Art Hogan’s Week in Review – July 19, 2019

Week in Review –  July 19, 2019

As we wrapped up the hottest week of the year, and the first week of the second quarter earnings season, there were three macro drivers that affected markets. The Fed’s newly minted dovish stance; the second quarter earnings reports; and the US-China trade tensions.

The Q2 earnings season will be the dominate driver as we get into the heavy reporting over the next two weeks. The sample set is still relatively small with about 13% of the S&P 500 companies having reported so far. That said, of the 67 S&P 500 companies that have now released second quarter results, 76% have topped EPS expectations on +6.12% earnings growth rate. Things will get a lot more interesting next week as we hear results from 125 S&P 500 companies.

The Federal Reserve has left little to the imagination about their intensions on rates at their July 31st meeting. Fed Chair Jay Powell delivered a speech yesterday in Paris where he reiterated that the Federal Reserve will, “act as appropriate,” to keep the economic expansion going. He also noted a few key global concerns that are adding “uncertainty,” to the economic outlook in the U.S. and abroad, including US Federal debt ceiling; a prolonged shortfall in the US inflation; and Brexit. Federal Reserve Bank of New York President John Williams said this week: “When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress.”

The only real question now seems to be will they cut 25 or 50 basis points. We lean towards 25 basis points, but the CME FedWatch tool has the odds at 57%-25 basis points; 43%-50 basis points. See the Data Here. US-China trade had faded somewhat into the background. Investors anticipate the present truce persisting for the foreseeable future, with existing tariffs staying in place but no incremental ones being implemented.

Record highs this week:

McDonalds, Ross Stores, Starbucks, YUM Brands, Costco, Estee Lauder, Medtronic, Abbott, IHS Markit, MSCI, S&P Global, Adobe Intuit, Fiserv, Global Payments, Microsoft, KLA-Tencor, Visa, Xcel Energy

Highlights from the Week: 

The Philadelphia Fed saw its primary gauge measuring the sector jump from 0.3 in June to 21.8, far better than Wall Street estimates of 5 and the highest in a year. The index measures the difference between companies saying they are expanding activity against those expecting to reduce.

Oil tumbled amid signs of increased Russian crude output and continued nervousness over the global economy. WTI closed at $55.15, down 9% for the week.

Microsoft reported EPS of $1.37 on revenues of $33.72 Billion. That compares to estimates of $1.21, and $32.77 Billion. Ther stock was up 1%in after-hours trading and is up 31.9% year-to-date.

ETrade ticked down after the financial services company’s second-quarter revenue missed estimates. The company reported revenue earnings of $685 million versus the $751 million estimated

President Donald Trump said the U.S. “immediately destroyed” an Iranian drone that approached the USS Boxer near the Strait of Hormuz, the latest sign of escalating military tensions around the critical oil chokepoint. The drone was a threat to the ship and its crew, Trump said at the White House on Thursday. The president said he’s calling “on other nations to protect their ships as they go through the Strait.” The Boxer is an amphibious assault ship.

China’s economy slowed to the weakest pace since quarterly data began in 1992 amid the ongoing trade standoff with the U.S., while monthly indicators provided signs that a stabilization is emerging.

The train wreck of the week reward goes to CSX, as the railroad company said Tuesday after the bell that it earned $1.08 per share in the second quarter, below the $1.11 earnings per share Wall Street analysts were expecting. Revenue also fell short, with $3.06 billion reported versus the estimate of $3.14 billion. CSX also said it expects revenue to fall as much as 2% in 2019, well below a previous forecast of an increase of 1% to 2%.

U.S. retail sales and factory output in June exceeded expectations and underscored steady economic growth even as Federal Reserve officials signal they’re prepared to reduce interest rates. The value of retail purchases rose 0.4% for a second month, more than the 0.2% median projection, Commerce Department data showed Tuesday.

Next Week’s Catalysts 

There will be three big macro events in focus next week: July Flash PMI’s (Wednesday morning), ECB meeting (Thursday morning), and US Q2 GDP report (Friday morning).

