Daily Markets: Investors Brace For Big Batch of Earnings While Awaiting Stimulus News

Today’s Big Picture

Equities in Asia finished the day mostly lower, led by declines in Japan’s Nikkei, Hong Kong’s Hang Seng and China’s Shanghai Composite. That set the stage for the move lower in European equities by midday trading today and U.S. futures are pointing to a move lower when those markets open later this morning. Those moves lower come despite Fed Chairman Jerome Powell signaling the Fed will keep an accommodative stance with monetary policy until the economy has “weathered” the effects of the coronavirus pandemic.

Investors are likely digesting the distance between Republicans and Democrats and assessing the timing of any next round of pandemic related U.S. economic stimulus as they brace for what is expected to be a jarring 2Q 2020 GDP print, and earnings from Apple (AAPL), Amazon (AMZN), Facebook (FB), and Alphabet (GOOGL) after today’s market close. Those companies are among the handful that have propelled the U.S. stock market indices dramatically higher since the late March pandemic related bottom; their results and guidance will determine the stock market’s next move at least in the short-term.

Data Download

Coronavirus

Over 4.5 million people in the U.S. have been diagnosed with COVID-19, but just 25 pets have. We just learned that Buddy, the German Shepherd who was the first dog to test positive for COVID-19, has died. It is likely that Buddy had lymphoma, a type of cancer, which made him particularly susceptible, but before this, he had never before been sick. In early April, right after his seventh birthday, he started breathing heavily. His owner, Robert Mahoney, had already been diagnosed with the virus and had been suffering for a few weeks. Buddy lost the fight to COVID-19, having experienced many of the same symptoms and struggles that humans have endured. This virus is seriously evil.

The death toll in the U.S. from the coronavirus rose at its fastest pace in weeks yesterday with Florida, Texas, and California all reporting big increases in fatalities. California has added 100,000 new cases in just 11 days. On a more positive note, the increase in new cases on a national level has declined for four consecutive days.

International Economy

Australia’s export prices declined 2.4% QoQ in Q2, down from a 2.7% increase in Q1 while import prices accelerated their 1% decline in Q1 to a 1.9% decline in Q2.

Germany’s unemployment rate was 6.4% in July, a tick below the expected 6.5% and unchanged compared to June. The nation’s flash GDP reading for the June quarter was -11.7% YoY, down dramatically from the -2.3% registered in the March 2020 quarter.

France’s PPI jumped 0.7% MoM in June following a revised flat reading in May.

Domestic Economy

Today is a big one for domestic data with the major release being the Bureau of Economic Analysis report on Gross Domestic Product (GDP) for the second quarter. Consensus estimates are for a drop of 34.5% QoQ SAAR after the first quarter’s 5% contraction. The Atlanta Fed EconomyNow tracker forecasts a contraction of 32%. To put those expectations in context, the biggest 1-quarter drop on record was all of 10% in the first quarter of 1958. What a way to end the longest economic expansion in US history which began in June 2009.

Today also brings the usual weekly Jobless Claims report, Personal Consumption, and the Bloomberg Comfort Index.

Markets

Well, that was anticlimactic. Yesterday in the center ring, the much-anticipated grilling of the CEOs from the nation’s most powerful tech companies was a lot like the movie Hangover 2 - a lot of excitement and talk of just how wild it could get only to find the real thing was painfully pedantic. The more-yawny-than-riveting grilling of the CEO’s via video resulted in the stocks of all four companies actually gaining ground on the day. Rather than hearing from the CEOs, the day was, unsurprisingly, more about House members getting air time. Amazon, Alphabet, and Facebook ended the day up over 1% and Apple gained nearly 2%. Talk about a whole lot of sound and fury signifying nothing.

Stage two was occupied by Federal Reserve Chair Powell’s post FOMC decision presser. Again, no shocker here. The official statement acknowledges that activity is well below where it was pre-pandemic, the recovery is dependent on controlling the virus, and the Fed has decided to stay the course. Powell reiterated the Fed’s intention to use the tools available to provide relief and stability and to limit the lasting damage to the economy from the pandemic. He also acknowledged that the high-frequency data suggests that the recovery has slowed and possibly even reversed course thanks to surges in coronavirus cases in many parts of the country.

The market liked what it heard today and stocks rose towards the end of the day, closing near session highs. The Nasdaq Composite rose 1.4%, the S&P 500 1.2%, and the Dow 0.6%. Technology and Financials were the strongest sectors and the Treasury curve steepened post-FOMC, with the 2-year and the 5-year yields falling 13 and 25 basis points respectively. Gold rose to $1,961 and the VIX dropped to 24.10, its lowest close since this coronavirus insanity began.

Stocks to Watch

United Parcel Services (UPS) announced Q2 (Jun) earnings of $2.13 per share, almost doubling the consensus estimate of $1.08 as revenues rose 13.4% YoY to $20.46 B versus expectations of $17.42 B. The company reported average daily volume increased 22.8%, reaching 21.1 million packages per day and unsurprisingly, demand for residential delivery surged in the quarter, up 65.2%.

Johnson & Johnson (JNJ) shares are moving higher in pre-market trading following the news the company’s lead vaccine candidate protected against infection with SARS-CoV-2, the virus that causes COVID-19, in pre-clinical studies. Based on the strength of the data, a Phase 1/2a first-in-human clinical trial of the vaccine candidate, Ad26.COV2.S, in healthy volunteers, has now commenced in the United States and Belgium. Planning also is underway for a Phase 2a study in the Netherlands, Spain, and Germany and a Phase 1 study in Japan.

