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End of Day Briefing - Friday July 31, 2020

Apple, Amazon, and Facebook lead market higher to end the week

Dow +114.67 at 26428.32, Nasdaq +157.46 at 10745.35, S&P +24.90 at 3271.12

[BRIEFING.COM] The S&P 500 advanced 0.8% on Friday, closing at session highs amid a 10.5% gain in Apple ($AAPL 425.04, +40.28, +10.5%), an 8% gain in Facebook ($FB 253.67, +19.17, +8.2%), and a 4% gain in Amazon ($AMZN 3164.68, +112.80, +3.7%) following their impressive quarterly results.

The Nasdaq Composite gained 1.5%, and the Dow Jones Industrial Average gained 0.4%. The Russell 2000, however, fell 1.0%.

The overall market was relatively weak on this final day of July, as declining issued outpaced advancing issues at both the NYSE and Nasdaq, but a turnaround in the S&P 500 utilities (+0.2%), materials (+0.1%), and financials (unch) sectors helped contribute to today's strong finish.

The information technology (+2.5%), consumer discretionary (+1.3%), and communication services (+0.8%) sectors were relatively strong all session due to the mega-cap gains, while the energy (-0.7%), health care (-0.6%), and industrials (-0.4%) sectors lagged.

Negative factors that weighed on the market included lawmakers still arguing over the contents of the next coronavirus relief bill, Alphabet ($GOOG 1482.96, -48.49, -3.2%) falling 3% after posting its first-ever yr/yr decline in revenue, and the University of Michigan Index of Consumer Sentiment for July being revised lower to 72.5 ( consensus 73.0) from 73.2.

Outside the mega-cap gains, Merck ($MRK 80.24, +1.25, +1.6%) and Exxon Mobil ($XOM 42.08, +0.21, +0.5%) finished higher following their earnings reports while KC Southern ($KSU 171.85, +15.16, +9.7%) spiked 10% on news it could be taken private for more than $21 billion, according to The Wall Street Journal.

Chevron ($CVX 83.94, -2.33, -2.7%) and Caterpillar ($CAT 132.88, -3.84, -2.8%) were some notable earnings laggards.

U.S. Treasuries finished the session little changed. The 2-yr yield declined one basis point to 0.10%, and the 10-yr yield was flat at 0.54%. The U.S. Dollar Index rebounded 0.5% to 93.44. WTI crude futures increased 0.4%, or $0.16, to $40.13/BBL.

Reviewing Friday's economic data:

  • Personal income declined 1.1% m/m in June ( consensus -0.9%) following a downwardly revised 4.4% decline (from -4.2%) in May. Personal spending increased 5.6% m/m ( consensus 5.9%) on the heels of an upwardly revised 8.5% increase (from 8.2%) in May. The PCE Price Index rose 0.4% m/m, as expected, while the core-PCE Price Index, which excludes food and energy, jumped 0.2% m/m, which was also in-line with expectations.
    • The key takeaway from the report is that a 2.2% m/m gain in wages and salaries as the economy reopened was not enough to offset the 8.9% m/m decline in personal current transfer receipts. This consideration highlights the risk to the recovery trajectory that would be exacerbated at this juncture without further government assistance.
  • The Q2 Employment Cost Index increased 0.5% ( consensus 0.6%), seasonally adjusted, for the three-month period ending in June 2020 after increasing 0.8% for the three-month period ending March 2020.
    • The key takeaway from the report is that employment costs held relatively steady with the same period a year ago.
  • The final July reading for the University of Michigan Index of Consumer Sentiment slipped to 72.5 from the preliminary reading of 73.2 and the final June reading of 78.1.
    • The key takeaway from the report is that the Expectations Index fell back to a six-year low, exposing a potential headwind for spending activity that is integral for stronger growth.
  • The Chicago PMI for July increased to 51.9 ( consensus 42.0) from 36.6 in June.

Looking ahead, investors will receive Construction Spending for June and auto and truck sales for July on Monday.

  • Nasdaq Composite +19.8% YTD
  • S&P 500 +1.3% YTD
  • Dow Jones Industrial Average -7.4% YTD
  • Russell 2000 -11.3% YTD

Market Snapshot

SP 5003271.12+24.90(0.77%)
10-yr Note +2/320.538
NYSEAdv 1257 Dec 1676 Vol 1.3 bln
NasdaqAdv 1138 Dec 2126 Vol 4.4 bln

Industry Watch

Strong: Consumer Discretionary, Information Technology, Communication Services
Weak: Energy, Financials, Industrials, Health Care

Moving the Market

-- Apple (AAPL), Amazon (AMZN), and Facebook (FB) provided major support for Wall Street after their earnings reports

-- Alphabet (GOOG) shares fell after company posted first-ever yr/yr decline in revenue

-- Uncertainty surrounding next coronavirus relief bill

ECONOMIC EVENTS: In the U.S., personal income dropped 1.1% in June. The Chicago manufacturing PMI surged 15.3 points to 51.9 in July, which was much stronger than expected. The University of Michigan consumer sentiment reading fell to 72.5 in the final July reading. That is down from the 73.2 preliminary reading for the month and down 5.6 points from June's 78.1 figure. In energy news, Baker Hughes reported that the U.S. Rig Count is unchanged from last week at 251.

