The primary theme in last week’s note was that the Nasdaq’s outperformance to the upside, relative to the Dow and S&P 500 since our March 23rd bottom, was likely to come to an end. Last week the Dow Industrials lost a modest 0.8%. The S&P 500 slipped 0.3%, and the Nasdaq Composite dropped 1.3%. One week does not a trend make, but I do expect that theme to remain with us in the coming weeks. That is partly because the Nasdaq stocks that provided the underpinning for the coronavirus rally had gotten ahead of themselves (stretched valuation) as of last Monday. Amazon (AMZN), Apple (AAPL) Tesla (TSLA), Tractor Supply (TSCO), Shopify (SHOP), and a host of other highflyers all not only lost ground on the week, but also provided leadership on the trade lower.
Along with some cracks in leadership exhibited in last week’s trade, this week we have earnings reports from some of those very names. Apple, Amazon, AMD, Alphabet, and Facebook, to name but a few, will all be reporting this week. As the focus of this earnings season continues to rotate away from financials and towards large-cap tech, there will be significant pressure on large-cap techs to not only beat EPS and revenue estimates, but to do so in a meaningful way. Large-cap tech is in a tough spot due in large part to the fact that they were the only game in town through much of the rally from the late March lows. As a result, investors pushed valuations hard. Now, as the darlings of the rally begin to roll over and test their respective 10-day and 50-day moving averages, other sectors will need to take over a leadership role if the equity market rally is to continue.
The S&P 500’s outperformance last week will likely continue this week in part due to a sector of the market that has recently been buoyed by better-than-expected economic data: home builders. Last week, existing home sales figures for June were released. They were 4,720 M versus the previous report, 3,910 M. New home sales figures for June were also released, and they were also significantly stronger-than-the expected: 776 K versus the previous month’s reading of 682 K, and an Econoday consensus that was calling for 700 K.
Highlights from this week’s economic calendar:
Durable goods orders for June are released at 8:30 am. Historically speaking, durable goods data tends to move as the economy expands and contracts. However, as we are still in a COVID-19-centric economic landscape, and given the uneven nature of the pandemic’s impact on the economy, durable goods data has become very volatile in recent months. For example, though May’s data provided for a very constructive economic outlook with a jump of 15.8% from April, June’s data is expected to moderate significantly. Econoday consensus is calling for a topline gain of 6.5%.
The Conference Board releases its widely-followed Consumer Confidence reading for July. Econoday consensus is 95.7 – down from the previous reading of 98.1. There is no question about what is driving the trend and the recent volatility here: COVID-19.
International trade in goods data for June is released by the Census Bureau at 8:30. This data has remained stubbornly negative from the standpoint of our trade deficit. Econoday consensus is $-74.3 B – matching May’s reading. The EIA Petroleum Status Report for the week ending 7/24 is due out. Last week’s report reflected a mixed picture with crude inventories rising by 4.9 M barrels and gasoline and distillate inventories tightening marginally. Of significantly greater interest for investors, the FOMC Meeting concludes on Wednesday afternoon with an announcement. That will be followed by the Fed Chair’s press conference. Obviously, with global and domestic interest rates at or near zero, little inflation, and a great deal of uncertainty clouding whatever economic picture Chair Powell outlines for investors, the most important theme that will be focused on will be the extent to which the Fed can provide as much support to Federal emergency efforts as possible.
Real GDP – Q/Q change SAAR is expected to reflect the most comprehensive economic lockdown in history. The reading for Q2 is expected to be -35%. No one, alive or passed, has ever seen anything like this. It is frankly breathtaking. This pain is a shared phenomenon around the globe. Real consumer spending – Q/Q change SAAR is not going to look much better. Econoday consensus is -33.0%. Weekly Jobless Claims are also out Thursday morning. The fact of the matter is that this data point is likely to get worse before it gets better. Last week was the 18th consecutive week that claims have been above 1 million, and very troubling is the fact that last week was the first time initial claims have risen week over week in nearly four months. The four-week moving average stands at 1,360 K.
Personal incomes and outlays for June are due out at 8:30. May’s release reflected a sharp drop in income for obvious reasons while spending actually jumped by 8.2%. That surge in spending was due directly to the efforts in Washington meant to keep money in the hands of consumers. June’s report is expected to reflect a less severe drop in income (-1.0%) while spending is also expected to moderate (-5.6%). The Y/Y Core PCE Price Index reading was 1.0% in May and is expected to remain unchanged in this month’s report.
This whole time I thought changing the world was something you did – an act you performed, something you fought for. I don’t know if that’s true anymore.
What if changing the world was just about being here, by showing up no matter how many times we get told we don’t belong, by staying true, even when we’re shamed into being false, by believing in ourselves even when we are told we are too different?
And if we all held on to that, if we refuse to budge and fall in line, if we stood our ground for long enough, just maybe… The world can’t help but change around us.
Even though we’ll all be gone, it’s like Mr. Robot said: “We’ll always be a part of Elliot Alderson. And we’ll be the best part, because we’re the part that always showed up.”
We’re the part that stayed.
We’re the part that changed him.
And who wouldn’t be proud of that?
Come on… this only works if you let go, too.
“Hello Elliot.” Mr. Robot. USA Network. Sam Esmail, creator.
Flickr photo: by Brechtbug
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