Market Analysis

Beyond the Numbers

Disappointing Earnings News May Weigh On Wall Street
7/28/2020 8:52 AM

The major U.S. index futures are currently pointing to a lower open on Tuesday, with stocks likely to give back ground after ending the previous session mostly higher.

Initial weakness among shares of McDonald’s (MCD) may weigh on the markets, with the fast food giant moving to the downside in pre-market trading.

The drop by McDonald’s comes after the company reported weaker than expected second quarter earnings on a slightly bigger than expected drop in comparable-restaurant sales.

Diversified manufacturer 3M (MMM) is also likely to see initial weakness after reporting second quarter results that missed analyst estimates on both the top and bottom lines.

On the other hand, shares of Pfizer (PFE) may move to the upside after the drug giant reported better than expected second quarter results and raised its full-year guidance.

Uncertainty about the passage of a new coronavirus relief bill may also generate some selling pressure after Republicans unveiled their version of the legislation.

The GOP bill includes a reduction in unemployment benefits, which could lead to an impasse in negotiations with Democrats.

Nonetheless, overall trading may be somewhat subdued as traders look ahead to the Federal Reserve’s monetary policy announcement on Wednesday.

While the Fed is widely expected to leave interest rates unchanged, traders may look to the accompanying statement for clues about future plans to provide additional economic stimulus.

Following the pullback seen late last week, stocks moved back to the upside during trading on Monday. The tech-heavy Nasdaq showed a particularly strong upward move, as some traders cycled back into big-name tech stocks.

The major averages all closed in positive territory, although the Nasdaq outperformed its counterparts. While the Nasdaq surged up 173.09 points or 1.7 percent to 10,536.27, the Dow rose 114.88 points or 0.4 percent to 26,584.77 and the S&P 500 climbed 23.78 points or 0.7 percent to 3,239.41.

The strength on Wall Street partly reflected optimism about additional fiscal stimulus after Treasury Secretary Steven Mnuchin said Republicans have finalized their new coronavirus relief legislation.

Mnuchin told "Fox News Sunday" the GOP intends to introduce the $1 trillion bill on Monday after delaying the planned rollout last week.

Despite the vast gap in the price tags of the Republican plan and a $3 trillion bill passed by the Democrat-controlled House, Mnuchin said he expects lawmakers can move "very quickly" to address the differences.

"We've moved quickly before and I see no reason why we can't move quickly again," Mnuchin said. "And if there are issues that take longer, we'll deal with those as well."

White House economic advisor Larry Kudlow revealed in a separate interview with CNN's "State Of The Union" that the GOP relief bill includes another $1,200 stimulus payment to Americans.

In economic news, the Commerce Department released report showing durable goods orders continued to move sharply higher in the month of June.

The Commerce Department said durable goods orders surged up by 7.3 percent in June after skyrocketing by a downwardly revised 15.1 percent in May. The continued increase comes following the nosedive seen in March and April.

Economists had expected durable goods orders to soar by 7.2 percent compared to the 15.7 percent spike that had been reported for the previous month.

Excluding another substantial increase in orders for transportation equipment, durable goods orders still jumped by 3.3 percent in June after shooting up by 3.6 percent in May. Ex-transportation orders were expected to surge up by 3.5 percent.

Gold stocks showed a substantial move to the upside on the day as the price of the precious metal soared to a new record high.

With gold for August delivery spiking $33.50 to $1,931 an ounce, the NYSE Arca Gold Bugs Index surged up by 4.7 percent to its best closing level in over seven years.

Significant strength was also visible among semiconductor stocks, as reflected by the 3.2 percent jump by the Philadelphia Semiconductor Index.

Taiwan Semiconductor (TSM) led the sector higher after a report from the China Times said Intel (INTC) has placed orders with the chipmaker for 6-nanometer chips.

Housing stocks also moved sharply higher over the course of the trading session, driving the Philadelphia Housing Sector Index up by 3.2 percent to a five-month closing high.

Steel, biotechnology and computer hardware stocks also saw considerable strength on the day, while natural gas, banking and utilities stocks showed notable moves to the downside.

Commodity, Currency Markets

Crude oil futures are slipping $0.17 to $41.43 a barrel after rising $0.31 to $41.60 a barrel on Monday. Meanwhile, after soaring $33.50 to $1,931 an ounce in the previous session, gold futures are falling $5 to $1,926 an ounce.

On the currency front, the U.S. dollar is trading at 105.13 yen compared to the 105.37 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1734 compared to yesterday’s $1.1752.


Asian stocks ended mixed on Tuesday despite a flurry of positive news, ranging from hopes about additional fiscal stimulus in the U.S. to the launch of late-stage trials of experimental Covid-19 vaccines.

While a weak U.S. dollar sparked rebalancing in asset portfolios around the globe, gains were tempered by escalating U.S.-China tensions and the increase in Covid-19 infections from China to Spain and Germany.

Chinese shares advanced as investors cheered signs of economic recovery in the world's second-largest economy. The benchmark Shanghai Composite Index rose 22.73 points, or 0.7 percent, to 3,227.96, while Hong Kong's Hang Seng Index climbed 169.50 points, or 0.7 percent, to 24,772.76.

