Will it Be the CyberBarons This Time?

Commentary

Earnings, economic updates and the coronavirus all have been driving the current market. However, the ongoing Congressional hearings involving Apple, Amazon, Facebook and Alphabet have been most intriguing. In fact, the tone of questioning from both Democrats and Republicans has ranged from aggressive to hostile, albeit for each party’s respective reasons. Some of this can be dismissed as political grandstanding, but the wavering and sometimes self-contradicting testimony raises doubts on the credibility of at least two (who shall not be named) out of the four CEOs, thus lending justifiable cause for some regulatory response. Of course, no one knows the probable outcome yet .

A review of past history may not indicate a repeat, but, at the very least, a rhyme. Only a century ago, the technological marvel of railroads ushered in an economic miracle and produced the Robber Barons who made unheard of fortunes in their time. Today’s Cyber Barons, who like their forebears, have amassed unimaginable sums of wealth while their companies have economically transformed the world and catapulted the US and global markets to record levels also find their industry under siege to antitrust proceedings and potential risk of government regulation disrupting their business models. The market from late 1916 throughout 1917 corrected -40% (with a little bit of help from World War One and the emergence of the automobile). The big difference today is the resolve of a Federal Reserve which is committed to supporting the markets for as long as necessary (to paraphrase the substance of Fed Chairman Powell’s comments earlier today).

Aside from this divergent commentary, equities remained within the boundaries of their bullish channels. Low interest rates give investors little choice but to seek refuge elsewhere. Commodities (e.g. Gold and Oil), which are priced in the ever-weakening US Dollar, are also attracting capital. Today’s bullish breakouts in the Euro and Yen suggest further deterioration in the Dollar and a divided Congress (over Coronavirus Stimulus Aid) only exacerbates its decline (in my humble opinion).

Performance Summary

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

Market Moving Events

Bullish

  • US / Real Estate / Residential: Pending Home Sales for June-2020 (m/m) @ +16.6% vs estimates @ 15.0% and previous @ 44.3%.
  • Commodities / Energy: EIA Weekly Crude Oil Inventories @ -10.612mm bbl vs estimates @ 0.357mm and previous @ 4.892mm; Cushing Crude Oil Inventories @ 1.309mm bbl vs estimates @ 0.426mm and previous @ 1.375mm.
  • Earnings / Consumer Discretionary: General Motors (GM) actual EPS @ -0.50 vs estimates @ -1.72. Shopify (SHOP) actual EPS @ 1.05 vs estimates @ 0.01.

Bearish

  • Political / Coronavirus Aid: With just two more days until the aid expires, Republicans and Democrats are, according to Treasury Secretary Mnunchin, “very far apart” on coming to agreement for a new stimulus plan.
  • Earnings / Industrials: Boeing (BA) actual EPS @ -4.79 vs estimates @ 2.93; General Electric (GE) actual EPS @ -0.15 vs estimates @ -0.14.

Neutral

  • n/a

Summary Analysis

The preoccupation with earnings, economic data and the economic impact of the Coronavirus is logical. Yet, I believe the Congressional antitrust hearings are worthy of emphasis as this event is being discounted by both the media and equity markets. Although the trend for stocks is bullish as July concludes, August tends to seasonally underperform, so be careful. Signing off….


After-Market Notes

Potential Market Moving Events

  • The breadth of positive earnings surprises far exceeded negative reports and should increase the probability of support and continuation of today’s positive performance.
  • Congress still remains deadlocked on the stimulus aid package and if significant progress is not made, then reducing the window for resolution to 24 hours could induce selling or a risk-off shift in sentiment.

Positive Earnings Surprises

  • Information Technology: PayPal (PYPL) actual EPS @ 1.07 vs estimates @ 0.84; Qualcomm (QCOM) actual EPS @ 0.86 vs estimates @ 0.72.

Negative Earnings Surprises

  • n/a

Earnings In-Line with Estimates

  • n/a

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