Bright, Bright, Bright Sunshiny Week on Wall Street (Market Recap Week Ending July 23)
The week in review…Dow +374 or +1.1%, the Nasdaq +410 or +2.8% and the S&P +85 or +1.9%. All that worry from a week ago Friday and the “violent sell-off” on Monday was erased in four trading sessions this week. I say “violent” because while everyone was bemoaning Monday’s move (down 700 points), it was in reality, a mere 2% drop. For some perspective, on Black Monday, October 19, 1987, the market fell 500 points. However, the Dow had not yet breached the 3,000 level and as a result, the drop on Black Monday represented a 23% drop. To have a comparable drop on the Dow now, at the 35,000 level, would necessitate a drop of 8,050 points. The next time the markets experience a “violent sell-off,” pay attention to the percentage move, not the points.
Regarding the markets this week, the negative economic numbers counterintuitively pushed the markets higher. Initial jobless claims were a disappointment as were the IHS Manufacturing and Services PMI numbers. In today’s environment, bad news is good news. Why? The disappointing numbers reinforce the thought that the labor market still has work to do in order to reach pre-pandemic levels and that demand for goods and services (which creates inflation) is starting to tail off in line with the Federal Reserve’s assurances that the inflation numbers we have seen recently are transitory. Thus, the pressure on Jerome Powell and the Federal Reserve to reduce Fed monthly asset purchases or raise interest rates has been forestalled again for the time being which gives investors the warm and fuzzies.
Covid-19 infections – 67,485 new infections today (7/23/2021).1
7-day average – 43,700/day, up 65% over the previous 7-day period.2
States with infection rates at least double the U.S. average: Louisiana, Arkansas, Missouri, Florida and Nevada.3
What we are watching next week…
Monday – Reporting: Tesla (TSLA).
Tuesday – Durable Goods, Consumer Confidence. Reporting: Alphabet (GOOG), Microsoft (MSFT), Advanced Micro Devices (AMD). Federal Reserve Open Market Committee meeting commences.
Wednesday – Federal Reserve Open Market Committee announcement. Reporting: Boeing (BA), McDonalds (MCD), Facebook (FB), Ford (F). Reporting: Amazon (AMZN), Mastercard (MA), Twilio (TWLO).
Thursday – Initial Jobless Claims. Gross Domestic Product (GDP).
Friday – Personal Income, Consumer Spending, Core Inflation, Chicago PMI. Reporting: Chevron (CVX), ExxonMobil (XOM), Caterpiller (CAT).
Last week’s trading…
Monday – Dow (725) to 33,962, the Nasdaq (152) to 14,274 and the S&P (68) to 4,258. The fear trade was back on today as investors worried about growing global Delta variant Covid-19 infections. All three indices traded down hard including all 30 Dow members and all eleven S&P sectors. Everything related to reopening was hammered: Energy, Financials, Materials, and Industrials were the worst of the worst. Nothing could illustrate the flight to safety better than the 10-year U.S. Treasury yield which retreated all the way down to 1.17% from Friday’s 1.30% close. One thing to note is that here in the U.S. there is very little appetite to shelter in place again. The Biden administration would be loath to hand that kind of ammunition to the GOP prior to the 2022 midterms and here in California, Governor Newsom is facing a recall election. Thus, whatever the danger the Delta variant poses, the worst I believe we will see is a return to mask mandates and in the fall, booster vaccinations…IBM (IBM) beat top and bottom-line expectations, grew revenue at the fastest pace in three years, and traded up 3.86% after-hours…At the time of this writing, Dow futures are trading up 125 points….
Tuesday – Dow +549 to 34,511, the Nasdaq +223 to 14,498, and the S&P +64 to 4,323. Apparently, it was safe to go back in the water today as investors treated the market like a Black Friday sales event, snapping up all the bargains. All three indices were up sharply with nine of the eleven S&P sectors registering positive returns led by two of yesterday’s laggards, Industrials and Financials. Healthcare and Consumer Staples were the worst two performers but ended nearly flat on the day…The 10-year yield rebounded back to 1.208%…Netflix (NFLX) reported a mixed bag of numbers, missing earnings, beating revenues, and beating on global net subscriptions. The stock traded up 0.60% post-close…Chipotle Mexican Grill (CMG) blew out their earnings number, beat their revenue number and saw digital sales jump 10.5% in the quarter. CMG traded up 4.36% in the after-hours session…UBS (UBS) reported a 63% jump in net profits fueled by their global wealth management division. UBS traded up 2.16% post-close….
