02 Aug Capital 19 Catch-Up

Earnings Beats And Easing Inflation Can’t Save Wall Street From Weekly Losses But July Finishes In The Green

Some of the biggest names on the market reported earnings this week with many having breakout quarters. However, it wasn’t bright news across the board as the odd company slipped up in the second quarter, unable to surpass high expectations. Some disappointing data also muted enthusiasm on the one hand but eased concerns of Fed interventions on the other.

The S&P500 had three up days and two down days but still managed to finish 0.4% lower for the week. A Friday session that dropped 0.54% sealed its fate. The Nasdaq fared the worst for the week as some big tech names fell away. It lost 1.1% over the five sessions. While the Dow wasn’t far behind as it fell 1% from the previous week.

For the month of July, the news was much brighter. All of the major indices finishing in the green being ably led by the S&P500 which finished with a 2.3% gain. The Dow closed out June in second spot with a 1.3% gain and was just ahead of the Nasdaq again who managed a 1.2% rise. The sectors to be in for July included utilities, health care, real estate, and technology. While those areas to avoid were the energy stocks and the financials.

Let’s start with Apple’s (AAPL) earnings, which let’s face it, is my favourite time of the quarter. And it was another blowout quarter for the phone giant with revenue rising by 36% year on year to $81.41 billion, well ahead of the $73.3 billion estimated. iPhone revenue was up 49.78% YoY, with services revenue up 33% to $17.48 billion. We’ve been banging on for years about how Apple will be a services company going forward and this segment now accounts for almost a quarter of its entire revenue. It’s occurring in a faster time than even I expected. They now have more than 700 million paid subscribers, which is up by 150,000 from the previous year.

Despite the massive result, Apple shares fell the following session, losing 1.2%. While the company have refused to offer guidance since the start of the pandemic they did warn that supply constraints could impact on growth in the September quarter. Chip shortages are the main concern, as they were in the June quarter. CEO Tim Cook suggested they lost $3 to $4 billion in revenue from Mac and iPad sales in the period. However, Apple has always traditionally talked down future earnings and I imagine this is more of the same. If any company is going to work their way around chip shortages it will be Apple. They’ll be first in line for whatever they need. It’s everyone else who will need to be concerned.

Facebook (FB) was another who saw results outpace expectations but still suffer a share price fall due to suggestions of slowing growth. The social media giant saw revenue grow by 56% from the previous year, hitting $29.08 billion when the market was expecting $27.89 billion. It was its fastest growth since 2016, while profit was also up at $3.61 per share, well above the $3.03 estimates. Management suggested a rise of 47% in average price per ad was a major factor in the knockout quarter. FB still fell 4% on the news, despite guidance not really changing from the previous quarter. The big tech stocks have been massive outperformers during the pandemic so it is only natural that growth will slow eventually. Its long term prospects are still outstanding.

Paypal (PYPL) had a surprise miss on revenue despite it still growing by 23% from a year earlier. The payment provider added 11.4 million new active users in the quarter to take the total to 403 million, and profit hit $1.15 per share when analysts were expecting $1.12, but this was still a drop of 23% year on year. They also predicted a growth slowdown in the current quarter and the share price dropped 6.2%. Amazon (AMZN) was another surprise miss, their first in three years, as they hit $113 billion in revenue, around $2 billion short of expectations, and also offered up lower guidance. AMZN dropped 7.6% in the Friday session.

Now, let’s go to some stocks that actually went higher after their results. Alphabet (GOOGL) parent company of Google jumped 3.1% after they announced a 69% jump in advertising revenue in the second quarter. Revenue and profit easily beat expectations, as Youtube revenue hit $7 billion for the first time, just behind the revenue Netflix (NFLX) brings in. They pointed to a massive increase in users accessing their products through their televisions as the biggest growth driver.

Boeing (BA) was another winner as they brought in their first profit since the third quarter of 2019. An increase in jetliner deliveries as travel demand returned saw them make $567 million for the quarter following a $2.96 billion in the same quarter a year ago. Shares rose 4.2% on the news. Pfizer (PFE) also benefited from its role in the pandemic, selling $7.8 billion in covid shots during the quarter, and raising its guidance for future sales from $26 billion for 2021 up to $33.5 billion. PFE moved 3.2% higher after its announcement. Another Capital 19 favourite Ford (F) also surprised with a second-quarter profit. The carmaker who is hellbent on moving into the EV market also raised guidance for the rest of 2021 and rose 3.8%.

Other results came from UPS (UPS) who dropped 7% despite beating on both the top and bottom lines, and Tesla (TSLA) who also fell 1.9% despite beating estimates. The car and battery manufacturer pulled in more than $1 billion in income for the first quarter ever. Elsewhere oil companies Chevron (CVX) and Exxon Mobil (XOM) also beat estimates but fell 0.7% and 2.3% respectively. Pinterest (PINS) lost 18.2% despite beating on revenue and earnings, as user growth slowed to 9% and predictions of having 482 million users only came to 454 million. While Procter and Gamble (PG) easily brushed past predictions and rose 2%.

The economic data for the week was disappointing on the whole as new home sales fell by 6.6% to 676,000 instead of rising to 795,000 as expected. The weekly jobless claims hit 400,000 when economists wanted to see 385,000, which still sees the numbers more than double the pre-pandemic levels. And the core personal consumption expenditure price index rose 3.5%, just below the 3.6% expected.

The big number, however, came on Thursday when GDP came in at 6.5%, well below the 8.4% everyone was expecting. This was good news for the Fed who have been expecting a slowdown in growth and an easing of inflation. Earlier in the week, Fed Chief Jerome Powell had said he still needs to see the economy strengthen before they will act on the $120 billion a month in bonds they are currently purchasing. He also pointed to the recent weak jobs reports as further reason to keep things steady. He remarked at his press conference “We have some ground to cover on the labor market side. I think we’re some way away from having had substantial further progress toward the maximum employment goal. I would want to see some strong job numbers.”

The nonfarm payrolls for July, which come out on Friday, could therefore prove to be a big market mover as we await the Fed’s next move. Other economic data to come out through the week will include construction spending, factory orders, and durable goods. Otherwise, the market will be watching some more big-name earnings reports including Take-Two Interactive (TTW0), Alibaba (BABA), General Motors (GM), CVS Health (CVS), Kraft Heinz (KHC), Uber (UBER), Moderna (MRNA), Fox Corp (FOX), DropBox (DBX), and Goodyear (GT) amongst many others. Also for the BBQ fans, Weber plans to list this week under the ticker WEBR. It will attempt to sell 46.9 million shares at a price range of $15 to $17 per share. I’ll be following closely.

Have a great week.