Market Analysis

Beyond the Numbers

Upbeat Tech Earnings May Lead To Initial Strength On Wall Street
7/31/2020 8:54 AM

The major U.S. index futures are currently pointing to a higher open on Friday, with the Nasdaq futures showing a particularly strong upward move.

The upward momentum on Wall Street comes as traders react to better than expected quarterly results from leading technology companies.

Shares of Apple (AAPL) are moving sharply higher in pre-market trading after the tech giant reported better than expected fiscal third quarter results and announced a 4-for-1 stock split.

Amazon (AMZN) and Facebook (FB) are also seeing significant pre-market strength after reporting quarterly results that exceeded analyst estimates on both the top and bottom lines.

On the other hand, shares of Google parent Alphabet (GOOGL) are seeing modest pre-market weakness despite reported better than expected second quarter results. The company did report its first-ever quarterly drop in revenue.

After falling sharply early in the session, stocks showed a significant rebound over the course of the trading day on Thursday. The major averages climbed well off their worst levels of the day, with the tech-heavy Nasdaq bouncing into positive territory.

The major averages eventually finished the day mixed. While the Nasdaq rose 44.87 points or 0.4 percent to 10,587.81, the Dow slid 225.92 points or 0.9 percent to 26,313.65 and the S&P 500 fell 12.22 points or 0.4 percent to 3,246.22.

The early sell-off on Wall Street came following the release of a report from the Commerce Department showing a record contraction in U.S. economic activity in the second quarter.

The report said real gross domestic product plummeted at an annual rate of 32.9 percent in the second quarter following a 5.0 percent slump in the first quarter.

While GDP showed the biggest quarterly drop on record, the plunge was not quite as steep as the 34.1 percent nosedive expected by economists.

Consumer spending led the decrease, cratering by 34.6 percent in the second quarter, as the coronavirus-induced lockdowns in late March and April forced many consumers to stay at home.

The steep drop in second quarter GDP should not have come as much of a surprise to traders, although seeing the actual data still seemed to generate negative sentiment.

"We already know that activity rebounded strongly in May and June, setting the stage for a strong rise in GDP in the third quarter," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "Nevertheless, with the more recent resurgence in virus cases starting to weigh on the economy in July, a continued 'V-shaped' recovery is unlikely."

A separate report from the Labor Department showed initial jobless claims increased for the second straight week in the week ended July 25th, although claims rose by much less than expected.

The report said initial jobless claims edged up to 1.434 million, an increase of 12,000 from the previous week's revised level of 1,422,000.

Economists had expected jobless claims to rise to 1.450 million from the 1.416 million originally reported for the previous week.

Meanwhile, the notable turnaround by the Nasdaq came as tech giants Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL) and Facebook (FB) all climbed into positive territory ahead of the release of their quarterly results after the close of today's trading.

Shares of Qualcomm (QCOM) also moved sharply higher after the chipmaker reported better than expected fiscal third quarter results and provided upbeat guidance.

Energy stocks climbed off their worst levels of the day but still closed sharply lower amid a steep drop by the price of crude oil.

Reflecting the weakness in the energy sector, the NYSE Arca Oil Index plunged by 4 percent and the Philadelphia Oil Service Index plummeted by 2.7 percent.

Significant weakness was also visible among gold stocks, as reflected by the 3.5 slump by the NYSE Arca Gold Bugs Index. The drop by gold stocks came as the price of the precious metal pulled back off Thursday's record closing high.

Financial, steel and chemical stocks also saw considerable weakness on the day, while most of the other major sectors climbed well off their early lows.

Meanwhile, semiconductor stocks showed a substantial move to the upside on the day, driving the Philadelphia Semiconductor Index up by 2 percent.

Commodity, Currency Markets

Crude oil futures are rising $0.36 to $40.28 a barrel after tumbling $1.35 to $39.92 a barrel on Thursday. Meanwhile, after falling $9.90 to $1,966.80 an ounce in the previous session, gold futures are soaring $26.80 to $1,993.60 an ounce.

