Here comes one of the newsiest and most critical weeks of the summer for markets!
In a summer of unending news, we may be heading into what could be the newsiest week of all. The Nasdaq’s sputtering rally could be put to its biggest test yet, as tech bellwether AAPL and other stalwarts of the tech rally report earnings. Early in the week, Republicans will unveil their stimulus package proposal, which will then be debated as Friday’s deadline nears for the expiration of enhanced unemployment benefits. The Federal Reserve also meets this week and is likely to discuss other steps it can take. It’s not likely, however, to make any moves as it wraps up on Wednesday, other than to assure markets it will continue to use extraordinary programs to help the economy. Then on Thursday, the government will release a big number many investors have been dreading — the first official reading of second quarter gross domestic product, which which should show how hard the economy crashed when it was abruptly shut down. Economists expect a contraction of about 35% in the second quarter, followed by a bounce back in the third quarter. But the size of that comeback could be directly impacted by how much stimulus Congress gives the economy, and how much the Covid-19 continues to impact businesses and economic activity. “I think there’s a clear understanding of how much the economy has leaned on the crutch of government stimulus, both fiscally and monetarily,” said Peter Boockvar, chief investment strategist at Bleakley Advisory Group. “Everyone will be watching for what will replace the $600 a week, and that will be the most important component of whatever plan they come up with.” The $600 weekly payment to about 30 million unemployed Americans expires Friday, and it is unlikely Congress will have a plan before that date. Strategists expect the amount to be cut in half, and Boockvar said the amount of that payment will directly impact the size of the boost to the economy. The stimulus and tech earnings could both be catalysts for stocks in the week ahead. “What the package looks like will be a huge deal, particularly on the unemployment benefits side, and whether tech companies can exceed the bar,” said Boockvar. “That’s very hard for them right now. So if they miss, does that mean it’s going to be a negative for tech and not the whole market? Are we going to keep rotating to value from growth because tech has been so dominant it could take everything down?” Earnings for the S&P 500 companies are expected to decline by 40.3% for the second quarter, based on the results of companies that have already reported and estimates, according to Refinifiv’s I/B/E/S. Technology earnings are expected to have one of the smallest profit declines, at just 4.4% on average. The Nasdaq, which had rallied to record highs this summer, ended lower for a second week, while the Dow and S&P 500 were higher. “The earnings numbers overall, they’ve been pretty good. It’s just the basic problem with the stock market right now is that valuations are still pretty high,” said Ed Keon, chief investment strategist at QMA. “Other parts of the market that maybe look cheap on a price-to-book basis, their earnings have been hit. In the case of certain retailers, airlines, you have to worry about when their business is going to come back, if ever.” About 80% of the companies already reporting have beaten Wall Street estimates. That is well above the average beat rate of about 65%, since 1994. Dozens of major companies report in the coming week, including Facebook on Wednesday and Alphabet and Amazon on Thursday. Pharmaceuticals Merck, Pfizer and Eli Lilly are expected to report, and consumer products names Starbucks, McDonald’s and Procter & Gamble also release results. Big oil, Exxon Mobil and Chevron report Friday. My personal watch-list below.
Tesla (TSLA) – Straight volatility play after an amazing up and down week. Ready for more going forward.
Zoom Communications (ZM) – Zoom, zoom, zoom. What goes up must come down. I suspect Microsoft will be taking over this Zoom hysteria soon.
Microsoft (MSFT) – A perfect buy opportunity came up last week as Microsoft reported steady earnings considering the times we are in. Slack technologies are crying because of Microsoft’s dominance. They will get over the lawsuit and come back stronger than ever.
Intel Corporation (INTC) – Minor setback for a major comeback is what I assume will happen here. Their brand recognition is too large for this chip mishap to be a lingering problem for too long. See what happened to Facebook the other day. 16% is a a NO BRAINIER pull back buy.