Earnings Beats Push Markets Past Wall of Worry

July 31, 2020

Better than expected earnings and last-minute corporate announcements put investors in an optimistic mood, sending the S&P 500 to a 1.73% gain for the week. The move higher came despite horrific Q2 economic readings and a flatlining in near-term momentum as COVID continues to keep a full opening of the economy on hold. On Capitol Hill, lawmakers failed to craft an acceptable relief package to replace the enhanced unemployment benefits that were set to expire for millions on Friday. COVID cases continued to surge in the U.S. as the nation passed a grim milestone of more than 150,000 deaths. The pandemic’s outlook hasn’t been much better overseas where both European and Asian countries have seen a resurgence of new cases in recent days amid loosened restrictions and increased travel. In economic news, the initial readings for Q2 GDP in the U.S. and the Eurozone showed the depths of the economic downturn in the second quarter due to Covid-19 related shutdowns. Investors brushed off the backwards looking data focusing on the Federal Reserve’s continued pledge to backstop the economy, better than expected earnings, and a number of big tech announcements including Apple’s 4:1 stock split and news that Microsoft was in talks to acquire TikTok’s U.S. operations.

Covid-19 Hits Global GDP

Although markets had widely expected Covid-19 would hit global GDP figures in the second quarter, it was still a difficult pill to swallow when the first estimates were released this week. The U.S. economy reported Q2 GDP fell -32.9%. That was the worst quarterly decline ever recorded and outpaces any single quarterly decline seen during the Great Recession or Great Depression. It eclipsed the previous record for largest quarterly decrease by over three-fold, which until recently had been recorded in 1958 when the nation’s GDP dropped -10%. Keep that one in mind the next time you play the original version of Trivial Pursuit. Despite the record drop, the reading did manage to beat economists’ estimates for a -34.7% decline. Not surprisingly, personal consumption, exports, inventories, investment and spending by state and local governments all took a hit amid the virus-induced shutdown and states’ gradual reopenings. The Eurozone, despite plunging into a historic recession fared slightly better as Q2 GDP only fell -12.1%. Spain and France weighed on the bloc’s overall growth, posting declines of -18.5% and -13.8%, respectively. Markets were quick to brush off the numbers since the current trend for consumer and business spending is improving, but current levels are far below previous levels and with cases surging, the question is how sustainable current levels might be.

Fed Maintains its Pledge

The FOMC meeting got less than its usual fanfare this time around. No one expected much in the way of policy changes and the Fed kept to its script. In its statement following the meeting, the Fed reaffirmed its commitment to keeping interest rates near zero and to continue buying Treasuries and other securities in order to insure liquidity. Powell warned that it would take “a while” before we get back to the levels of economic activity seen previously given the depths of the retrenchment and the magnitude of present unemployment. Initial jobless claims showed 1.43 million people filed for unemployment this week, the 19th straight week in which initial claims totaled at least 1 million and the second consecutive week in which initial claims increased after declining for 15 straight weeks. Continuing claims which are composed of individuals receiving unemployment benefits for at least two straight weeks rose by 867,000 to 17 million, a sign the jobs market is struggling to maintain previous momentum. Markets watched the meeting and moved on, reassured that the massive liquidity spigot would continue to flow.

Earnings announcements continued to tell a story of a stay-at-home biased economy. This week’s winners hailed from a host of industries: UPS (online shipping), PayPal (mobile payments), and Lam Research (semiconductors powering the remote work trend). The market had, over the last couple of weeks, started to rotate into the more cyclical and undervalued parts of the market, but Apple, Alphabet, Facebook and Amazon all announced big quarters and the attention shifted back to Big Tech and growth. Even Congress helped to bring attention to the industry by holding hearings requiring Bezos (Amazon), Cook (Apple), Zuckerberg (Facebook) and Pichai (Alphabet/Google) to answer questions on their anticompetitive behavior, while turning around and announcing blowout earnings hours later. It was a tech focused week in which investors remain captivated by the industry’s sheer resilience, but next week things will shift back to healthcare, industrials and energy where the tone is likely to be far more sober.

The Week Ahead

A big week for the markets as the Labor Department releases the July jobs report. Traders will also tune in for the latest global manufacturing and services figures.

Happy National Mustard Day – Saturday, August 1, 2020

Tomorrow is National Mustard Day which has been celebrated on the first Saturday of August for nearly 30 years. The holiday originated at the National Mustard Museum in Wisconsin. One might typically associate Wisconsin with cheese, beer, or bratwurst, but the state is home to the largest collection of mustard — more than 6,000 mustards from all 50 states and 70 countries.

Barry Levenson, founder of the National Mustard Museum, has been curating his collection of condiments since the 1980s. His affection for what he calls the “king of condiments” began during his career as the Assistant Attorney General for the State of Wisconsin. He once argued a case in front of the Supreme Court in Washington, DC, with a bottle of mustard in his pocket. He won. Levinson left his law career to dedicate his time to his mustard passion. The exhibits at the National Mustard Museum include thousands of antique mustard pots and jars, mustard bottles from all over the world, and hundreds of mustard memorabilia. The one thing Levenson says you will not find is ketchup.

Levinson’s museum has been featured on The Oprah Winfrey Show, The Food Network, and HGTV. He notes that the museum is also the hallowed campus of the Mustard College, which everyone knows as “Poupon U,” and added that the museum is listed on the National Registry of Hysterical Places (a registry that he started).

It makes sense that the corporate sponsor of National Mustard Day is none other than the good old yellow American mustard brand French’s. In celebration of this year’s National Mustard Day and since 2020 can’t get any weirder, French’s worked with a craft beer brewer to launch the limited-edition French’s Mustard Beer that will be available at select bars and restaurants. The brew master at Oskar Blues Brewery describes the beer as a semi-tart wheat beer infused with citrus and French’s Classic Yellow Mustard. If social distancing is keeping you home, the brand is also offering a homebrew recipe for any amateur brewers looking to spice up their own ales or lagers. The culinary experts at Food & Wine magazine describe French’s Mustard Beer as surprisingly subtle and “bright and refreshing, with just a touch of vinegary mustard flavor cutting through the tart tropical acidity.” Six-packs can be purchased online on CraftShack.com for $19.99.

Tomorrow, August 1, 2020, the National Mustard Museum will be hosting a Facebook Live event with cooking demos, an interactive tour of the National Mustard Museum, a sing along with the Poupon U choir director, and an opportunity to win a year’s supply of great mustard. Details are available at mustardmuseum.com.