On the currency front, the U.S. dollar is trading at 105.13 yen versus the 104.73 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1841 compared to yesterday’s $1.1847.


Asian stocks ended mostly lower on Friday after data showed a record contraction in U.S. economic activity in the second quarter.

Coronavirus fears and the possibility of a delayed November election in the U.S. also weighed on the markets, while better than expected quarterly earnings results from tech giants such as Apple, Amazon, Alphabet and Facebook as well as upbeat data from China and Japan helped ease worries about a global economic recovery.

Chinese shares advanced amid signs the economy continues its steady recovery from the coronavirus slump. The benchmark Shanghai Composite Index gained 23.18 points, or 0.7 percent, to finish at 3,310.01, while Hong Kong's Hang Seng Index ended down 0.5 percent at 24,595.35.

The manufacturing sector in China continued to expand in July, the National Bureau of Statistics said, with a manufacturing PMI score of 51.1, up from 50.9 and beating expectations for a score of 50.7.

The non-manufacturing PMI came in with a score of 54.2 - matching forecasts and down from 54.4 in the previous month.

Japanese shares lost ground as the yen strengthened and Tokyo counted a record one-day high of 463 coronavirus cases. The Nikkei 225 Index plummeted 629.23 points, or 2.8 percent, to 21,710, while the broader Topix closed 2.8 percent lower at 1,496.06. Rubber product, marine transportation and mining companies paced the decliners.

Market heavyweight SoftBank Group plunged 4.4 percent and Fast Retailing tumbled 3.2 percent. Leading semiconductor test equipment supplier Advantest gave up almost 15 percent after reporting weak quarterly results. Panasonic shed 13.3 percent after recording its first quarterly loss in nine years.

In economic news, industrial output in Japan was up a seasonally adjusted 2.7 percent sequentially in June, official data showed. That beat forecasts for a gain of 1.2 percent following the 8.9 percent decline in May.

Japan's unemployment rate came in at a seasonally adjusted 2.8 percent in June. That beat forecasts for 3.1 percent and was down from 2.9 percent in May.

Australian markets tumbled as a surge of Covid-19 cases in Victoria showed few signs of abating and tighter restrictions loomed. The S&P/ASX 200 Index slumped 123.30 points, or 2 percent, to 5,927.80, while the broader All Ordinaries Index ended down 119.20 points, or 1.9 percent, at 6,058.30.

Energy stocks were among the hardest hit after oil prices touched three-week lows in the previous session. Woodside Petroleum, Santos and Oil Search lost 2-3 percent.

Electricity and gas retailer Origin Energy plunged 4.6 percent after its fourth quarter revenue from its share in the Australia Pacific LNG project fell 5.2 percent.

The big four banks gave up 2-3 percent. AMP shares nosedived 12.8 percent. The wealth manager said it expects its underlying profit to more than halve in the first-half.

Mining heavyweights BHP and Rio Tinto declined 2.9 percent and 2.4 percent, respectively. Gold miners extended losses for a fourth consecutive session, with Newcrest Mining and Northern Star Resources falling over 1 percent.

Seoul stocks ended lower to snap a four-day winning streak amid selling by foreign investors due to uncertainty about when the coronavirus pandemic will peak. The benchmark Kospi dropped 17.64 points, or 0.8 percent, to 2,249.37. Market bellwether Samsung Electronics shed 1.9 percent and No. 2 chipmaker SK Hynix declined 2.9 percent.

Investors ignored positive industrial output, retail sales and facility investment data showing sequential growth in June.

Industrial production rose a seasonally adjusted 7.2 percent in June, Statistics Korea said - beating forecasts for an increase of 2.1 percent following the 6.7 percent decline in May.

Retail sales were up a seasonally adjusted 3.4 percent in the month- roughly in line with expectations and down from the 4.6 percent growth in May. Facility investment increased 5.4 percent from a month ago.


