Art Hogan’s Week in Review – July 26, 2019
July 26, 2019
The script for markets was consistent this week, with three macro divers taking center stage: The Fed; The US-China Trade Tensions; and Earnings Reports.
With the July 31st FOMC meeting coming at us next week, the Federal Reserve policy limits the extent to which FOMC participants and staff can speak publicly or grant interviews during Federal Reserve blackout periods, which begin the second Saturday preceding a Federal Open Market Committee (FOMC) meeting and end this Thursday. We have heard plenty this month from the Fed, and markets seemingly only have one question, “how much will they cut rates?”
The earnings season is off to a better than feared start with 44% of the companies in the S&P 500 that have reported actual results for Q2 2019. In terms of earnings, the percentage of companies reporting actual EPS above estimates (77%) is above the five-year average. In aggregate, companies are reporting earnings that are 5.4% above the estimates, which is also above the five-year average. In terms of sales, the percentage of companies (61%) reporting actual sales above estimates is above the five-year average. In aggregate, companies are reporting sales that are 1.2% above estimates, which is also above the five-year average.
The interesting dynamic during Earnings Season is that we get multiple company specific stories and stock reactions, while the broader index tends to trade sideways. It is really a time for resetting valuations on a micro basis while the macro index levels don’t tend to move around a lot. As an example we are at the end of week two of the second quarter earnings season. The S&P 500 was at 3004 at the start of the reporting season, we closed last night at 3025, about 0.7% higher. On the company specific level, Netflix is down 14% since reporting results, JB hunt is up 17% post its results, Ford sells off 8% after its report, while GOOG trades up 10.45% after their earnings last night. There is a certain Yin and Yang to the season that balances the effects of the winners and losers keeping the indexes in check.
We actually had some incremental movement oh the US-China trade front for the first time since the G20 meeting. U.S. Trade Representative Robert Lighthizer and senior U.S. officials are set to travel to China next Tuesday for the first high-level, face-to-face trade negotiations between the world’s two biggest economies since talks broke down in May. Lighthizer and a small team will be in Shanghai through Thursday. The meeting is expected to involve a broad discussion of the issues outstanding, a senior administration official said. The longest journey starts with the first step.
For the week we saw markets move modestly higher with the S&P 500 adding 1.65%, to close at a new high of 3025. The Dow Jones Industrials were better be 0.14%, and the Nasdaq was up 2.26%, to a new high, with significant strength in the semiconductor sector. The Philadelphia Semiconductor Index was up 4.59% for the week with the combination of better results and a more constructive tone in the US-China trade talks.
Highlights from the week.
The Justice Department is opening a broad antitrust review into whether dominant technology firms are unlawfully stifling competition, according to department officials, adding a new Washington threat for companies such as Facebook Inc., Google Inc., Amazon.com Inc. and Apple Inc. The review is geared toward examining the practices of online platforms that dominate internet search, social media and retail services, the officials said. The new antitrust inquiry is the strongest signal yet of Attorney General William Barr’s deep interest in the tech sector, and it could ratchet up the already considerable regulatory pressures facing the top U.S. tech firms. The review is designed to go above and beyond recent plans for scrutinizing the tech sector that were crafted by the department and the Federal Trade Commission.
Boris Johnson, the public face of the Brexit campaign, won the contest to succeed Theresa May as British prime minister, taking over a country in crisis and a government on the brink of breaking apart.
President Trump said congressional lawmakers reached a deal on the debt ceiling. “I am pleased to announce that a deal has been struck with Senate Majority Leader Mitch McConnell, Senate Minority Leader Chuck Schumer, Speaker of the House Nancy Pelosi, and House Minority Leader Kevin McCarthy – on a two-year Budget and Debt Ceiling, with no poison pills,” Trump said on Twitter. “This was a real compromise in order to give another big victory to our Great Military and Vets! The risk of a government shutdown on Oct. 1 still remains. Even if the budget deal is signed into law, Congress must still pass spending bills adhering to the spending caps to keep the lights on. A fight over border wall funding led to the longest government shutdown in modern history earlier this year.
ECB President Draghi left rates unchanged but said a “significant degree” of monetary stimulus is needed and the outlook is “getting worse and worse.”
Durable goods orders rose 2% in April, the Commerce Department said Thursday.
The U.S. GDP report for the second quarter came in at 2.15, better than the 1.8% estimate.
