US Stocks Lower Thursday as Amazon Reports Solid Earnings Beat in After Hours, Oil Rises on Saudi Production Cut

MARKETS TODAY August 3^rd, 2023 (Vica Partners)

Overnight/US Premarket, Asian markets finished mixed, China’s Shanghai Composite gained 0.58%. Japan’s Nikkei 225 down 1.68%, while Hong Kong’s Hang Seng off 0.49%.

European markets finished lower, and Germany’s DAX lost 0.79%, France’s CAC 40 down 0.72% and London’s FTSE 100 off by 0.43%. S&P futures opened trading at 0.42% below fair value.

Today US Markets finished mixed, the NASDAQ lost 0.10%, DOW down 0.19% and the S&P 500 off 0.25%. 8 of 11 S&P 500 sectors declining: Energy +0.95% outperforms/ Utilities -2.29% lags. On the upside, NYSE Fang+, S&P Banking ETF ^KRE, Trending Industries: Automobiles, Automobile Components, Leisure Products, longer term US Treasuries, Bitcoin, Oil, and the Bloomberg Commodity Index.

In US economic news, initial and continuing claims were in line with estimates and last week. ISM Services missed and new factory orders beat.

Takeaways

• Economic data in line with estimates
• NYSE Fang+ up 0.31%
• 8 of 11 S&P 500 sectors declining: Energy +0.95% outperforms/ Utilities -2.29% lags.
• Trending Industries: Automobiles +1.73%, Automobile Components +1.35%, Containers & Packaging +1.12%, Leisure Products +1.12%, Oil, Gas & Consumable Fuels +0.96%
• Bitcoins, Oil, and the Bloomberg Commodity Index gain
• Amazon.com (AMZN) w/ solid earnings beat

Pro Tip: Net new 52-week highs and lows, when there are more highs than lows, that’s a bullish sign. 

Sectors/ Commodities/ Treasuries  

Key Indexes (5d, 20d, 50d, 100d, 200d)

S&P Sectors

• 8 of 11 S&P 500 sectors declining: Energy +0.95% outperforms/ Utilities -2.29% lags.
• Automobiles +1.73%, Automobile Components+1.35%, Containers & Packaging +1.12%, Leisure Products +1.12%, Oil, Gas & Consumable Fuels  +0.96%
• YTD Leaders: Information Technology +42.15%, Communication Services +41.31%, Consumer Discretionary +31.48%, S&P 500 +17.55%.

Factors

US Treasuries

Earnings

Q2 ’23 Top Line Top Line

• Q1 ’23 Actual: 79% of companies beat analyst estimates by an average of 6.5%
• Q2 Forecast: S&P 500 EPS was expected to decline <7.2%>/ Fiscal year 2023 EPS flat YoY
• Q2 Actual (thru 7/28): a) 51% of S&P 500 companies reporting actual results, 80% of S&P 500 b) the blended earnings decline for the S&P 500 is -7.3%, c) for Q3 2023, 27 S&P 500 companies have issued negative EPS guidance and 18 S&P 500 companies have issued positive EPS guidance d) the forward 12-month P/E ratio for the S&P 500 is 19.4. This P/E ratio is above the 5-year average (18.6) and above the 10-year average (17.4).

Notable Earnings Today  

• +Beat: Apple (AAPL), Amazon.com (AMZN), Amgen (AMGN), Booking (BKNG) Airbnb (ABNB), Cigna (CI), Regeneron Pharma (REGN), Becton Dickinson (BDX), Canadian Natural (CNQ), DBS Group Holdings ADR (DBSDY), ICE (ICE), Parker-Hannifin (PH), ING ADR (ING), Nintendo ADR (NTDOY), Infineon ADR (IFNNY), Apollo Global Management A (APO), Ambev SA (ABEV), Moderna (MRNA), Block (SQ), Coinbase Global (COIN), Adidas ADR (ADDYY), Constellation Energy (CEG), Vulcan Materials (VMC), First Citizens BancShares (FCNCA), Cloudflare (NET), Rocket (RKT), Ventas (VTR)
• – Miss: ConocoPhillips (COP), Anheuser Busch ADR (BUD), Gilead (GILD), Southern (SO), BMW ADR (BMWYY), Monster Beverage (MNST), Fortinet (FTNT), Air Products (APD), Cheniere Energy (LNG), Sempra Energy (SRE), BCE Inc (BCE), Cummins (CMI), Warner Bros Discovery (WBD), Kellogg (K), Ball (BALL)