Meanwhile, Japanese shares ended lower amid reports that Nissan Motor plans to conserve cash and is unlikely to pay a dividend for the current fiscal year. The Nikkei 225 Index slid 58.47 points, or 0.3 percent, to 22,657.38, while Nissan Motor shares slumped 4.3 percent. The broader Topix closed 0.5 percent lower at 1,569.12.

Toyota Motor declined 1.5 percent, Honda Motor gave up 1.7 percent, Mazda Motor gave up 2.6 percent and Suzuki Motor tumbled 3.2 percent. Mitsubishi Motors plunged 12.6 percent to a record low after posting dismal quarterly sales in its key Southeast Asia market.

On the positive side, Daiichi Sankyo shares surged 10.3 percent after AstraZeneca committed to pay $6 billion for a cancer drug the company is developing.

Australian markets gave up early gains to end lower. The coronavirus was a "tragedy" and the spike in cases will only produce more fatalities in the coming days, Australia's Deputy Chief Medical Officer Michael Kidd said.

The benchmark S&P/ASX 200 Index dropped 23.70 points, or 0.4 percent, to 6,020.50, while the broader All Ordinaries Index ended down 22.80 points, or 0.4 percent, at 6,146.80.

Mining heavyweights BHP and Rio Tinto rose 1.7 percent and 1.2 percent, respectively, while smaller rival Fortescue Metals Group jumped 3.2 percent.

Gold miners Evolution Mining and Northern Star Resources fell about 1 percent on profit taking after the yellow metal hit a record high on safe-haven demand. AngloGold Ashanti surged 7.6 percent after forecasting higher first-half earnings.

Westpac lost 1.5 percent. The lender said it has provided information to Australia's financial crime watchdog, AUSTRAC, on more than 500,000 additional transactions in relation to a money laundering and child exploitation scandal. The other three big banks fell between 0.3 percent and 0.9 percent.

Online furniture trader Temple & Webster Group spiked 5.8 percent after it reported a more than five-fold surge in full-year earnings before interest, tax, depreciation and amortization.

Seoul stocks rallied on the back of massive foreign buying amid stimulus efforts in the United States and Europe. Investor sentiment was further boosted by a sharp drop in the number of new coronavirus cases in South Korea and reports that multiple Covid-19 vaccines have entered final stage clinical trials.

South Korea added 28 new cases today, up from 25 on Monday but sharply down from a four-month high of 113 on Saturday. The benchmark Kospi jumped 39.13 points, or 1.8 percent, to 2,256.99.

Market bellwether Samsung Electronics soared 5.4 percent on expectations that the company will benefit from renewed tensions between the U.S. and China. Leading steelmaker POSCO added 3.1 percent.


European stocks are turned lower over the course of the trading day on Tuesday after seeing modest strength earlier in the session. The downturn comes as traders keep a close eye on U.S. stimulus talks and await clues from a Federal Reserve meeting starting later in the day.

While the U.K.’s FTSE 100 Index is just below the unchanged line, the German DAX Index is down by 0.3 percent and the French CAC 40 Index is down by 0.7 percent.

Luxury goods conglomerate LVMH has slumped after its operating profit plunged 68 percent in the first half of the year.

Fuchs Petrolub AG shares have also fallen. The company engaged in the lubricant business said it expects a drop in earnings in the range of 25 percent for the financial year 2020.

Bakery chain Greggs has also tumbled after it swung to a 62 million pound first-half loss. Rexel, a distributor of electrical supplies, has also moved lower after it slipped to a net loss during the first half of the year.

On the other hand, dutch design, engineering and consultancy company Arcadis NV has spiked after its first-half net income climbed 68 percent to 62 million euros from last year's 37 million euros.

Homebuilders have also rallied in London on the back of reports that U.K. ministers are drawing up plans to extend the Help to Buy property support scheme beyond its December deadline.

Greencore has also moved sharply higher after the Irish convenience food group announced the sale of its molasses business.

In economic news, German manufacturers' export expectations strengthened in July, survey data from the ifo institute showed today.

The ifo export expectations index for manufacturing rose to plus 6.9 points in July from minus 2.2 points in June. Cautious optimism is spreading among German exporters, Clemens Fuest, ifo President said.

U.S. Economic Reports

Standard & Poor's is scheduled to release its report on home prices in major metropolitan areas in the month of May at 9 am ET.

At 10 am ET, the Conference Board is due to release its report on consumer confidence in the month of July. The consumer confidence index is expected to pull back to 95.7 in July after jumping to 98.1 in June.

The Treasury Department is scheduled to announce the results of its auction of $44 billion worth of seven-year notes at 1 pm ET.

Stocks In Focus

Shares of Harley Davidson (HOG) are moving significantly lower in pre-market trading after the motorcycle maker reported an unexpected second quarter loss.

Electric car maker Tesla (TSLA) may also move to the downside after Bernstein downgraded its rating on the company’s stock to Underperform from Market Perform.

On the other hand, shares of Raytheon Technologies (RTX) may see initial strength after the defense contractor reported better than expected second quarter results.
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