Capital 19 Catch-Up

Earnings Wins Beat Delta Concerns As Dow Tops 35,000 For First Time

The previous Friday’s selloff moved into Monday as the major indices experienced their worst session since October to begin the week. Delta variant concerns and the effect this might have on the global economy weighed on investors as bond yields dropped and reopening stocks cratered. By the end of the week, however, all of this had been forgotten as the Dow closed above the 35,000 mark for the first time ever and the S&P500 and the Nasdaq also closed at all-time highs.

Average weekly coronavirus cases in the US crossed the 26,000 mark last week, rising from below 10,000 in June, marking a worrying concern particularly for the unvaccinated. The good news is that the vaccination rate in the US is at almost 60% for those older than 12, and the recent surge in cases is inspiring more people to receive the jab. The latest outbreak is unlikely to have anywhere near the same impact the original surge had in March of last year, as vaccinations and herd immunity work together to keep a limit on the spread. That’s great news for markets.

Reopening stocks fell hard early in the week with both airlines and cruise lines both falling into correction territory, with cruise lines especially down more than 30% from recent highs. The small-cap Russel 2000 index also hit correction levels on Monday, as investors moved back into big technology names much as they did through 2020. The energy sector was also down by more than 30% early in the week as the oil price slipped below $66 a barrel.

As the week progressed this was all turned on its head as the cruise lines all made back 15-20%, and the airlines had a similar fightback. Solid earnings results also boosted optimism as most of the big names achieved earnings beats in what looks to be a blowout quarter. By the end of the week, almost 25% of S&P500 companies had reported their second-quarter results with 88% springing surprise beats. If the wins continue at this rate it will be the best result for Wall Street since 2008. Profit margins are expected to come in at 76% which if it occurs will be the best margin since 2009.

As investors poured money back into the technology sector the Nasdaq finished the week as the best performer rising 2.8%. The S&P500 closed out the week in second place, making 2% over the five sessions. While the Dow, despite falling more than 2% in the Monday session still managed to finish 1% higher for the week.

The technology sector was also helped by some impressive earnings results later in the week. Social media stocks Twitter (TWTR) and Snapchat (SNAP) both surprised estimates as money flowed back into digital advertising. The two platforms rose 3% and 24% respectively, and they also helped boost the rest of the sector with Google jumping 3% in response and Facebook (FB) making 5%. Netflix (NFLX) was the odd man out, however, as it beat estimates on subscriber growth and on revenue but missed on profit. The share price fell 3.3% in response. We’ve got a more in-depth look at Netflix in today’s stock report section so make sure you check that out.

Chipotle Mexican Grill (CMG) continues to go from strength to strength after it smashed another earnings result earlier in the week. Its shares jumped 11.5% as revenues topped pre-pandemic levels, coming in at $1.89 billion, 39% higher than a year ago and 32% higher than in 2019. Technical innovation has lead Chipotle higher during shutdowns as it embraced digital ordering, food deliveries, and the modernisation of its drive-thru lanes. Chipotle has now tripled in price since 2019.

Dominos Pizza (DPZ) was another earnings standout. Same-store sales in the US jumped 3.5% despite having to beat strong numbers that arose out of last years lockdowns as consumers ordered food from home. On a two year basis, which a lot of the analysts are using as a better comparison than 2021, sales were up 19.6% as customers increased their spending on each order, ordering more food items, and paying a modestly higher delivery fee.

The share price jumped a healthy 14.5% after the results were announced with the CEO stating there would be no problems with future sales as they saw higher sales from those places already out of lockdowns than from those within. Ritch Allison proclaimed “you’ve often asked if our sales growth might be weaker in markets that have more fully reopened, but to the contrary, the opposite trend emerged through the second quarter, where we saw higher levels of sales growth in the second quarter in the markets with fewer Covid-related restrictions.”

Other earnings beats came from chipmaker Texas Instruments (TXN) who gained 5.3% after announcing its beat, while Verizon (VZ) saw a surge in 5G upgrades and less subscriber churn to top estimates and gain 0.7%. The railroad stocks Union Pacific (UNP) and CSX (CSX) also had wins and gained 0.8% and 3.5% respectively. American Express (AXP) also had a win and rose 1.3%, while AT&T (T) did the same and gained 0.4%, while Johnson & Johnson (JNJ) did the same but finished flat for the session.

In the week ahead there will be more of the same as a host of big-name earnings take front and centre. This time around it’s the tech behemoths who will lead the way with Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), and Facebook (FB) all reporting. We’ll also see results from the likes of Lockheed Martin (LMT), General Electric (GE), Starbucks (SBUX), Visa (V), McDonald’s (MCD), Shopify (SHOP), Boeing (BA), Pfizer (PFE), PayPal (PYPL), Spotify (SPOT), Amazon (AMZN), Merck (MRK), Chevron (CVX), Exxon Mobil (XOM), and Procter & Gamble (PG). What a massive week!

Datawise we’ll have new home sales, Durable goods orders, and second-quarter GDP. While the Federal Reserve will host a two-day meeting which will culminate in a speech by Chairman Jerome Powell who will no doubt discuss everything bond purchase tapering and interest rate related.

Have a great week.