Stocks follow tech’s lead

08/03/20
  • Resurgent tech drives buoys stocks, gold notches new records
  • Market takes record GDP contraction in stride—for now
  • This week: Jobs, 1,500-plus earnings reports

Kicking off a new month, US stocks are coming off a busy week of mixed day-to-day trading amid a steady barrage of virus and vaccine headlines, a record GDP contraction, upticking jobless claims, more sobering comments from the Fed—and blowout earnings.

But thanks to rebounding tech shares, the bulls ended up with the edge. When the dust settled on Friday, the S&P 500 (SPX) had closed out a week in positive territory for the year for the first time since February:

Chart 1: S&P 500 (SPX), 4/27/20–7/31/20. S&P 500 (SPX) price chart. Taking things in stride.

Source: Power E*TRADE


The headline: Market takes economic data in stride, courtesy of tech rally.

The fine print: GDP was last week’s big number, and it overshadowed the second-straight increase in new weekly jobless claims (continuing claims increased, too), which is likely to make this Friday’s jobs report all the more significant.

The number: -32.9%—the record-setting drop in US GDP in the second quarter, based on last week’s initial estimate. The number was slightly better than expectations, though, and was essentially shrugged off by the market on Thursday.

The quote: “The path of the economy is going to depend, to a very high extent, on the course of the virus and on the measures we take to keep it in check. Social distancing measures and a fast reopening of the economy actually go together. They’re not in competition with each other.” From Federal Reserve Chairman Jerome Powell’s comments following last Wednesday’s FOMC meeting.1

The scorecard: The SPX got back into the black for 2020 and the Nasdaq 100 (NDX) got back on track after a two-week slump—some of the biggest tech companies crushed their earnings even as their CEOs were under fire on Capitol Hill:

US stock index performance table for week ending 7/31/20. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source (data): Power E*TRADE


Sector roundup: The strongest S&P 500 sectors last week were information technology (+4.7%), real estate (+3.8%), and consumer discretionary (+1.8%). The weakest sectors were energy (-4.6%), materials (-2.1%), and financials (-1.3%).

Highlight reel: In a week with plenty of big moves, none were bigger than Eastman Kodak’s (KODK). On Tuesday the former film giant jumped 203% to $7.94 after news it received a $765 million US government loan to produce coronavirus-related pharmaceutical components. It skyrocketed another 318% to $33.20 on Wednesday before pulling back 34% to close Friday at $21.85—still up 940% for the week.

Futures action: Gold rolled to its first new records since 2011, with August gold (GCQ0) rallying as high as $1,981.10/ounce as the US dollar extended its downtrend. After tumbling to its lowest level since late June ($38.72/barrel) on Thursday, September WTI crude oil (CLQU0) rebounded to close Friday back above $40.

Last week's biggest futures up moves: August bitcoin (BTCQ0) +19.8%, October sugar (SBV0) +10%, September Coffee (KCU0) +9.7%. Last week's biggest futures down moves: September Palladium (PAU0) -6.8%, September RBOB gasoline (RBU0) -6.7%, August VIX (VXQ0) -5.8%.

Coming this week

Get ready for the top-of-the-month economic lineup—key manufacturing and service data, and the all-important jobs report on Friday:

●Monday: Markit Manufacturing PMI Final, ISM Manufacturing Index, Construction Spending

●Tuesday: Vehicle Sales, Factory Orders

●Wednesday: ADP Employment Change, Balance of Trade, Imports and Exports, Markit Services PMI Final, ISM Non-Manufacturing PMI

●Thursday: Challenger Job Cuts, Jobless Claims

●Friday: Employment Report, Wholesale Inventories, Consumer Credit

Here’s a taste of the more than 1,500 companies scheduled to release earnings this week:

●Monday: Hyatt (H), Marathon Petroleum (MPC), Cirrus Logic (CRUS), Chegg (CHGG), Clorox (CLX), Five9 (FIVN), Virgin Galactic (SPCE), RingCentral (RNG), SolarEdge (SEDG), Take-Two Interactive (TTWO), Marriott International (MAR)

●Tuesday: Activision Blizzard (ATVI), Verisk Analytics (VRSK), Allstate (ALL), Vulcan Materials (VMC), Green Dot (GDOT), Cardlytics (CDLX), Walt Disney (DIS), Match Group (MTCH), Henry Schein (HSIC), LGI Homes (LGIH), Microchip Technology (MCHP), Plug Power (PLUG)

●Wednesday: Alarm.com (ALRM), Carvana (CVNA), CVS (CVS), Wendy’s (WEN), ETSY (ETSY), Fastly (FSLY), Fiverr (FVRR), GoDaddy (GDDY), Wayfair (W), Square (SQ), Roku (ROKU), Regeneron (REGN)

●Thursday: Bristol-Myers Squibb (BMY), Paylocity (PCTY), Eastman Kodak (KODK), Trade Desk (TTD), Editas Medicine (EDIT), First Solar (FSLR), Zillow (ZG), ViacomCBS (CBS), T-Mobile (TMUS), Yelp (YELP), Uber (UBER), Motorola Solutions (MSI)

●Friday: Ubiquiti Networks (UI)

Go to the E*TRADE market calendar (login required) for an up-to-date earnings schedule and a complete list of splits, dividends, IPOs, and economic reports. The Active Trader Commentary also lists earnings announcements, IPOs and economic report times each morning.

Tech talk

Big tech may be the subject of consumer and anti-trust movements at home and abroad, but any drama surrounding last week’s Capitol Hill showdown—top tech CEOs were grilled by the House Judiciary Committee—ended up being overshadowed by earnings season.

House members questioned Sundar Pichai of Alphabet (GOOGL), Mark Zuckerberg of Facebook (FB), Tim Cook of Apple (AAPL), and Jeff Bezos of Amazon (AMZN), taking the tech titans to task for various “unfair” or “unethical” business practices. The proceedings may have been insightful, or just fun to watch, but the odor of any supposed dirty laundry was quickly blown out the window after all four companies released earnings on Thursday.

Peruse the details at your leisure. Bottom line, all four companies crushed their numbers (AMZN’s earnings beat was insane), and the rallies in AMZN, AAPL, and FB on Friday were a big part of the NDX’s strong rebound last week. Both AAPL and FB vaulted to record highs.

The antitrust story is still in its infancy, and there’s no telling how that will play out in the long run. For now, though, tech still rules the roost, at least in terms of the stock market. Economic considerations aside, though, it remains to be seen how long a relative handful of tech stocks can continue to carry an entire market —AAPL, AMZN, FB and GOOGL are four of the five-largest NDX components, and along with Microsoft (MSFT) and Netflix (NFLX), they’ve been responsible for roughly two-thirds of the SPX’s return over the past five years.3

 

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1 The Washington Post. Fed chief: New surge in cases is beginning to weigh on the economy. 7/29/20.

2 Politico. Theft, censorship and the ‘emperors of the online economy’: Tech CEOs go on defense. 7/28/20.

3 Bloomberg.com. Big Tech Drives the Stock Market Without Much U.S. Help. 7/13/20.

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