Wednesday – Dow +286 to 34,798, the Nasdaq +133 to 14,631, and the S&P +35 to 4,358. The market refocused on earnings today. With 15% of the S&P reporting thus far, 88% of those companies have beaten earnings estimates and 84% have topped revenue estimates according to Refinitiv. Eight of eleven S&P sectors were in the positive today led by Energy, Financials and Healthcare. Utilities and Real Estate were the two worst performers. The 10-year yield vaulted higher 8bp to 1.29%…Johnson and Johnson (JNJ) beat top and bottom-line estimates and originally traded down before ending flat in the after-hours session…Coca-Cola (KO) beat top and bottom-line estimates and raised full year guidance prior to the open. KO traded up 1.29%…Verizon (VZ) beat on all metrics and traded up 0.67%…Harley Davidson beat on both the top and bottom-lines and added a 2% surcharge on some modes to combat pricing pressures they are seeing in their supply chain, but the mere mention of the word “inflation” spooked investors and the stock traded down 7.19% during the regular session….
Thursday – Dow +25 to 34,823, the Nasdaq +52 to 14,684, and the S&P +8 to 4,367. Initial jobless claims disappointed the markets today, rising to 416,000 claims last week vs the previous week’s upwardly revised number of 368,000 claims and expectations of 350,000 claims. Coupled with the continuing explosion of Covid-19 infections (52,032 today alone in the U.S. along with 333 deaths),4 market leadership shifted drastically back to the growth realm. The ‘ole favorite FANMAG trade was back on (apart from Netflix) while the Dow and its reliance on old economy names struggled to gain traction. Six of the eleven S&P sectors traded higher led by Consumer Discretionary and Tech while Financials and Energy were the worst performers. The 10-year U.S. Treasury yield gave up 1bp to settle at 1.28%… Texas Instruments (TXN) beat top and bottom-line expectations and traded down 5.32% during the normal session…Railroader CSX (CSX) traded up 3.5% after beating their metrics…Whirlpool (WHR) beat their numbers, but it was not enough as the stock traded down 1.3%…Homebuilder D.R. Horton (DHI) beat revenues and earnings and fell 1.9%…Casino Las Vegas Sands (LVS) fell 4.4% after missing both earnings and revenue expectations…Consumer staples giant Unilever (Dove soap, Ben & Jerry’s Ice Cream) (UL) fell 4.5% after warning that inflation would keep operating margins flat this year…Chipmaker Intel (INTC) beat numbers but offered tepid guidance, and thus fell 1.45% in after-hours trading…Telephony giant AT&T (T) beat numbers and raised guidance on strong HBO numbers, yet traded nearly unchanged for the day…Snap (SNAP), the company that brings your kids/grandkids the SnapChat app, traded up 17% after-hours on their best revenue quarter in 4 years, up 116% year over year…Social media giant Twitter (TWTR) recorded their fastest revenue growth since 2014 and traded up 5.65% post-close….
Friday – Dow +238 to 35,061 (record close), the Nasdaq +152 to 14,836 record close), and the S&P +44 to 4,411 (record close). All three indices notched record closes today, making up all the losses from a week ago Friday and the 700 point sell off on Monday. Nine of the eleven S&P sectors traded up, led by Communication Services, Consumer Discretionary, and Consumer Staples. Only Industrials and Energy traded in the red today. The 10-year U.S. Treasury yield traded down 1 bp to 1.27%. Partly fueling today’s move was the IHS Markit Manufacturing and Service number which were the lowest in four months but still indicated expansion. The manufacturing number was 59.7 vs June’s 63.7 with business noting shortages in raw materials and labor. The service number was 59.8 vs June’s 64.6…American Express (AXP) crushed their numbers and traded up 1.33% in the regular session….
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Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities…Bitcoin, Chainlink, Ethereum, ETHE, GBTC, and TSLA.