In COVID-19 news, Florida reported 470,386 cases of the virus in the state, up from 461,379 yesterday. Meanwhile, Arizona reported 174,010 cases, up 3,212 from the previous day, and California reported 493,588 cases, up 8,086 from the previous day.

TOP NEWS: Shares of Amazon ($AMZN) rose 3.7% after the company's "very impressive," "blowout" Q2 results. Among the many Wall Street analysts who raised their price targets on Amazon this morning, Goldman Sachs' Heath Terry still has the high on the street with a target on of $4,200. Deutsche Bank analyst Lloyd Walmsley, who raised the firm's price target on to $4,000 from $3,333 and reiterates a Buy rating on the shares, said the quarter highlighted how Amazon "utterly dominates across two of the biggest secular trends of our lifetimes and what can happen to margins when the business is at more steady state scale."

Apple also beat consensus earnings and revenue expectations, sending its shares 10.5% higher. In addition, Apple's board approved a four-for-one stock split "to make the stock more accessible to a broader base of investors."

Facebook ($FB) also beat, and its shares gained 8.2% as a result. Deutsche Bank's Walmsley raised the firm's price target on Facebook to $305 from $275 and reiterates a Buy rating on the shares, stating that last night's report "cleared up a lot of nervousness around the pace of recovery and the impact of the boycotts."

Alphabet ($GOOGL) topped consensus revenue and earnings expectations as well, but its report is not impressing investors in the same way as its mega cap brethren and its shares are down 4% near noon. Of note, Morgan Stanley analyst Brian Nowak said Alphabet's ad recovery is progressing largely in-line with his expectations, but pointed out that its ad recovery remains slower than Facebook's, which he attributes to Google's larger size, social commerce on Facebook, Facebook's exposure to the app install market and Google's larger exposure to travel. Meanwhile, Stifel analyst Scott Devitt downgraded Alphabet to Hold from Buy with a price target of $1,600, up from $1,550, following last night's Q2 report.

While tech reports further illustrated the strength in the sector, this morning's reports from Exxon Mobil ($XOM) and Chevron ($CVX) underscored the weakness in energy. Exxon reported worse then expected losses and Q2 revenue that missed consensus by about $6B, while Chevron also suffered worse than forecast losses and missed the consensus revenue forecast by over $7B. Exxon shares finished fractionally higher, while Chevron slid 2.7% in the wake of its report.

In news on COVID-19 front, Merck ($MRK) reported results and also discussed its three programs to fight COVID-19 on its associated earnings call. The company said it expects to initiate "two large pivotal trials, one in outpatients and the second in hospitalized COVID-19 patients," beginning in September for MK-4482, its nucleocide analog that "disrupts the faithful replication of the SARS-CoV-2 viral genome." The company also said planning for large global clinical trials involving both V590 and V591, its COVID-19 vaccine candidates is "nearly complete." These trials will initiate "as soon as we have supportive data regarding immunogenicity," stated Roger Perlmutter, the President of Merck Research Laboratories.

Caterpillar ($CAT) was a further drag on the Dow, dropping 2.75% following its own quarterly report.

Additionally, Bloomberg reported that U.S. President Donald Trump will order China's ByteDance to sell TikTok's U.S. operations. Bloomberg noted that an announcement on the matter is "imminent." Meanwhile, the New York Times reported that Microsoft ($MSFT) is in talks to acquire TikTok. The report noted that it is unclear how advanced the talks between the two companies are.

MAJOR MOVERS: Among the noteworthy gainers was Kansas City Southern ($KSU), which jumped 9.7% after The Wall Street Journal said Blackstone Group ($BX) and Global Infrastructure Partners are considering a takeover bid for the railroad operator that could be worth more than $21B. Also higher after reporting quarterly results were Pinterest ($PINS), Altice USA ($ATUS), and El Pollo Loco ($LOCO), which gained a respective 36.1%, 7.7%, and 14.9%.

Among the notable losers was Shake Shack ($SHAK), which slid 12.1% after it reported quarterly results and withdrew its fiscal 2020 guidance. Also lower after reporting quarterly results were XPO Logistics ($XPO), Expedia ($EXPE), and U.S. Steel ($X), which fell 13.4%, 4.6%, and 9.5%, respectively.

Source: (

Disclosure: I may trade in the ticker symbols mentioned, both long or short. My articles represent my personal opinion and analysis and should not be taken as investment advice. Readers should do their own research before making decisions to buy or sell securities. Trading and investing include risks, including loss of principal.

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