Qualcomm (QCOM) shares traded higher in after-market trading following June quarter results that crushed top and bottom-line expectations that were accompanied by a new settlement agreement with Huawei and a robust forecast for 5G smartphones. Qualcomm estimates it will recognize ~$1.8 billion in revenue in from Huawei in Q4 and continues to forecast 175-225 million 5G handset shipments this year, now with a bias towards the upper end of that range.

Comcast (CMCSA) announced Q2 (Jun) earnings of $0.69 per share, $0.14 better than the consensus forecast; revenue for the quarter fell 11.7% YoY but came in modestly ahead of the expected $23.56 billion. The company’s Cable Communications revenue was flat YoY with strength had in the company’s best second-quarter high-speed internet net adds in 13 years. Those gains were mitigated by continued declines in voice and video revenue. Revenue at NBCUniversal fell 25.4% and earlier this month the company launched its Peacock streaming service nationwide with 10 million sign-ups to date.

Crocs (CROX) announced Q2 (Jun) earnings of $0.83 per share, $0.75 better than the consensus estimate of $0.08 as revenues fell 7.6% YoY to $331.55 million versus the $241.2 million expectation. The company stated it expects H2 revenues to be flat YoY.

Yum! Brands (YUM) announced Q2 (Jun) earnings of $0.82 per share, beating the consensus estimate of $0.55 as revenues fell 8.5% YoY to $1.2 B versus the $1.18 B expectation. The company reported a same-store sales decline of 15% overall with KFC sales down 21%, Pizza Hut down 9%, and Taco Bell off 8%. As personal interactions virtually ceased in Q2 the company saw its order flow shift online as digital sales reached an all-time high of $3.5 billion for the quarter, an increase of more than $1 billion over the prior year. The company stated that approximately 95% of restaurants are now at least partially open and that despite the closure of dining areas same-store sales trends for open stores stabilized in June just a few points short of flat and that those trends had continued into July.

Anheuser-Busch InBev (BUD) announced Q2 (Jun) earnings of $0.46 per share, beating the consensus estimate of $0.36 as revenues fell 26.3% YoY to $10.29 B versus expectations of $9.56 B. The company stated total volumes declined by 17.1% in 2Q, with beer volumes down by 17.2% and non-beer volumes down by 15.5%. In H1, total volumes declined by 13.4%, with own beer volumes down by 14.0% and non-beer volumes down by 7.6%, primarily driven by the impact of the COVID-19 pandemic.

Dunkin (DNKN) announced Q2 (Jun) earnings of $0.49 per share, in-line with the consensus estimate of $0.49 as revenues fell 20.0% YoY to $287.4 M vs expectations of $275.52 M. An overall reduction in traffic was offset partially by an increase in average purchase limiting the company to an 18.7% decline in sales over the quarter. The company stated MoM same-store sales had improved sequentially in each month of the second quarter and would have been approximately 4.8% lower if temporarily closed restaurants were included in those figures. Similarly, Baskin-Robbins U.S. same-store sales declined 6.0% in the second quarter as a decline in traffic driven by the COVID-19 pandemic was partially offset by an increase in average ticket while sales improved sequentially in each month of the second quarter.

DuPont (DD) announced Q2 (Jun) earnings of $0.70 per share, beating consensus estimates of $0.58 as revenues fell 11.7% YoY to $4.83 B versus expectations of $4.71 B. The company stated net sales were down 10 percent as 7%growth in Electronics & Imaging and 1% growth in Nutrition & Biosciences was more than offset by declines in the other segments. The company issued guidance for Q3, seeing EPS of $0.71-0.73, as compared to the consensus estimate of $0.71.

Hanesbrands (HBI) announced Q2 (Jun) earnings of $0.60 per share, $0.62 better than the consensus estimate of a loss of $0.02 as revenues fell 1.3% YoY to $1.74 B versus expectations of $1.17 B. A shift in production to personal protective garments including face masks and medical gowns coupled with a 68% increase in online sales contributed to growth. The company announced that, due to COVID-19 related uncertainty, it will suspend quarterly and full-year guidance until “visibility of the pandemic's effect on global economies improves.”

Lam Research (LRCX) reported June quarter results that topped expectations for revenue, gross margin, and EPS. The company sees continued positive momentum into the second half of the year due to continued demand drivers for memory, including increased NAND content in smartphones and gaming consoles, accelerated growth in Internet video traffic, and 5G related demand.

June quarter EPS from PayPal (PYPL) came in at $1.07, $0.20 ahead of the consensus forecast, and $0.71 in the year-ago quarter. Revenue for the quarter rose 25% YoY besting the $5.0 billion consensus. Net new active accounts exiting the quarter totaled 21.3 million, the strongest quarter in the company's history, and up from 20.2 million in the prior quarter. During the quarter PayPal’s payment transaction totaled 3.7 billion up 26%. With year-to-date revenue growth of 17%, the company now sees full-year 2020 revenue growth to be ~20% with full-year EPS growth of 25%.

Picture this, Eastman Kodak (KODK) saw another massive leap in its share price, rising from $2.62 as of Monday’s close to finish trading at $33.60, a gain of 323.2% for the day. The meteoric rise came after Tuesday’s announcement that the federal government will be advancing the company a loan of $765 million under the Defense Production Act for the manufacture of generic drug ingredients.

After today’s market close, we have a snoot full of technology earnings, including Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), and Facebook (FB) but also quarterly results from Electronic Arts (EA), Ford Motor (F) and Shake Shack (SHAK) among a sea of others. Investors that want to get a jump on those reports as well as the others to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

• Dates to mark:
  • • 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

“True friends are like stars; you can only recognize them when it’s dark around you.” ~ Bob Marley.

Disclosures

• Qualcomm (QCOM), United Parcel Service (UPS) are constituents in the Tematica Research's Thematic 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.

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