That’s Just Not Going to Happen

Commentary

US GDP in Q2-2020 was slightly better than estimated, but there still is no other way to interpret a -33% decline other than negative. During the first hour of trading, the SP-500 declined @ -55 points before an intraday rally began. Some investors speculate a GDP contraction of this magnitude as an extreme and bet on a sharp upward reversal in the next quarter. In my opinion, that’s just not going to happen and here’s why:

  • Unemployment claims and continuing claims are increasing as the coronavirus continues to surge and shut down businesses and various segments of the economy.
  • In a consumer-driven economy, consumer spending is down -34.6%.
  • The US is also a service-oriented economy and 67% of GDP is dependent upon it. Spending in services has dipped to an annualized rate @ -43.5%.
  • Cross-border trade for exports, another driver of jobs, contracted @ -64.1% rate.
  • Congressional Democrats and Republicans have yet to finalize an agreement for another stimulus package as the current one expires tomorrow. Regardless of political bias, no consumer will feel safe spending the next stimulus money if they know that its delivery is not reliable.
  • As much as I hate to be a pessimist, which is not my natural inclination, I project that more businesses will continue to close over the next quarter before any economic rebound occurs.

Given such a grim outlook, it’s no wonder President Trump is considering to delay the November 3rd elections, but this too is also something that’s just not going to happen. (He and his team probably realize this and may have simply tossed this out to MSM as a temporary deflection from the current economic depression caused by a self-inflicted healthcare crisis.)

Performance Summary

market performance summary for equities, bonds, currencies, commodities and real estate indexes
ETF sector performance summary

Market Moving Events

Bullish

  • Earnings / Consumer Discretionary: Aptiv (APTV) actual EPS @ -1.10 vs estimates @ -1.36; Genuine Parts (GPC) actual EPS @ 1.32 vs estimates @ 0.90. LKQ (LKQ) actual EPS @ .53 vs estimates @ 0.15; Yum Brands (YUM) actual EPS @ 0.82 vs estimates @ 0.52.
  • Earnings / Consumer Staples: Kellogg (K) actual EPS @ 1.24 vs estimates @ 0.94; Kraft Heinz (KHC) actual EPS @ 0.80 vs estimates @ 0.64; Molson Coors Brewing (TAP) actual EPS @ 1.55 vs estimates @ 0.69; Proctor & Gamble (PG) actual EPS @ 1.16 vs estimates @ 1.01.
  • Earnings / Energy: Valero (VLO) actual EPS @ -1.25 vs estimates @ -1.39; Xcel Energy (XEL) actual EPS @ 0.54 vs estimates @ 0.47.
  • Earnings / Financials: ICE (ICE) actual EPS @ 1.07 vs estimates @ 1.04; Marsh McLennan (MMC) actual EPS @ 1.32 vs estimates @ 1.13; Moody’s (MCO) actual EPS @ 2.81 vs estimates @ 2.14; Wills Towers Watson (WLTW) actual EPS @ 1.80 vs estimates @ 1.63.
  • Earnings / Industrials: AO Smith (AOS) actual EPS @ 0.45 vs estimates @ 0.42; Masco (MAS) actual EPS @ 0.84 vs estimates @ 0.68; Northrop Grumman (NOC) actual EPS @ 5.78 vs estimates @ 5.32; Stanley Black Decker (SWK) actual EPS @ 1.60 vs estimates @ 1.16; Textron (TXT) actual EPS @ 0.13 vs estimates @ -0.07; United Parcel Service (UPS) actual EPS @ 2.13 vs estimates @ 1.08; Waste Management (WM) actual EPS @ 0.88 vs estimates @ 0.80; Xylem (XYL) actual EPS @ 0.40 vs estimates @ 0.25.
  • Earnings / Information Technology: MasterCard (MA) actual EPS @ 1.36 vs estimates @ 1.16.
  • Earnings / Healthcare: Alexion (ALXN) actual EPS @ 3.11 vs estimates @ 2.58; Cigna (CI) actual EPS @ 5.81 vs estimates @ 5.14; Eli Lilly (LLY) actual EPS @ 1.89 vs estimates @ 1.56; Teleflex (TFX) actual EPS @ 1.93 vs estimates @ 1.25.
  • Earnings / Materials: DuPont (DD) actual EPS @ 0.70 vs estimates @ 0.59; International Paper (IP) actual EPS @ 0.67 vs estimates @ 0.37; Newmont Mining Goldcorp (NEM) actual EPS @ 0.32 vs estimates @ 0.31.
  • Earnings / Telecom: Comcast (CMCSA) actual EPS @ 0.69 vs estimates @ 0.55.

