06 Jul Capital 19 Catch-Up

Major Indices Break Millenium Records For the Quarter As Wall Street Continues To Roll Higher

Over a dozen states either paused or rolled back their reopening plans throughout last week. Nevertheless, the stock market continued to roll higher as investor’s seemingly unflappable optimism for the state of the economy remained steadfast. Wall Street has undoubtedly decided to side with the White House on the coronavirus issue, taking a “nothing to see here” attitude to a debate that is otherwise dividing the nation.

Despite it being a shortened week due to the July 4th long weekend the Dow still managed a 3.3% gain, while the S&P500 rose 4%, and the Nasdaq gained 4.6%. Tuesday also marked the end of the month with the major indices still recording gains albeit at much smaller levels than the records set in May. The Nasdaq led the way yet again (and let me just say if your portfolio isn’t choc-full of Nasdaq stocks at the current time you should adjust this immediately) gaining 4.6% in June and hitting a record closing high on the 1st day of July. The S&P500 and the Dow also edged higher, making 1.8% and 1.7% respectively.

The end of June also coincided with the end of the second quarter with all of the major indices turning in there best quarterly performances of the millennium. The Nasdaq jumped an impressive 30.6% in Q2, the S&P500 gained 20%, while the Dow industrials made 17.8%. We’ve taken an in-depth look at the second quarter in a special report that you can find at the bottom of the Catch-Up email today. In it, we go through the list of all of the outperforming stocks for the quarter and analyse which sectors performed best. Take a read and find out which S&P500 stock rose an outlandish 223% in the quarter.

We also saw some more improving economic data out during the week. Pending home sales were up a record 44.3% in May, with records going back to 2001. It was bouncing back from a 22% fall in April. The non-farm payrolls were also higher than the 2.9 million expected, coming in at (you guessed it, another record) 4.8 million. There were 2.1 million jobs added back in by the leisure and hospitality industry, as some restaurants and bars reopened, and another 740,000 from the retailers. The unemployment rate also dropped lower than expected, coming in at 11.1%, down from 13.3%.

The solid nonfarm payroll results were somewhat dampened by contradicting data from the latest weekly employment reports. New jobless claims rose again by a hefty 1.427 million while continuing claims rose to 19.29 million after having receded over the last few weeks. The June data only reflects payrolls up until June 12, well before coronavirus cases started resurging in a majority of states, and many places started reclosing. Still, the market rose on the news so it doesn’t seem too concerned just yet.

The Burea of Labour statistics has also come out and stated that the unemployment numbers of the last few months have actually been under-reported due to misclassifications. They say the peak was actually 19.7% and last months 13.3% should have really been 16.3%. They are in the process of correcting the problem going forward and numbers should be portrayed correctly in the next report.

There were some nice earnings reports out during the week. Micron Technology (MU) jumped 6.2% after it announced revenue came in above expectations and guidance was forecast over analyst estimates. Micron makes memory chips for PC’s, servers, USB drives, and digital cameras amongst other things and expects demand to be strong through the current quarter despite the global pandemic. On an earnings conference call CEO Sanjay Mehrotra explained: “As we look ahead at the second half, of course, you know, given the total COVID environment and uncertainties around COVID around the globe, we basically have limited visibility, yet, we do believe that cloud demand in the second half of the calendar year will continue to be healthy for us”.

Courier company FedEx (FDX) also impressed investors as Covid-19 shutdowns, not surprisingly, boosted home deliveries for the quarter. The share price jumped 9.4% as they beat on both revenue and profit. It’s not all beer and skittles however as the parcel delivery specialists said the coronavirus pandemic had negatively affected revenue and increased expenses. Domestic deliveries are not as lucrative as business deliveries, and with workers shut off from business locations, for the most part, residential deliveries accounted for 72% in the latest quarter, up from 56% a year earlier. The company neglected to give guidance as they attempt to cut costs of home deliveries in the next quarter.

Catch Up favourite Lululemon (LULU) also hit the news during the week as it agreed to purchase interactive fitness company Mirror for $500 million. Mirror, which produces digital workout displays (think Peleton exercise screens) was founded by a former Lululemon ambassador, and the athleisurewear maker already had an initial investment in the start-up. Through subscriptions and product sales Mirror already has revenue of over $100 million in an industry that Lululemon reckon could soon be worth 500 billion. LULU was up 6% on the news.

In the week ahead all eyes will remain on the surging coronavirus cases across the US. Over the weekend we had 39 states recording increases, with 15 of those at record levels. President Trump said last week that “99% of these cases are totally harmless” so we’ll see if that comes true in the next week or so. Deaths have tended to lag a surge in cases by about a month or so in the past. Hopefully, treatments which have been suggested to decrease the chances of Covid-19 deaths will work better than the medical fraternity expect.

The earnings outlook is pretty quiet this week as we gear up for a hectic new earnings season to begin next week. A few well-known earnings names will include Levi Strauss (LEVI) on Tuesday, Bed Bath & Beyond (BBBY) on Wednesday, and Walgreen Boots Alliance (WBA) on Thursday. Datawise we’ll see the ISM non-manufacturing index for June, Wholesale inventories for May, and of course the weekly jobless claims which should prove insightful.

Have a great week.