Daily Markets: Fed, Earnings Give Lift to Stocks, but Delta Storm Clouds Loom Nearby

Today’s Big Picture

The reaffirmation by the Federal Reserve that it will maintain its existing policy in the near term, along with better than expected quarterly earnings, are having a positive impact on equities this morning. Equity indices in Asia ended the day’s trading higher across the board, led by the 3.2% jump in the Hong Kong Hang Seng and the 1.5% gain in China’s Shanghai Composite. By mid-day trading in Europe, equity indices were mostly higher and the majority of U.S. futures point to a higher open later this morning. With modest U.S. economic data coming in today, the day’s trading will likely be dictated by investor relief that, at least for now, the Fed will stick to its playbook. This is along with the digestion of the day’s volume of earnings reports, and next steps on the $1 trillion bipartisan infrastructure bill. Lurking in the background, however, is the Delta variant and we are seeing more companies announce new measures, including mandating vaccinations.

Data Download

Coronavirus

After reopening its offices in New York and San Francisco two weeks ago, Twitter (TWTR) is closing those offices. Facebook (FB) is requiring its U.S. workers that return to the office to be vaccinated, as is Google (GOOGL). Netflix (NFLX) introduced a blanket policy mandating vaccinations for the casts of all of its U.S. productions. Apple (AAPL) is re-instituting a mask mandate at most of its U.S. retail stores, while Disney's (DIS) domestic theme parks will require all parkgoers to wear masks indoors starting Friday.

International Economy

Australia’s export prices in Q2 rose 13.2% QoQ after rising 11.2% in Q1. Import prices rose 1.9% QoQ, up from Q1’s 0.2% increase.

Germany’s Unemployment Rate Harmonized was unchanged in June at 3.7% vs. May, and for comparison, the U.S.’s unemployment rate currently stands at 5.9%.

Spain’s Unemployment Rate improved to 15.26% in Q2 from a downwardly revised 15.98% in Q1.

Today brought a series of inflation data from Europe which ticked higher month over month:

• Spain’s inflation rate ticked up to +2.9 YoY in July from 2.7% in June.
• France’s Producer Price Index (PPI) in June rose to 7.5% YoY vs. the 7.2% YoY increase posted in May.
• Italy’s PPI accelerated to +9.1% YoY in June from an upwardly revised 8.1% in May.

Domestic Economy

Exiting its latest monetary policy meeting, as was widely expected, the Federal Reserve made no policy changes, leaving the target range for the fed funds rate near zero and the pace of asset purchases at $120 billion per month. Fed Chair Powell reiterated expectations for inflation to moderate and said there's still some time until substantial further progress has been made towards the Fed's employment goal. This means the Fed will remain extremely accommodative and will continue to watch the incoming data, presumably at least a few more employment reports, until it decides to start tapering asset purchases.

The Fed signaled that no taper announcement would come before November and bond purchases are likely to continue unchanged for the remainder of the year. That said, policymakers have now officially started discussions over when and how to reduce the monetary stimulus measures that have been in place since early 2020 when the pandemic began. Chair Powell’s use of the word “transitory” was considerably less frequent than in prior press conferences. He indicated that inflation could remain elevated for some time but assured that it still fits in the Fed’s policy framework for inflation to average 2% over time.

Progress is being made on the $1 trillion bipartisan infrastructure bill but it has yet to become formal legislative text and still has to clear final votes in the divided Senate and House.

Later today, we will get the Bureau of Economic Analysis’ preliminary estimate for Q2 U.S. GDP, Pending Home Sales, and the usual weekly Jobless Claims.

Markets

The S&P 500 closed yesterday unchanged while the Dow Jones Industrial Average decreased 0.4%. The Nasdaq Composite outperformed with a 0.7% gain but trailed the Russell 2000’s gain of 1.5%. Energy was the top-performing sector, gaining nearly 1% and crude rose 0.9%. Treasury yields were little changed on the day and gold rose slightly to $1,808 an ounce. The VIX fell 5% to 18.3.

