Equity markets, in lieu of fears and doubts, held the support levels of their bullish channels, which is a major accomplishment under the threatening circumstances of rising coronavirus infections, geopolitical tensions between U.S. and China (or Iran as well if you give any weight to the aircraft incident) and yet-to-be completed negotiations between Democrats and Republicans for the next round of stimulus. The market continues to consolidate its gains. The SP-500 (SPY) and Russell-2000 (IWM) finished the week in positive territory, respectively up +0.68% and +1.44%. The DJ-30 (DIA) and Nasdaq-100 (QQQ) declined slightly over the last 5 days, respectively down -0.29% and -0.43%.
The real shining star this week was Gold which hit a new high @ 1904.30 and looks to be well on its way to challenging its record high in September-2011 @ 1923.70. Precious metals ETFs, Gold (GLD) and Silver (SLV) respectively increased +5.01% and +16.77%. Other notable standouts for the week were Home Construction (ITB) @ +4.12%, Utilities (XLU) @ +3.06% and Europe’s Currency Trust (FXE) @ +1.83%. With the exception of the homebuilders, each of these shares the common trait of expressing a risk-off sentiment towards the markets. Keep these on your radar for future clues on the market direction.
Market Moving Events
- US / Real Estate / Residential: New Home Sales for June-2020 (m/m) @ up 13.8% vs estimates @ 4.0% and previous @ 19.4%; (y/y) @ 776k vs estimates @ 700k and previous @ 682k.
- Europe / Manufacturing PMI for July-2020: Eurozone @ 51.1 vs estimates @ 50.0 and previous @ 47.4; Germany @ 50.0 vs estimates @ 48.0 and previous @ 45.2; France @ 52.0 vs estimates @ 53.2 and previous @ 52.3.
- Europe / Services PMI for July-2020: Eurozone @ 55.1 vs estimates @ 51.0 and previous @ 48.3; Germany @ 56.7 vs estimates @ 50.5 and previous @ 47.3; France @ 57.8 vs estimates @ 52.3 and previous @ 50.7.
- UK / Manufacturing & Services for July-2020: Composite PMI @ 57.1 vs estimates @ 51.1 and previous @ 47.7; Manufacturing PMI @ 53.6 vs estimates @ 52.0 and previous @ 50.1; Services PMI @ 56.6 vs estimates @ 51.5 and previous @ 47.1.
- UK / Consumers: June-2020 Core Retail Sales (m/m) actual @ 13.5% vs estimates @ 7.5% and previous @ 10.6%; (y/y) actual @ 1.7% vs estimates @ -3.7% and previous @ -9.6%. June-2020 Retail Sales (m/m) actual @ 13.9% vs estimates @ 8.0% and previous @ 12.3%; (y/y) actual @ -1.6% vs estimates @ -6.4% and previous @ -12.9%.
- Earnings / Energy: Schlumberger (SLB) actual EPS @ 0.05 vs estimates @ -0.01. Kimberly Clark (KMB) actual EPS @ 2.20 vs estimates @ 1.79.
- Earnings / Financials: American Express (AXP) actual EPS @ 0.29 vs estimates @ -0.05.
- Earnings / Industrials: Alaska Air (ALK) actual EPS @ -3.54 vs estimates @ -3.67. Honeywell (HON) actual EPS @ 1.26 vs estimates @ 1.21.
- Earnings / Telecom: Verison (VZ) actual EPS @ 1.18 vs estimates @ 1.15.
- USA / Manufacturing & Services for July-2020: Manufacturing PMI @ 51.3 vs estimates @ 51.5 and previous @ 49.8; Compositie PMI @ 50.0 vs previous @ 47.9; Services PMI @ 49.6 vs estimates @ 51.0 and previous @ 47.9.
- Geopolitical / US vs China: In retaliation for closing its Houston consulate office, China ordered the U.S. to close its consulate in Chengdu. With Secretary of State Pompeo urging the Chinese to oppose the CCP and President Trump saying that the already completed trade negotiations with China no longer mean anything, one has to wonder if this cold war will escalate or dissipate.
- Information & Technology: Intel forewarned that its 7-nanometer chip would not be released on the market until the end of 2022 or early 2023, which is a year later than previously targeted.
- Energy: Baker Hughes Oil Rigs Count @ 181 vs previous @ 180; and Total Rig Count @ 251 vs previous @ 253.
Europe’s economic recovery is progressing much better than the US which exhibits uneven signs of improvement and probably continue to do so as the pandemic spreads and a return to lockdowns discourage consumer activity.
Weakness in the US Dollar has its advantages for now, but, should it persist and why shouldn’t it given the following:
- expectations for a -22% drop in earnings growth for the SP-500 in 2020;
- trillions of dollars being borrowed to finance the stimulus aid used to prop up the US economy; and
- geopolitcal uncertainty the US has created for both its allies and rivals.
Inflation or stagflation could become a real problem. This week the US Dollar Index closed below the support level of its March-2008 low. A persistently weak currency is often a harbinger of underylying systemic issues yet to be addressed or resolved.
There’s not convenient way to segue into a conclusion, so I shall simply wish all a safe and enjoyable weekend, be it alone or with family and friends as we are all now more mindful that one can never be too certain in this life or these times. Signing off….
Potential Market Moving Events
Positive Earnings Surprises
Negative Earnings Surprises
Earnings In-Line with Estimates