Bearish

  • Economy / North America: US GDP the 2nd Quarter (m/m) @ -32.9% vs estimates @ -34.1% and previous @ -5.0%.
  • Economy / Europe: Germany’s GDP for Q2 (m/m) @ -10.1% vs estimates @ -9.0% and previous @ -2.0%; GDP (y/y) @ -11.7% vs estimates @ -10.9% and previous @ -1.8%.
  • Economy / Labor: US Unemployment Claims @ 1.434mm vs estimates @ 1.388mm and previous @ 1.422mm. Continuing Claims for week of July-18-2020 up +867k @ 17.02mm.
  • Earnings / Energy: Conoco Phillips (COP) actual EPS @ -0.92 vs estimates @ -0.57
  • Earnings / Healthcare: Baxter (BAX) actual EPS @ 0.64 vs estimates @ 0.70.
  • Earnings / Real Estate: American Tower (AMT) actual EPS @ 1.00 vs estimates @ 1.04.

Neutral

  • Earnings / Telecom: Sirius XM (SIRI) actual EPS @ 1.89 vs estimates @ 1.56.

Summary Analysis

Technically, equity markets are not overbought and continue to consolidate. Fundamentally, it’s a completely different story. The economy contracts @ $2trillion and Congress will inject just under $2trillion. Meanwhile the Fed is buying everything it can and whatever is necessary to support the markets. Aside from stocks, Real Estate assets, e.g. the DJ Real Estate Index and Home Construction, and G-7 currencies (ex $USD) are all showing strength as Treasury yields steadily decline to hell in a hand basket!

Signing off….


After-Market Notes

*Check back periodically as this page is sometimes updated at the discretion of the editor.

Potential Market Moving Events

  • Earnings results in the after-market hours are predominantly positive. Standouts are Apple (APPL) which beat by 0.52 cents and is trading up 23 points @ 407. As a sidebar note, I ask myself who is buying iPhones, iPads and Macs at during the pandemic? APPL also announced a 4-for-1 stock split, a move which should not only enhance its liquidity but also make it more affordable to a larger pool of investors and most likely “Johnnie-come-latelies”.
  • Then there is the mighty Amazon (AMZN) which crushed earnings estimates and trades up more than +150 points in post-market hours.
  • Atlassian (TEAM) beat expectations on the top and bottom line but guidance was somewhat tepid and its shares are trading in negative territory @ 172.50 or down @ 15 points.

Positive Earnings Surprises

  • Consumer Discretionary: Amazon (AMZN) actual EPS @ 10.30 vs estimates @ 1.38. Ford (F) actual EPS @ -0.35 vs estimates @ -1.20.
  • Healthcare: Stryker Corp (SYK) actual EPS @ 0.64 vs estimates @ 0.56; Vertex Pharmaceuticals (VRTX) actual EPS @ 2.61 vs estimates @ 2.09.
  • Information Technology: Apple (AAPL) actual EPS @ 2.58 vs estimates @ 2.020. Atlassian (TEAM) actual EPS @ 0.25 vs estimates @ 0.20.
  • Telecom: Alphabet (GOOGL) actual EPS @ 10.13 vs estimates @ 8.03; Facebook (FB) actual EPS @ 1.80 vs estimates @ 1.39.

Negative Earnings Surprises

  • Healthcare: Gilead Sciences (GILD) actual EPS @ 1.11 vs estimates @ 1.48.

Earnings In-Line with Estimates

  • n/a

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