Stocks to Watch

Before U.S. equity markets open, investors will be treated to a number of quarterly earnings reports, including those from Anheuser-Busch InBev (BUD), Comcast (CMCSA), Hershey Foods (HSY), Hilton (HLT), MasterCard (MA), Nokia (NOK), Samsung (SSNLF), and Yum! Brands (YUM).

The zero-commission investment app Robinhood Markets (HOOD) priced its 55 million share IPO at $38.00 per share, the low end of the $38-42 expected range.

Qualcomm (QCOM) beat June quarter top and bottom-line expectations and raised its outlook for 2021 to EPS of $2.15-$2.35 vs. the $2.07 consensus. Per the company, "In addition to leading the 5G transition, we are on pace to deliver $10 billion of annual revenues across RF front-end, IoT and Automotive as our business continues to diversify." For the global handset market, Qualcomm continues to see high single-digit growth in 2021, including 450-550 million 5G handsets.

June quarter results at PayPal (PYPL) came in mixed and the company guided current quarter expectations for revenue and EPS below the consensus forecast. Total Payment Volume (TPV) in the quarter was $311 billion, up 40%, and the company added 11.4 million Net New Active Accounts during the quarter to 403 million active accounts. Venmo processed approximately $58 billion in TPV, growing 58%.

Facebook's (FB) June quarter results topped consensus expectations but shared it expects year-over-year total revenue growth rates to decelerate significantly in the second half of 2021. The company expects advertising revenue growth will be driven primarily by year-over-year advertising price increases during the rest of 2021. Daily active users reached 1.91 billion during the quarter, up 7% YoY and monthly active users hit 2.9 billion exiting the quarter, also a 7% YoY increase.

While June quarter results at Ford Motor (F) topped expectations, the two key points of interest surrounded the company’s comments on the auto chip shortage and its EV efforts.

According to the company, its Mustang Mach-E ranked second in sales among all-electric SUVs in the U.S., and its F-150 Lightning generated 120,000 reservations since its unveiling in May. Ford noted it is seeing signs of improvement in the flow of chips now, but the situation remains fluid, especially due to the delay in the ramp-up of one of its key suppliers, Renesas Electronics (RNECF).

Microsoft (MSFT) is acquiring Seattle startup Suplari, which uses AI to analyze corporate spending.

InterDigital (IDCC) announced a judgment from the UK's High Court that Lenovo (LNVGY) infringed on one of its patents and that the patent-in-suit is valid and essential to the 4G LTE standard.

After today’s market close, Amazon (AMZN), Deckers Outdoor (DECK), Digital Realty Trust (DLR), Fortinet (FTNT), Skyworks (SWKS), and T-Mobile US (TMUS) will be among the horde of companies reporting their quarterly results. Those looking to get a jump on upcoming earnings reports should visit Nasdaq’s earnings calendar page.

On the Horizon

• July 30: Personal Income & Spending, PCE Price Index, Employment Cost Index, Chicago PMI, University of Michigan Consumer Sentiment
• August 2: Markit Manufacturing PMI, ISM Manufacturing PMI, Construction Spending, Total Vehicle Sales
• August 3: Factory Orders, IBD/TIPP Economic Optimism, API Crude Oil Stocks
• 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

Thought for the Day

“All the things I really like to do are either immoral, illegal or fattening.” - Alexander Woollcott

Disclosures

• Fortinet (FTNT) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index
• Digital Realty Trust (DLR), InterDigital (IDCC), Qualcomm (QCOM), Nokia (NOK), Skyworks (SWKS) are constituents of the Tematica BITA Digital Infrastructure & Connectivity Index
• Microsoft (MSFT) is a constituent of the Tematica Research Dividend All-Stars Index

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks Economy Earnings Coronavirus Central Banks