15 Jul Capital 19 Catch-Up – Jul 16

It was record highs all round on Friday as the markets ended another week of trading. All of the major indices finished with their highest closes ever, as Jerome Powell’s testimony to congress heightened expectations for a rate cut at the end of the month. There were also two milestones for two of the major’s with the Dow breaking through the 27,000 barrier on Thursday, while the S&P500 cracked the 3,000 mark on Wednesday for the first time.

The Dow was the best performer for the week, closing 1.5% higher at 27,332.03, while the Nasdaq also added 1% to finish at 8,244.14. The benchmark S&P500 picked up another 0.8% and closed at 3,013.77 at Friday’s close. While the Russell 2000 was the struggler, adding only 0.4% to finish at 1,570.

Facebook receives largest fine in history

Technology and consumer discretionary stocks led the way higher with Facebook (FB) jumping 5.34% for the week, despite the Federal Trade commission voting to impose a $5 billion fine on them over the Cambridge Analytica scandal (amongst other indiscretions). It is by far the largest fine in history, however, Facebook had already accounted for $3 billion on their books and had prepared investors that they were expecting a fine of at least $5 billion.

This meant a price jump for the stock, and an increase in wealth for CEO Mark Zuckerburg. It’s not much of a deterrent when you’ve just added a few billion into the wealth of the perpetrator, but good luck to him. Going forward Facebook will have to release plans on how it will use customer data for any new products, however during their mea culpa public relations campaign they had pretty much already agreed to this anyway. It’s a great win for the social network.

Healthcare

It was a tough week for healthcare stocks, and pharmaceuticals in particular, as the White House cancelled plans to curb the rebates that drugmakers pay to pharmacy benefit managers to get their products covered by Medicare’s prescription plan. It’s all part of Trump’s push to lower the cost of drug prices in the US – which are, to put it bluntly, outrageously high. Pfizer (PFE), Merck (MRK) and Eli Lily (LLY) all fell more than 4% on Thursday and Friday.

But what was tough news for the drugmakers was great news for the health insurers, who benefitted from the White House decision. United Health (UNH)  gained more than 7% over the two days, while Cigna (CI) picked up over 10%, and CVS Health (CVS) made 3%.

Airlines and Carmakers

On Thursday Delta Airlines (DAL) snuck in its second-quarter earnings before the official start this week, and as we expected came in ahead of analyst estimates on both profit and revenue. The advantage of not owning any Boeing max 737’s when all of your competitors have had to put theirs out of commission and cancel flights. Its revenue of $12.5 billion was a company record, and they also raised their profit forecast for the rest of the year as travel demand continues to grow. DAL jumped 2.48% on Friday to close at $16.54.

Carmaker Ford (F) finished off the week in style. Jumping 2.94% on Friday as they announced an expanded collaboration with German car manufacturer Volkswagen (VOW) to develop electric and self-driving cars. The news didn’t seem to matter much to electric car king Tesla (TSLA) who made more than 7% last week, as CEO Elon Musk suggested they would be retrofitting older Tesla models with self-driving chips by the end of 2019. The days when I can call my car to come and pick me up from the pub after a few beers are nearly upon us!

Tech stocks

It’s a big week for Amazon (AMZN) this week as its annual Prime Day, which now runs for two days, kicked off yesterday. It’s the e-commerce giants biggest sales event of the year, and although the sales are a little on the underwhelming side it is always a great indicator on how many new Prime memberships they will pick up for the year. An increase in Prime memberships means an increase in sticky customers and an increase in sales.  AMZN was up 3.55% last week.

Amazon, along with Facebook (FB), Alphabet (GOOGL), and Apple (AAPL), will all face the congressional antitrust panel this week, as the hearing attempts to “examine the impact of market power of online platforms on innovation and entrepreneurship”. Democratic presidential candidate Elizabeth Warren has recently called for the companies to be broken up so it could be quite an eventful meeting. It comes at a time when these same companies are also under fire from potential antitrust probes by the Federal Trade Commission. We could be seeing a few bad headlines for these tech darlings in the next few days.

Earnings season

The big news this week, however, will be the official start to earnings season, and as always it will begin with most of the major financial companies reporting their numbers. Citibank (C) kicked things off by reporting overnight, and we’ll see further results from JPMorgan Chase (JPM), Wells Fargo (WFC), and Goldman Sachs (GS) on Tuesday, followed by Bank of America (BAC) on Wednesday, Morgan Stanley (MS) on Thursday and American Express (AEXP) on Friday.

But the fun won’t just be restricted to the money movers. There are a host of big names reporting all week with the likes of Johnson & Johnson (JNJ), United Airlines (UAL), eBay (EBAY), Paypal (PYPL), Netflix (NFLX), IBM (IBM) and Microsoft (MSFT) all reporting numbers.

As we mentioned in last week’s Catch-up, expectations are on the low side, which means a lower bar for companies to make earnings beats. That’s generally good for share prices. It will be extremely interesting to see the impact of the trade war on those companies who are importing from or selling to China.

After the recent agreement to “continue talks”, we’ve heard absolutely nothing from either side, so you can expect the current tariffs to continue for a while longer, and possibly even an increase if Trump thinks talks may have stalled again. The materials and energy sectors, along with transportation and technology stocks – especially the chipmakers – are the most affected here.

Check out below for all of the big names reporting and the big economic data reports that are coming out this week.

Have a great week.

Cheers, Paul.

Earnings:

• Tuesday: Blackrock (BLK), Domino’s Pizza (DPZ), Goldman Sachs (GS), Johnson & Johnson (JNJ), Netflix (NFLX), United Airlines (UAL), Wells Fargo (WFC)
• Wednesday: Abbot Labs (ABT), Alcoa (AA), Bank of America (BAC), Comerica (CMA), IBM (IBM), Texas Instruments (TXN)
• Thursday: American Express (AEXP), Bank of New York Mellon (BNY), Intuitive Surgical (ISRG), Microsoft (MSFT), PayPal (PYPL), Skyworks (SWKS), Travelers Cos (TRV)
• Friday: eBay (EBAY), Honeywell (HON), VF Corp (VFC)

Economic Data:

• Tuesday: Retail sales, Import price index, Industrial Production, Capacity Utilization, Business inventories, NAHB home builders index
• Wednesday: Housing starts, Building permits, Beige Book
• Thursday: Weekly jobless claims, Philly Fed, Leading economic indicators
• Friday: Consumer sentiment