When you wish upon a star. Stocks rose in yesterday’s session on positive earnings, amongst them was Disney, saved by its new streaming service which made up for lost parks revenue. Lawmakers are making some progress on a new stimulus bill, but the going is slow, slow, slow.
N O T E W O R T H Y
On the beat. If you haven’t notice by now, we are mostly through second quarter earnings season. You know, that quarter in which most of us redecorated our home offices, added a few pounds, and became reacquainted with our pets. It was also a quarter in which tens of millions of workers (almost 40 million) lost their jobs in one way or another. Many workers who kept their jobs were subject to pay cuts and reduced hours. Consumers were out of work and locked at home, which prevented them from consuming in a normal way. Entire once-booming industries ground to a halt, while some sleepy ones emerged as leaders. For many small and mid-sized companies, the lockdown put them on death’s doorstep. Bigger companies, the ones we are more familiar with, struggled too as their business to business revenues were cut in addition to their business to consumer sales. Sure, people still made purchases. Purchases of large ticket, luxury items were foregone for large increases in “stockpile necessities” like toilet paper, flour, Clorox Wipes, and larger-screen TV’s to binge on Netflix or to watch recorded sporting events from the “good years”. By the end of the quarter, lockdown restrictions began to ease and consumers began to seek out wants over needs. This can be evidenced by a surge in car sales as dealers began to reopen. But wait, just as restriction easing began to become more widespread, virus cases started to rise, shifting the COVID epicenter from the NY area to southern and western states ultimately causing many restrictions to be retightened. SO… one would expect that companies had a really, really tough quarter of earnings. Or did they? Let’s look at the numbers and find out. With roughly 75% of the S&P500 companies reporting so far, 83% of them reported earnings that beat Wall Street estimates. OK, that is a lot, considering that only 65% typically beat estimates. The S&P500 has risen +5.47% since JP Morgan kicked of earnings season on July 14th… with an earnings beat. And the beats go on. “How is this possible?”, you wonder. Well, first of all, the expectation bar is really low. But that said, companies are still doing better than expected. Further, as we know all too well, the record boom in unemployment means that companies have been cutting expenses, thus further increasing earnings. Revenues are beating estimates as well, though they are down by around -2.5% since 2019. OK, OK, I suppose that this makes a little sense in an environment where expectations are low and Government stimulus has supported unemployed workers and companies. As we know all too well, this economic calamity is far from over and unemployment remains stubbornly high. A long-debated second stimulus package will certainly help to sustain this slow recovery, but it still leaves many analysts wondering what will happen to earnings once things get better and companies begin to rehire workers… and increase expenses. One thing we know for sure is that workers are the first variable cost to be cut in a downturn, and that when things begin to pick back up, companies are slow to rehire workers in order to maintain applaudable earnings growth. In other words, rehiring typically lags economic growth.
THE MARKETS
Stocks rose yesterday on positive earnings announcements and hopes that the Hill can get the job done. The S&P500 climbed by +0.64%, the Dow Jones Industrial Average jumped by +1.39% (thanks in part to Disney), the Russell 2000 Index traded up by +1.91%, and the Nasdaq Composite Index advanced by +0.52% to its 31st all-time high of the year (that is the same amount of new highs it had in the entire year of 2019). Bonds slipped and 10-year treasury yields ticked up by +4 basis points to 0.54%.
NXT UP
- Initial Jobless Claims (August 1) is expected to come in at 1.4 million, down slightly from the prior week’s 1.434 million first-time claims.
- Continuing Claims (July 25) are expected to have receded from 17.018 million to 16.8 million.
- Today’s Fed speakers are Robert Kaplan and Daleep Singh.
- This morning Ball Corp, YETI Holdings, Becton Dickinson, Mylan, Bristol Myers, Zoetis, Howmet Aerospace, ViacomCBS, and FLIR systems beat, while Hilton Worldwide, Bausch Health, Norwegian Cruise Lines, Revlon, and iHeartMedia missed. After the bell, we will hear from Booking Holdings, T-Mobile, Cloudflare, TripAdvisor, Zillow, Dropbox, Herbalife, AMC Entertainment, First Solar, Mohawk Industries, and Trade Desk.