Economic Data

US

• Initial jobless claims: period July 29, act 227,000, fc 227,000, prior 221,000
• US. productivity (prelim): period Q2, act 3.7%, fc 2.3%, prior -1.3%
• S&P final U.S. services PMI: period July, act 52.3, fc 52.4, prior 4
• ISM services: period July, act 52.7%. fc 53.3, prior 53.9
• Factory orders: period June, act 2.3%, fc 2.2%, prior 0.4%

Vica Partner Guidance July ’23, (updated 8-01)

• Q3/4 highlighting, Industries: Interactive Media & Services, Household Durables, Broadline Retail, Consumer Finance, Automobiles, Construction & Engineering, Semiconductor & Semiconductor Equipment, Construction Materials, Specialized REITs, Gas Utilities. Other: Undervaluation for Chinese Mega Cap Tech. Japan equities still a better value than US. Look for continued strength in Mega and Large Cap Growth “the new defensives” Expect Energy Sector rally!
• Cautionary, Banks shortly may be overpricing. Current indicators are mixed. Credit default swap (CDS) to pick-up through Q4/Q1.
• Longer Term, NASDAQ 100^NDX/FANG+ ^NYFANG companies will continue to outperform “BIG allows you to invest at scale”. TOP Sector outperform includes AI and Semiconductor Equipment, Key Material like Lithium. Forward looking CAGR growth below:
• Company, we continue to emphasize business *quality and strength of balance sheet for all investments. * Strong support – NVIDIA (NVDA), Meta Platforms (META), Microsoft (MSFT), Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Tesla (TSLA), Taiwan Semi (TSM), ASML Holding NV (ASML), Broadcom (AVGO).

• BIG Picture: Market bottoms are made on bad news and with deflationary signals the current market rally should come as no surprise. The combination of current Fed tightening, higher oil prices and a strong dollar should have given us a final bottom in ’23?

1. Our biggest concern with the current rally is that the Government is not as effective as Free Markets in managing capital. Stock repurchases are just another way to deploy Capital.  Consider that about 63% of the typical business cost is labor. I wholeheartedly trust the Free Market to better spend on CAPEX, R&D, and other.
2. As for Bonds as an alternative investment for Stocks, a 10-year bond should have a return that is equal to or exceeds nominal GDP, and that is not the case today.
3. The argument for Fed further tightening has its pundits. Raising rates to counter jobs (1.6 jobs available for every job seeker) in a rapidly changing economy will NOT moderate on demands.
4. The Fed would benefit by rethinking its 2% target inflation number. A little extra pad like 3% today, protects the economy from Deflation.

 

News

Company News/ Other

• KKR in Advanced Talks to Buy Simon & Schuster for Roughly $1.65 Billion – WSJ
• Amazon’s Jassy Spurs Sales, Profit While Cutting Spending Growth – Bloomberg
• Block Raises Adjusted Profit Outlook as Use of Cash App Soars – Bloomberg

Energy/ Materials

• China pumps out coal plants at increasing pace to allay power-security fears, risking climate transition: Greenpeace – South China Morning Post
• A Chinese SUV Was Sweden’s Best-Selling Electric Vehicle in July – Bloomberg

Central Banks/Inflation/Labor Market

• US Productivity Jumps by Most Since 2020, Blunting Labor Costs – Bloomberg
• Fitch Downgrades U.S. Credit Rating – WSJ

Asia/ China 

• China’s manufacturing, services data in July: 4 takeaways as pressure intensified, activity cooled – South China Morning Post