European shares have turned mixed on Friday as downbeat Eurozone GDP data offset earlier optimism over encouraging earnings updates from U.S. technology giants Amazon, Apple, Alphabet and Facebook.

The euro area economy contracted at the fastest pace on record in the second quarter amid the coronavirus pandemic, the preliminary flash estimate published by Eurostat showed.

Gross domestic product fell 12.1 percent on a quarterly basis, bigger than the 3.6 percent drop in the first quarter. This was bigger than the economists' forecast of 11.2 percent and was the sharpest decline seen since the series began in 1995.

Year-on-year, GDP was down 15 percent in the second quarter versus a 3.1 percent decline a quarter ago.

Meanwhile, a flash estimate from Eurostat showed that headline inflation unexpectedly rose to 0.4 percent in July from 0.3 percent in June. Economists had forecast the rate to ease to 0.2 percent.

While the U.K.’s FTSE 100 Index has fallen by 0.3 percent, the French CAC 40 Index is up by 0.1 percent and the German DAX Index is up by 0.7 percent.

Fears of a second wave of the coronavirus are rising in the U.K. after the government imposed fresh lockdown restrictions in northern swaths of the country late Thursday.

Tech stocks have gained ground across the board, with ASM International NV, Dialog Semiconductor and Infineon Technologies posting notable gains.

Nokia has also jumped after the Finnish telecoms group upgraded its forecast for 2020 underlying earnings after reporting a 22 percent rise in profits in the second quarter.

Reinsurance company Swiss Re has also moved notably higher. The company swung to a loss in the first half of the year due to coronavirus-related claims and reserves but said it is confident about the rest of 2020.

French electric utility Engie has also surged. The company announced a new review of its assets after reporting a drop in first-half sales and profits.

On the other hand, Air France-KLM has moved to the downside after the airline announced it would cut 1,500 additional jobs.

Automakers BMW, Daimler and Volkswagen have also fallen as the euro reached its highest level in more than two years.

BT Group shares have come under pressure after the telecom group warned of a sharp drop in revenue and earnings for the year.

International Consolidated Airlines Group shares have also slumped after the owner of British Airways swung to a loss of €4.21 billion and announced plans to raise €2.75 billion in capital.

U.S. Economic Reports

Personal income in the U.S. slumped by more than expected in the month of June, according to a report released by the Commerce Department on Friday, although the report also showed another substantial increase in personal spending.

The Commerce Department said personal income tumbled by 1.1 percent in June after plunging by a downwardly revised 4.4 percent in May.

Economists had expected personal income to decrease by 0.5 percent compared to the 4.2 percent nosedive originally reported for the previous month.

Meanwhile, the report said personal spending surged up by 5.6 percent in June after skyrocketing by an upwardly revised 8.5 percent in May.

Personal spending had been expected to jump by 5.5 percent compared to the 8.2 percent spike originally reported for the previous month.

At 9:45 am ET, MNI Indicators is scheduled to release its report on Chicago-area business activity in the month of July. The Chicago business barometer is expected to climb to 43.9 in July from 36.6 in June, although a reading below 50 would still indicate a contraction in regional business activity.

The University of Michigan is due to release its revised reading on consumer sentiment in the month of July at 10 am ET. The consumer sentiment index for July is expected to be downwardly revised to 73.0 from the preliminary reading of 73.2, which was down from 78.1 in June.

Stocks In Focus

Shares of Under Armour (UAA) are moving sharply higher in pre-market trading after the athletic apparel maker reported a narrower than expected second quarter loss on revenues that came in well above analyst estimates.

Auto giant Ford (F) may also see initial strength after reporting a much narrower than expected second quarter loss and sought to assuage any concerns about its liquidity.

On the other hand, shares of Chevron (CVX) may come under pressure after the energy giant reported a wider than expected second quarter loss.

Biopharmaceutical company Gilead Sciences (GILD) is also likely to move to the downside after reporting second quarter results that missed analyst estimates on both the top and bottom lines.
Follow RTT
Todays Potential Movers