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Almost. Stocks had a mixed close in last Friday’s session amidst alarmingly fast-rising infection rates. Confidence in a V-shaped recovery appears to be waning and tech investors continue to take profits.
N O T E W O R T H Y
The could have gone all the way. Last week's stock market activity was anything but orderly. Just when it seemed safe to hop on the band wagon of “you can’t go wrong investing in big tech”… well you know how that usually plays out, and this case was no different. Cruise lines and airlines were up and down and up and down which has become the norm in this fragile economic recovery, if you can call it that. Those sectors have become the playground for traders looking to cash in on the volatility, paying little regard to the cause of the bumpiness. Investors in those industries who blindly buy into the surges and headlines without doing further research should have hedged their investments with Bayer AG… makers of Alka-Seltzer. Banks delivered a bit of a surprise last week with some respectable earnings beats. This is unarguably a difficult time for banks to earn money. Low interest rates and weak financial positions make lending a difficult, if not lower profit endeavor. Lending is typically a bank’s bread-and-butter business line, but some have proven that they can make profits in other ways. Namely fees. I am not referring to ATM fees, though I am sure they are happy to collect those. As the economic picture worsened through the end of the first quarter into the second, companies rushed to their bankers to raise capital to shore up balance sheets. They did this through refinancing, extending, and expanding existing loan facilities. Additionally, as reported here on numerous occasions, companies have turned to the bond markets, selling debt to raise capital at a record pace. All of these can only be accomplished with the help of commercial and investment bankers… who charge big fees to facilitate the transactions. Those were reflected in the results of many of the big banks who reported last week. The high-flying tech sector seemed to hit a speed bump last week as that group of stocks gave up some of their recent gains. There was no real stimulus for the selloff which means that it was most likely caused by profit taking ahead of earnings. We will hear from Microsoft, Tesla, IBM, Intel, and Twitter this week. For the most part, recent economic data has been surprising on the upside and though it is a bit early to tell, earnings so far have not produced any major washouts. Both the Dow and S&P gained on the week while the tech-heavy Nasdaq slipped. The S&P 500 is dominated by some high-tech names but still represents a broad array of sectors which is why when reports refer to the “stock market”, they are most likely referencing the S&P500. Looking at the S&P500 last week, we can see an interesting pattern forming. There was Monday’s selloff followed by Tuesday’s recovery. Wednesday through Friday witnessed the Index attempt to break through resistance… almost successfully. By “almost”, I mean it didn’t happen, though it came close. The 3200 level has been closely watched by technicians as a resistance level which was created by a series of closes in that region in early June, just before a new spike in viruses began to show up in the South and West. To be exact, a few closes above 3232 (a high reached on June 8) would be a bullish technical signal. That level was certainly tested last week despite the jump in daily virus cases. Markets appear to be looking past the virus spike putting hopes on the recently reported advances in vaccine research. One data point that did not seem to get much coverage was Friday’s University of Michigan Sentiment indicator. You all know my obsession with consumer confidence… if you don’t know… now you know. The University of Michigan publishes its results twice a month (preliminary and final), and Friday’s preliminary number was an eye-opener. The headline Sentiment number came in at 73.2, far lower than the expected 79.0 and last month’s 78.1. Breaking down the number further, Current Conditions came in at 84.3, down from 87.1 while future Expectations came in at 66.2, down from 72.3. The slip in confidence appears to be the result of recent spikes in cases. Though the hopes for a near-term vaccine may be quelling market fears, a real economic recovery can only come if consumers are confident and return to their former spending habits, and that moving target appears to be moving further down the road.
THE MARKETS
Stocks closed mixed on Friday despite rapidly increasing positivity rates in some states. The S&P500 rose by +0.28%, the Dow Jones Industrial Average slipped by -0.23%, the Russell 2000 advanced by +0.23%, and the Nasdaq Composite Index traded up by +0.28%. Bonds sold off slightly and 10-year yields climbed by +1 basis point to 0.62%.
NXT UP
- This morning, Halliburton beat Wall Street Estimates. After the bell, Limelight Networks, Crown Holdings, IBM, and Cadence Design Systems will announce results.
- This week will feature a slower economic release calendar which includes lots of housing numbers, the Conference Board’s Leading Index, regional Fed reports, and the Markit Manufacturing/Services PMI’s. We have lots of corporate earnings on tap for the week ahead. Refer to the attached economics and earnings release calendars for details.
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