Capital 19 Catch-Up

Jobs Report Tops Estimates As Earnings Continue Record Run

The monthly jobs report and impressive earnings overshone the rising number of delta covid cases across the US as all of the major indices finished the week with wins. The economy continued to show signs of improvement as the country moves back to some form of normality, and countries open up across the globe. This in turn helps companies sell their goods and services and increase earnings.

Despite a big fall on Friday, as investors moved out of the big tech stocks and back into economic reopening plays, the Nasdaq still finished the week with the largest gain of the big three. The ‘Daq rose 1.1% for the week while the S&P500 finished in second spot with a 0.9% gain. The financials led the way, thanks to some strong economic data and a stabilising of treasury yields. The Dow managed to pick up 0.8% over the five sessions.

Earnings season has kept going from strength to strength as consumers continue to open their wallets. The S&P500 has seen 89% of its components report their results so far, and as of Friday, 87% of those had beaten earnings estimates. If that rate continues to the close it will be the strongest earnings season since 2008. It’s great for stocks when earnings continue to surprise analyst estimates. These analysts spend countless hours investigating every minute detail of a company, so it just goes to show how this economy is going from strength to strength following one of the toughest periods in recent memory.

The economic data over the last six months has also been a sign that things are slowly returning to normal, although many of this week’s results were mixed. US manufacturing data showed growth was slowing, and the ADP private payrolls missed their estimates. However, the ISM services purchasing managers index hit an all-time high, and the weekly jobless claims dropped to 385,000. All were shadowed, however, by the July nonfarm payrolls which surprised on the upside with 943,000 new jobs created, well above the 845,000 expected. While the unemployment rate dropped to 5.4% when the economists were expecting 5.7%.

The nonfarm payroll number was just about perfect for Wall Street. Good but not great. Solid but not outstanding. It means things are still moving in the right direction, but not so fast that the Fed might start tapering bond purchases and lift interest rates. Coronavirus cases continued to rise during the week and that is helping to put a dampener on any overenthusiasm.

The 7 day rolling average of infections hit 72,790 which is higher than in the summer of 2020 when the US didn’t have a vaccination programme. The number of those vaccinated hit 70% this week which is helping to keep the number of those hospitalised down. In states such as New York and California mask mandates have been brought back in to try and curb case numbers. It’s great that we here in Australia can learn important lessons from overseas when deciding on our own course of action.

In stock news, sports apparel and footwear maker Under Armour (UA) smashed earnings and jumped 7.5% after the result was announced. Revenue climbed an impressive 91% from a year earlier, with 39% of sales coming from its e-commerce offerings. They also hiked their 2021 outlook as CEO Patrik Fisk commented “I believe this year sets a robust foundation that positions us well for our next chapter of profitable growth.”

General Motors (GM) beat revenue expectations of $30.9 billion with a $34.17 billion result but missed on profit which came in at $1.97 per share when the market was looking for $2.23. The carmaker was impacted by recall costs of $1.3 billion. Despite it being a record second quarter and management lifting 2021 guidance the share price dropped 8.9% for the session. If you remember we recently recommended GM as a buy in our stock report from early July as we highlighted their big moves into electric vehicles. As we always recommend buying on any dips Wednesday was a perfect opportunity. The share price dropped from around $58 to $52, however has settled around the $55 mark to end the week. That’s still great value.

Payments provider Square (SQ) reported results that saw profit rise 91% year on year and the number of users active on its app rising to 40 million. The company also announced a $29 billion deal to buy Australia’s own Afterpay (APT.ASX) and the share price rose 10% after the news. The Afterpay share price also bounced on the ASX to climb back over the $120 mark. Other earnings results saw Clorox (CLX) drop 9%, and Roku (ROKU) and Etsy (ETSY) down 4% and 9.7% respectively. While later in the week Expedia (EXPE) fell 7.9% and Canopy Growth (CGC, WEED) finished flat.

The week ahead is going to be focused on a few very important inflation numbers. The Consumer price index comes out on Wednesday, along with Core CPI, while the Producer price index is out on Thursday. We’ll also see June job openings, productivity, the import price index, and consumer sentiment. Earnings reports will come from the likes of meme stock AMC Entertainment (AMC), Tyson Foods (TSN), Wendy’s (WEN), eBay (EBAY), Baidu (BIDU), Walt Disney (DIS), Airbnb (ABNB), and DoorDash (DASH.

Have a great week.