion vs. the $1.9 billion consensus. For the June quarter, the company’s automotive segment revenue fell 35% YoY and is expected to fall 30% YoY in the current quarter. For its other segments — Industrial and IoT, Mobile and Communications Infrastructure & Other it guided revenues up 12%, down 14% and down 9% year over year, respectively.

Reports suggest Apple will have a busy calendar as the company as it introduces an array of new product models ahead of the holiday shopping season. According to the chatter, it begins on August 19 with a new iMac, AirPods Studio, HomePod 2 and HomePod Mini. Then on September 8, Apple will unveil the iPhone 12 line, iPad, Apple Watch Series 6 and AirTags. On October 27, the company will show off the Apple Silicon MacBook and MacBook Pro 13″, iPad Pro and Apple TV 4K. We’d note Apple has yet to formally announce any events in the coming months.

In 8-K filing, Granite Construction (GVA) said Form 10-K for 2018 and Form 10-Qs for the first three quarters of 2019 should no longer be relied upon due to misstatements contained in such financial statements. The misstatements were discovered in connection with an ongoing independent investigation by the company’s Audit Committee of forecasts associated with projects in the Heavy Civil Operating Group.

Under Armour (UA) announced yesterday that it has received notice of a possible enforcement action from the SEC related to the accounting treatment of sales it booked between 3Q 2015 and 4Q 2016.

NortonLifeLock (NLOK) finalized the sale of its Culver City, California campus with Northwood Investors for $120 million, the latest step in its plan to monetize $1.5 billion in proceeds from underutilized assets.

ACI Worldwide (ACIW) announced a strategic partnership with Arvato Financial Solutions to combat the rising levels of eCommerce fraud during the Covid-19 crisis.

For the first half of 2020, operating profit at luxury-goods company LVMH Moet Hennessy Louis Vuitton SE fell 68% YoY with revenue for the period falling 28% YoY. Luxury-good peers including Kering (PPRUY) and Hermes International (HESAY) traded off on the news.

S&P Global (SPGIannounced Q2 (Jun) earnings of $3.40 per share, beating the consensus estimate of $2.64 as revenues rose 14.0% YoY to $1.94 B versus expectations of $1.78 B. The company issued upside guidance for FY20, seeing EPS of $10.75-10.95 versus the $10.24 the consensus estimate and prior guidance of $9.95-10.15.

Cybersecurity provider Forescout Technologies, Inc. (FSCT) announced NJ TRANSIT has deployed Forescout to protect public safety and its customer data state-wide.

Things are looking up at Otis Worldwide (OTIS) as the company announced Q2 (Jun) earnings of $0.56 per share, beating the consensus estimate of $0.44 despite revenues falling 9.6% YoY to $3.03 B versus expectations of $2.92 B. The company issued upside guidance for FY20, seeing EPS of $2.20-2.30 versus estimates of $2.05.

After today’s market close, Avis Budget (CAR)Denny’s (DEN)eBay (EBAY)FireEye (FEYE)Juniper Networks (JNPR)Live Nation (LYV)Mondelez International (MDLZ)Starbucks (SBUX), and Visa (V) will be reporting their latest quarterly results. Investors looking to get the 411 on those reports and others to be had this week should visit Nasdaq’s earnings calendar page.

On the Horizon

  • Dates to mark:
      • 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
      • August 3: ISM Manufacturing PMI
      • August 5: ADP Nonfarm Employment and ISM Non-Manufacturing PMI
      • August 7: Nonfarm Payrolls and Unemployment Rate
      • August 10: JOLTs report
      • August 11: PPI
      • August 12: Core CPI
      • August 14: Retail Sales

Thought for the Day

“When we share, we open doors to a new beginning.” ― Paul Bradley Smith

Disclosures

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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