Next Week’s Catalysts:
Monday – US Dallas Fed for Jul (10:30 am ET) and earnings (AMG, AWI, BAH, CTB, HBI, ONDK, OPB, before the open and ACGL, AKS, AMH, AMKR, APPF, BYND, CGNX, CHGG, EFII, ILMN, LEG, NOV, NXPI, OMF, PI, RE, RGA, RIG, RMBS, SANM, SBAC, SILK, SSNC, TEX, TXRH, VNO, and WCN after the close).
Tuesday – Eurozone consumer confidence for July (5 am ET), Germany’s CPI
for July (8 am ET), US personal income/spending for June (8:30 am ET), US PCE for June (8:30 am ET), US Case-Shiller home prices for May (9 am ET), US pending home sales for June (10 am ET), US Conference Board Confidence for July (10 am ET), and earnings (AOS, BEN, BERY, BP, CMI, COP, CVLT, CYBG PLC, DHI, DSX, ETN, GLW, GRUB, HCA, HUBB, HUN, IPGP, IR, IT, LDOS, LLY, MA, MMC, MO, MRK, NBR, PFE, PG, PJT, R, RL, SIRI, SLCA, ST, TEX, UA, VSH, WAT, WCG, WDR, XRX, and ZBRA before the open and AAPL, AKAM, ALL, AMD, AMGN, BLKB, BXP, BYD, CDAY, CINF, EA, EGHT, EQR, EXP, FEYE, FMC, GILD, GNW, GRPN, HUBG, IRWD, LSCC, MC, MDLZ, MXIM, MKSI, MOH, MSTR, NCR, NUVA, PAYC, TCS, UIS, UNM, VRSK, YUMC, and ZEN after the close).
Wednesday – China’s NBS manufacturing/non-manufacturing PMIs for July (Tuesday night/Wednesday morning), German unemployment for July (3:55 am ET), Eurozone Q2 GDP (5 am ET), Eurozone CPI for July (5 am ET), US ADP jobs report for July (8:15 am ET), US ECI for Q2 (8:30 am ET), US Chicago PMI for July (9:45 am ET), FOMC decision (2 pm ET press release and 2:30 pm ET press conf.), and earnings
(AMCX, AMT, APO, APTV, BHGE, BLMN, CDW, CG, CHD, CHRW, CME, DAN, DIN, DSV, EXTR, FCAU, GE, GRMN, HES, HUM, JCI, JHG, LHX, NLSN, NYCB, SBH, SMG, SPG, SSYS, TAP, WLTW, and WNC before the open and ALSN, APA, ATUS, AVB, AWK, BAND, BOOT, CAKE, CBL, CRUS, CTSH, CXO, DXCM, EQIX, FIT, FIVN, GHL, H, HOLX, IRTX, LNC, LRCX, MCK, MET, MUSA, NLY, NSTG, OLN, OXY, PRU, PS, QCOM, QLYS, RAIL, TDOC, TIVO, TRMB, TTMI, TWLO, VAC, VRTX, VVV, WDC, and ZNGA after the close).
Thursday – China Caixin manufacturing PMI for July (Wednesday night/Thursday morning), Eurozone manufacturing PMI for July (4 am ET), BOE rate decision (7 am ET), US Markit manufacturing PMI for July (9:45 am ET), US manufacturing ISM for July (10 am ET), US construction spending for June (10 am ET), US auto sales for July, and earnings (ABC, ADM, Mittal, ARW, AVP, BCE, BMW, CBRE, CI, CLVS, CLX, DLPH, DNKN, GCI, GM, HBI, ICE, IDCC, IRM, K, MPC, MSCI, NVT, OI, OSK, PH, SABR, SHOP, SPGI, TFX, THS, TRI, TWI, VZ, W, WCC, YETI, and YUM before the open and AIV, ANET, BL, BRKS, CATM, CBLK, CC, CENX, DLB, DVA, ETSY, FBHS, FLR, FND, FTNT, GDDY, GLUU, GPRO, HLF, IPHI, KLIC, LM, MSI, MTD, MTSI, MTZ, OLED, QRVO, RDFN, RMAX, SQ, SVMK, SWI, TDC, TMST, TNDM, USX, WU, X, and XPO after the close).
Friday – Eurozone PPI for June (5 am ET), Eurozone retail sales for June (5 am ET), US jobs report for July (8:30 am ET), US trade balance for June (8:30 am ET), US factory orders for June (10 am ET), US capital/durable goods orders for June (10 am ET), US Michigan Confidence for July (10 am ET) and earnings (ARNC, CBOE, CVX, LYB, MGI, MNTA, NWL, OZM, RBS, SEE, STX, XOM, and XRAY before the open).