Investors Pause To Digest First Round Earnings
July 19, 2019
Markets retreated from all-time highs this week as the first batch of Q2 2019 earnings were met with mixed reaction. Overall, early results were generally positive with strong beats from tech giant Microsoft and financial powerhouse Goldman Sachs. Yet, despite the fact that 77.2% of companies that have reported earnings to date have managed to beat expectations, investors sent stocks lower for the week on weak outlooks from industrial companies who have encountered headwinds from the global economic slowdown and the U.S.-China trade war. Broader economic news was relatively light this week with retail sales being the most notable release. With bulls taking a break from their recent record-setting run, the S&P 500 ended the week down -1.23%.
Microsoft and Goldman Sachs Feel the Beat
Old school tech giant Microsoft showed it still has what it takes to compete with new school stocks such as Amazon and Google. For the second quarter, Microsoft reported earnings of $1.37 a share which topped estimates of $1.21 a share. Revenue increased 12% from the year ago period to $33.77 billion, beating estimates of $32.77 billion. Results were powered once again by cloud computing platform Azure which notched a 64% increase in sales. Microsoft’s move to combine its traditional software that runs in a customer’s own data center with its Azure products has allowed it to better compete with Amazon’s Web Services. Goldman Sachs, another bellwether, also reported this week. The financial giant reported earnings per share of $5.81, handily beating estimates of $4.89 a share. Revenue for the quarter was $9.5 billion, above estimates of $8.9 billion. Results were driven by an increase in investing and lending revenues, which combined to help the company report its best quarterly performance in eight years. Confident in its future prospects, Goldman announced it would boost its quarterly dividend to $1.25 from $0.85 a share.
Money to Burn
Consumers continued to open up their wallets to retailers in June, with retail sales rising 0.40% for the month. That was the fourth consecutive monthly increase, suggesting the consumer remains confident and they continue to benefit from the strong labor market. Excluding gasoline sales, which posted a sharp drop due to lower oil prices, retail sales were up a robust 0.70%. Gains were broad-based with internet sales +1.70%, restaurants and bar receipts +0.90%, auto sales +0.70%, and furniture and home furnishing sales +0.50%. The consumer spending momentum will likely continue into July and August as shoppers flocked to new annual traditions, such as Amazon’s annual Prime Day and other summer sales. The ecommerce juggernaut announced a record number of Prime members shopped its two-day shopping event, helping it to surpass last year’s combined sales figures for Black Friday and Cyber Monday. Amazon’s sales event also benefited other retail rivals by putting consumers in a spending mood. According to Adobe Analytics, retailers with more than $1 billion in annual sales saw an average 68% increase in their digital sales during the Prime Day event window. That compares to a 54% increase in sales last year. This news bodes well for other important retailers such as Target, Nordstrom, and Kohl’s.
Despite these strong early results, markets failed to maintain momentum once the industrial and transportation sectors began to release results. Companies engaged in everything from jet engines and air-conditioners (i.e. Honeywell) to rail transportation (CSX) showed poorer results, which spooked investors about what may lie over the horizon. Both CSX and Honeywell gave weak outlooks, citing uncertainty due to the on-going trade fight between the U.S. and China which has disrupted demand and muted the flow of goods globally. The industrial sector, for the time being, remains hostage to the state of trade negotiations, and talks appear to have made little headway since the U.S. and China agreed to restart negotiations talks at last month’s G20 summit. Consequently, the consumer and companies tied to domestic demand remain the earnings season bright spots thus far.
The Week Ahead
All eyes will be on the first estimate of Q2 2019 U.S. GDP. We’ll also check in on the housing market with reports on existing and new home sales.
On a daily basis, the odds are pretty good that most of us use a number of tiny objects that, given their simplicity, we might take for granted, such as a paperclip, Post-It note, tea bag, Band-Aid, Scotch Tape, eraser, Ziplock bag, Bic Cristal pen, scissors, whisk, or even the “@” sign. To recognize the enormous impact of these small objects on our daily lives and to give reverence to their simple design and affordability, The Museum of Modern Art (MoMA) has dedicated their curatorial resources to bring these items into the spotlight and make them part of the museum’s collection.
MoMA was established in 1929 by several progressive and influential patrons of the arts and currently constitutes one of the most comprehensive views into modern and contemporary art encompassing paintings, sculptures, drawings, prints, photographs, design objects, architectural models and drawings, films, and more. The museum is also dedicated to collecting items that underscore their philosophy that not all art is fine art, and many objects worthy of our admiration are items that we use every day but likely don’t think too much about. The museum considers these objects to be indispensable masterpieces of design.
One of the first design items the museum acquired was a group of more than a hundred simple industrial objects, such as springs and calipers, that had been shown in the exhibition Machine Art in 1934. In the late 1930s, the curator of the museum, John McAndrew, initiated an annual series called Useful Objects, which featured well-designed items available in stores and that was intended to highlight objects available to the public for their personal use as well as to encourage designers to continue designing these everyday marvels. The series generated numerous acquisitions of basic items from our daily lives that endure over time, and when examined closely, can be quite striking.
Many of these objects have interesting design histories. In the late 1970s, the Post-It Note was designed by a product development researcher at 3M who wanted to create a bookmark that would not fall out of his hymnal during choir practice. The Chupa Chups lollipop (from the Spanish word, chupar, meaning “to suck”) was made by a candy maker who wanted to create something that would fit in a child’s mouth without making their hands messy. The inventor, Enric Bernat, later asked his friend, Salvador Dalí, to create a design for the wrapper which is the daisy shaped logo that is still used today. Dalí advised that the logo appear on the top rather than the side of the lollipop so it would always be clearly visible.
A senior curator at MoMA’s Department of Architecture and Design, Paola Antonelli, added the “@” sign to the museum’s collection. She dug into the history of the pervasive symbol and discovered it first appeared in the middle ages and was used by monks copying manuscripts. The symbol appeared on typewriters in the late 1800s. In 1971, when the first email system was designed, an engineer named Ray Tomlison solved a coding problem by using the “@” sign to send a message to another computer, making it the first-ever email. Today, the symbol has become an icon of modern electronic communication.
Below are some of the items from the museum’s collection. These humble masterpieces include objects that achieve a wonderful balance of form and function and are beautiful, useful, and are significant for their contribution to human life and contemporary design.