Key earnings for the week: 

HAL, BIIB, KMB, KO, LMT, TRV, UTX, CMG, DFS, SNAP, TXN, V, ANTM, BA, CAT, NOC, NSC, T, UPS, CTXS, F, FB, NOW, PYPL, TSLA, XLNX, BAX, BMY, CMCSA, IP, MMM, RTN, AMZN, EXPE, FLEX, GOOGL, INTC, JNPR, MGM, SBUX, ABBV, AON, CHTR, CL, ITW, MCD, and TWTR

Monday – Earnings (BOH, CALM, HAL, LII, and RPM. before the open and AMTD, BRO, CDNS, CE, CR, HXL, STLD, WHR, and ZION after the close).

Tuesday – Eurozone Consumer Confidence for July (10 am ET), US Existing Home Sales for June (10 am ET), Earnings (AMS AG, AMTD, AN, ATI, AVY, BIIB, CIT, CNC, DGX, FITB, HAS, HOG, IPG, JBLU, KEY, KMB, KO, LMT, LW, MTG, PCAR, PHM, PNR, Santander, SHW, SWK, TRU, TRV, UBS, and UTX before the open and CALX, CB, CMG, CNI, CSGP, DFS, EW, IRBT, MANH, MDSO, NAVI, RHI, RNR, SNAP, TER, TXN, V, VMI, and WRB after the close).

Wednesday – Eurozone Flash PMI’s for July (4 am ET), Eurozone M3 Money Supply for June (4 am ET), US Flash PMI’s for July (9:45 am ET), US New Home Sales for June (10 am ET), Earnings (ALXN, ANTM, APH, BA, BCO, BKU, BSX, CAT, CHKP,  EVR, FCX, GD, GWW, HLT, KNX, LVMH, MKTX, MLM, NAVI, NDAQ, NOC, NSC, NTRS, OC, RES, SIX, SLAB, SLGN, T, TEL, TMO, TROW, TUP, UPS, VFC, and WIX before the open and AGNC, ALGN, CERN, CLB, CLGX, CTXS, CYBE, ESS, F, FB, FFIV, FTI, LSTR, MLNX, NOW, NTGR, ORLY, PKG, PTC, PYPL, RJF, SAVE, SLM, SU, TMK, TSLA, VAR, and XLNX after the close).

Thursday – German IFO for July (4 am ET), Hong Kong Imports/Exports for June. (4:30 am ET), the ECB decision (7:45 am ET press release, 8:30 am ET press conf.), US Wholesale Retail/Inventories for June (8:30 am ET), US Durable/Capital Goods Orders for June (8:30 am ET), Earnings (AB, ABB, ALLE, AXE, AXTA, BASF, BAX, BC, BMY, CMCSA, Danone, DBD, HSY, IP, IVZ, KIM, KKR, LAZ, MAS, MMM, ROK, ROP, RS, RTN, STM, TCF, TECK, TPX, TSCO, VC, VLY, VMC, VW, WM, and WWE before the open and AFL, AJG, ALK, AMZN, ASB, CY, EMN, EXPE, FII, FLEX, FWRD, GOOGL, HLI, IEX, INTC, JNPR, LOGM, LPLA, LYV, MAT, MGM, MHK, MXL, PFG, PFPT, PRO, RRC, SBUX, SIVB, SYK, TNET, UHS, VRSN, and WERN after the close).

Friday – US Q2 GDP/PCE (8:30 am ET) Earnings (ABBV, AON, CHTR, CL, ITW, LEA, MCD, PSX, TWTR, TYPE, WETF, and ZBH before the open).

The views and opinions expressed herein are those of the analyst Arthur Hogan and are current as of this report’s posting date. This commentary is general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. Neither Art Hogan nor National Securities Corporation is affiliated with the issuers mentioned herein, and no part of this analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the analyst in the report. The views & and strategies may not be suitable for all investors and is are not intended to be relied on for legal or tax advice. Please note that any investment involves risk including loss of principal.