Before The Bell - The most recent five-day stretch on Wall Street started on a positive note for investors, with encouraging news on the coronavirus vaccine front and reports that the European Union had reached a deal on a new stimulus package giving a boost to equities around the globe. However, those good tidings, which saw the NASDAQ Composite push toward the 11,000 mark, were rather short-lived, as the selling picked up by midweek. There was a confluence of factors that emboldened the bears, including a continued spike in coronavirus cases in several hotspots, growing tensions between the United States and China, a rise in initial unemployment claims, and some uninspiring news from the technology sector (more below). For the week, the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index were down 0.8%, 1.3%, and 0.3%, respectively. In general, there was a pickup in volatility late in the week and some subsequent movement into safe-haven holding, most notably bonds and gold. The price of the precious metal currently trades above the $1,900-an-ounce mark this morning.
On Friday, the aforementioned averages were in the red from the get-go and those notable declines held rather steady into the closing bell. For the session, the Dow 30, NASDAQ, and S&P 500 Index were down 182, 98, and 20 points, respectively. In addition to the noted escalating tensions between the world’s two-largest economies, some dour news from the technology sector, pressured equities. The investment community reacted quite negatively to reports that there will be a delay in the unveiling of the next iPhone from Apple (AAPL) due to supply chain issues from the coronavirus pandemic and, more so, news that Intel (INTC) will have to push back the release of its 7 nanometer chip. Shares of the semiconductor giant were down sharply on Friday and played a big role in the weak performances for the Dow 30 and the tech-heavy NASDAQ, with the white-hot latter index pulling back notably late in the week.
In addition to the coronavirus news and the economic and geopolitical fallouts from the deadly virus, investors are focusing on the ongoing second-quarter earnings season for Corporate America. The reports so far have made for mixed readings, as reflected in the aforementioned Intel report. For the most part, the companies have been topping reduced expectations, but investors seem to be more interested in guidance and the near- to intermediate-term outlooks. On point, Intel and Tesla (TSLA) reported solid June-period results, but the stocks of both companies saw some profit taking following the releases. That said, we think that the technology names are a good long-term growth investment and if anything the late-week haircut for the sector may present a buying opportunity. However, one caveat for the technology stocks is that a number of the industry leaders will likely be called before Congress in coming weeks after the government concluded an investigation on possible antitrust, anti-competitive and monopolistic behavior from the technology giants. This may produce some near-term volatility for the technology names.
Looking ahead to the final trading week of July, the stories for Wall Street will remain the same, but there will be some added attention to whether Congress and the Trump Administration will agree on another coronavirus stimulus package for unemployed Americans, small businesses, and healthcare workers. The unemployment benefits for those who lost their jobs due the lockdowns to stem the spread of the coronavirus are set to expire on Friday. The failure of the parties involved to come to an agreement would probably roil the major equity indexes. The expectation is that some relief package will eventually be ironed out.
There also will be some major news from the business beat this week for investors to digest. The headline report will be the latest monetary policy decision from the Federal Reserve on Wednesday afternoon at 2:00 P.M. (EDT). The central bank, which commences its two-day monetary policy meeting tomorrow morning, is expected to keep the highly accommodative monetary policies in place to help combat the negative impact of the COVID-19 pandemic on the U.S. economy. In addition to the Fed decision, investors will be awaiting the latest readings on consumer confidence (tomorrow) and personal income and spending (Friday). These reports may have an impact on the performances of the consumer cyclical (e.g., retail) retail stocks. Our latest analysis on the retailing industry and its stocks can be found in Issue 11 of The Value Line Investment Survey on valueline.com.
Before the market’s open, the equity futures point to a modestly higher opening for the U.S. stock market. So far overseas the trading has been mixed. The main indexes in Asia produced varied results overnight, while the major European bourses are slightly lower as trading moves into the second half of the session on the Continent. Ahead of a busy week of earnings data from Corporate America and a Federal Open Market Committee Meeting, investors are hoping for some positive news on the economic stimulus front. Also helping stocks stateside are signs—despite an increase in nationwide COVID-19 cases—that new coronavirus cases are slowing in some U.S. states, including in those that had recently been hard-hit by a resurgence in infections. - William G. Ferguson