03 Aug Capital 19 Catch-Up

Apple and Amazon Smash Earnings as Second Quarter GDP Claims an Unwanted Record

All of the major indices bounced back from losses in the previous week, as the gold price continued to soar and the big tech names impressed with their earnings. Stocks were tempered however by the amount of slowly rising coronavirus deaths, and unemployment stimulus relief finishing on Friday without a new bill to replace it being approved by the congress.

Friday also saw the last trading day of July, a month in which the stock market continued to move higher, contrary to the stalling economic data. Despite it falling out of favour in the last week or so, the Nasdaq led the way yet again. It locked in gains of 6.8% in July, just beating out the S&P500 who made 5.5%, and the Dow who managed a 2.3% gain. The gold price closed out July at all-time highs, crossing the $2000 mark on Friday to close at $2005.40.

Catch Up favourite Apple (AAPL) was the star of the week as it easily beat already lofty earnings expectations and rose to all-time highs on Friday, making it the most valuable company in the world in the process. iPhone revenue came in $4 billion above expectations, yes, you read that correctly, at $26.42 billion, while there was also a surprising increase in revenue from the Mac and iPad lines which rose by $1.3 billion and $1.6 billion respectively year on year. The services sector, which we have declared many times before to be the future of the company, rose 14.8% to $13.16 billion, up from $11.46 billion a year ago.

Apple didn’t provide guidance for the next quarter but did state its new 5G equipped iPhones won’t be ready for sale until the next quarter due to coronavirus delays. The company advised that after the strong growth seen in the last quarter they don’t expect to see iPhone sales waning in the meantime. Analysts raised price targets across the board after the numbers were released, and as Apple also announced a four-for-one stock split in what they hope will make the share price more accessible to retail traders. The stock will start trading at the cheaper price on the 31st of August (but don’t freak out if you’re a shareholder, you’ll own four times the amount of stock to compensate).

Surging online sales helped Amazon (AMZN) to another earnings smash as revenue hit a record $88.91 billion, well ahead of the $81.56 billion analysts had expected. Profit came in at $10.30 per share, ahead of the $1.46 expected. Amazon’s cloud product Amazon Web Services increased revenue by 29% for the year as working from home became the norm for many employees. While revenue from advertising was up 41% year on year at $4.22 billion, and Prime memberships increased by 29%. Economic shutdowns have so far proved a massive boost for Amazon who gained 3.7% on Friday and is now up 71% for the year.

Facebook (FB) rounded out a successful earnings outing from the top three as they delivered revenue of $18.7 billion, beating estimates of $17.4 billion. Earnings came in at $1.80 per share, 0.41c higher than estimates, while the number of daily active users jumped to 1.79 billion. Shares jumped 8.17% in the Friday session. Alphabet (GGOGL) the owner of Google also beat earnings expectations but saw revenue decline for the first time in its history. Shares were down 3.28% on Friday, with the share price still up just over 9% for the year.

Earnings weren’t all beer and skittles, however. General Electric (GE) dropped 4.4% after missing earnings, McDonald’s (MCD) fell 2.5% after revenue fell by 30%, while Boeing (BA) also missed what was already heavily discounted expectations and dropped 3%. Starbucks (SBUX) missed earnings but optimistic guidance saw them gain 3%. While it was better news for Advanced Micro Devices (AMD)whose revenue hit $1.9 billion and earnings per share beat expectations by 11%. They gained 12.5% on Wednesday and are now up 30% in just the last two weeks.

It was an even better week for you if you were a shareholder in Kodak (KODK). The once valuable film manufacturer made redundant by digital photography has had a tough decade, but those keeping the faith were rewarded this week as the US government awarded the company a $765 million contract to produce covid19 related pharmaceutical ingredients under the Defense Production Act. The share price started the week at a measly $2.20, rising to $60 per share at one point before settling at $21.85 by Friday. I must admit, it was a company that had drifted off of my radar, but it’s now firmly back on it as they attempt to transition into the pharmaceutical arena again. One to keep an eye on.

Weekly jobless claims rose for the second week in a row, with 1.434 million workers filing initial claims for unemployment. More worryingly continuing claims rose again to 17.018 million. Second-quarter GDP came in just above expectations as it was confirmed that the US experienced its toughest quarter in history – falling 32.9%. The previous worst occurred all the way back in 1921. And consumer sentiment also fell away as economies continued to shut down late in the month.

Stimulus payments to those out of work ended on Friday without the government deciding on a new package. It will be important for the economy to get a new deal done as quickly as possible so let’s hope the Democrats and Republicans can decide on something before we start going backwards again. No doubt this will be much of the focus for markets in the coming week.

The non-farm payrolls which come out on Friday will be the big data report out this week. Economists are expecting the economy to have added 2.26 million jobs in July, compared to the 4.8 million in June, while the unemployment rate is expected to drop to just over 10%. There will also be manufacturing and services PMI, and the trade deficit for June.

Earnings will be another highlight as more than 20% of the S&P500 report their earnings for the latest quarter. Among the big names will be Tyson Food (TSN), BP (BP), Disney (DIS), Ralph Lauren (RL), Fox Corp (FOXA), CVS Health (CVS), Wendy’s (WEN), Bristol-Meyers (BMY), Uber (UBER), and Metlife (MET). So far 80% of S&P500 companies have beaten expectations, however, profits are still down 40% year on year.

Have a great week.