Weekly Market Update: Markets continue to climb the wall of worry, betting on large cap tech and big box retail
2020-08-21T16:09:09.323
The markets opened the week still under the influence of many of the same underlying cross currents that have been driving the action in recent weeks. The White House added another 38 Huawei affiliates to the economic blacklist while President Trump announced that he had postponed the six-month review of the Sino-US phase one trade deal, citing his unhappiness with China’s handling of the coronavirus outbreak. Trump also continued to raise concerns about the integrity of the upcoming US election, while Democrats raised a stink about the activities of the Postmaster General and hammered Trump for his pandemic record as they officially nominated Joe Biden at a virtual convention. Covid-19 infections picked up in Europe and parts of Asia but positive incremental news on vaccines and therapeutics continued to trickle out. Earnings season focus shifted to retailers, amongst whom the big box and home improvement names blew away analyst expectations. The often incredible growth came clearly at the expense of department stores and smaller players illustrating the tailwinds generated by forced closures related to the pandemic. The US data was mixed with housing holding up strong, but weekly initial jobless claims jumped back above the one million mark.
For much of the week stock indices climbed, powered by big gains in select mega-cap tech names masking broader softness. On Friday, decliners led advancers by nearly 3:1 margin across all major US stock markets but the indices still gained, illustrating the continued divergence exacerbated by the skewed index weighting towards select big cap tech. The Greenback bounced along 2-year lows before bouncing late in the week and rates moved lower amid a flattening yield curve. For the week, the S&P gained 0.7% and hit new all-time highs, while the DJIA was flat and the Nasdaq powered up 2.7%.
Corporate news this week was largely dominated by earnings reports from retailers. Home Depot blew away estimates, notching strong operating margins and a 25% jump in comp sales. Lowe’s fared even better, with revenue well above expectations and comp sales up 34%. Walmart posted beats along with 9% US SSS growth, and also noted its Sam’s Club new member count increased more than 60%. Target saw 24% comp sales growth and said it has continued to see strength across its portfolio into August. Kohl’s Q2 was not as weak as feared, but the department store chain said it was planning for the crisis to continue to impact its business in the near term. TJX disappointed with a surprise earnings miss to the downside. Nvidia posted an earnings beat amid strong data center business growth, and the company said it expects a strong second half for gaming. Oracle was said to have entered the bidding war for TikTok US, though Microsoft reportedly still remains in the pole position to acquire the social media assets. Apple's market cap reached the $2 trillion level, while Tesla shares pushed through $2,000 a share, both assisted by impending stock splits.
MON 8/17
(US) US Commerce Department to add another 38 Huawei affiliates in 21 countries to economic blacklist - press
*(US) AUG EMPIRE MANUFACTURING: 3.7 V 15.0E
TUES 8/18
HD Reports Q2 $4.02 v $3.71e, Rev $38.1B v $34.9Be; Maintains dividend
WMT Reports Q2 $1.56 v $1.20e, Rev $137.7B v $134.2Be
*(US) JULY HOUSING STARTS: 1.50M V 1.25ME; BUILDING PERMITS: 1.50M V 1.33ME
(US) State Dept asks college endowment funds to divest from Chinese companies
(US) Pres Trump: I have postponed trade talks with China; I don't want to talk to China right now
WEDS 8/19
*(UK) JULY CPI M/M: +0.4% V -0.1%E; Y/Y: 1.0% V 0.6%E
*(EU) EURO ZONE JULY FINAL CPI Y/Y: 0.4% V 0.4%E; CPI CORE Y/Y: 1.2% V 1.2%E
LOW Reports Q2 $3.75 v $2.94e, Rev $27.3B v $24.7Be; Sales momentum continues in Aug
TGT Reports Q2 $3.38 v $1.64e, Rev $23.0B v $20.2Be
*(US) DOE CRUDE: -1.6M V -2.5ME; GASOLINE: -3.3M V -1ME; DISTILLATE: +0.2M V -0.5ME
MNTA To be acquired by JNJ for $52.50/shr valued at $6.5B in cash; Affirms FY20 $7.75-7.95 and expects incremental investment in R&D to have EPS impact worth ~$0.10-0.15 in 2021, Expects nipocalimab to contribute to goal of achieving above-market growth over the mid and long term
AAPL Reaches $2T market cap
OPEC+ JMMC technical meeting draft communique: plans next JMMC meeting for Sept 17th
(US) US and China officials reportedly plan to hold video conference in coming days to discuss progress fulfilling terms of 'Phase 1' trade agreement - press
NVDA Reports Q2 $2.18 v $1.95e, Rev $3.87B v $3.65Be
THURS 8/20
Several central banks to reduce frequency of 7-day USD liquidity operations from 3x to 1x per week; effective Sept 1st
*(US) AUG PHILADELPHIA FED BUSINESS OUTLOOK: 17.2 V 20.8E
*(US) INITIAL JOBLESS CLAIMS: 1.11M V 920KE; CONTINUING CLAIMS: 14.84M V 15.00ME
*(US) JULY LEADING INDEX: 1.4% V 1.1%E
FRI 8/21
*(UK) JULY RETAIL SALES (EX-AUTO/FUEL) M/M: 2.0% V 0.2%E; Y/Y: 3.1% V 1.5%E
*(FR) FRANCE AUG PRELIMINARY MANUFACTURING PMI: 49.0 V 53.0E (1st contraction in 3 months)
*(TR) Turkey President Erdogan: Found 320B CM in Black Sea gas discovery; will not stop until we become a next exporter of energy
*(US) JULY EXISTING HOME SALES: 5.86M V 5.41ME (2nd straight highest monthly gain on record)
