Daily morning brief chai
Wall Street capped a choppy day of trading Wednesday with more gains for stocks as investors sized up a mix of company earnings reports and another flare-up in tensions between Washington and Beijing.
The S&P 500 rose 0.6%, its fourth gain in a row, after wavering between gains and losses for much of the afternoon. Strength in technology and health care stocks outweighed losses in energy companies, banks and elsewhere in the market. Treasury yields fell slightly, a sign of caution in the market.
“It’s a relatively muted day in terms of volatility,” said Bill Northey, senior investment director at U.S. Bank Wealth Management. “Having come off a furious rally off the March 23 lows, the market is clearly in a period of consolidation and assessing second-quarter earnings results.”
The S&P 500 gained 18.72 points to 3,276.02. The benchmark index is now within 3.3% of the all-time high it set in February. The Dow Jones Industrial Average rose 165.44 points, or 0.6%, to 27,005.84.
The Nasdaq recovered from an early dip to add 25.76 points, or 0.2%, to 10,706.13. The Russell 2000 index of small company stocks picked up 2.63 points, or 0.2%, to 1,490.14. Indexes in Europe fell. Asia ended mixed.
Homebuilders marched broadly higher after the National Association of Realtors said sales of previously occupied U.S. homes climbed last month by a robust 20.7%. The gain is an encouraging sign for the housing market after the pandemic caused sales to plummet in the prior three months.
Despite the sharp monthly increase, purchases are still down 11.3% from a year ago, when homes had sold at an annual pace of 5.32 million. Builder NVR led the sector, surging 10.7%.
United Airlines slid 4.2% after reporting that its revenue plunged 87% in the second quarter as the coronavirus throttled air travel. Pfizer rose 5.1% after the U.S. government signed a contract with the company to deliver the first 100 million doses of a COVID-19 vaccine it’s developing by December.
For anyone who believed that the race to find a vaccine for the COVID-19 coronavirus was just a matter of public safety, it turns out there are serious consequences for the first-movers as well. Just announced, the US government has agreed to buy 100 million doses of Pfizer (NYSE: PFE) and BioNTech's (NASDAQ: BNTX) coronavirus vaccine.
A Multi-Billion-Dollar Feather in Their Cap
Pfizer and BioNTech's effort to develop a vaccine has been among the first to produce results, with Moderna (NASDAQ: MRNA) and AstraZeneca (LON: AZN) among those still closing the gap. With its efforts proving successful so far—the companies have taken their vaccine to Phase 2b/3 testing, set to begin within the next week or so at last report—the rewards of victory here will be dazzling.
The US government will purchase 100 million doses from Pfizer once the vaccine successfully concludes its human testing, and that's a deal valued at $1.95 billion. It's a safe bet that Pfizer and BioNTech will find ready customers waiting after that order is filled, and that's further good news for Pfizer, as reports suggest the original purchase order also contains an option for 500 million doses further. American citizens are slated to receive the vaccine at no charge.
Tesla is up another 5.3% to $1,677 in premarket trade after posting its fourth consecutive quarter of profit, opening the door for the company's inclusion in the S&P 500. Adjusted for one-time items, Tesla (NASDAQ:TSLA) earned $2.18 a share, swinging from an adjusted loss of $1.12 a share a year ago, while sales fell 5% to $6.04B. On the earnings call, Elon Musk announced that Tesla will build its next "massive" factory near Austin, Texas, which will produce the Cybertruck, a pickup truck and the Tesla Semi, as well as the Model 3 and Y for the East Coast. He also talked up the development of the autonomous driving program, promising more developments by the end of 2020.
Traders also had their eye Wednesday on a flare-up in tensions between Washington and Beijing. The U.S. ordered China to close its consulate in Houston, saying it was necessary to protect American intellectual property. China said it would retaliate.
U.S.-China trade relations will probably start to factor back into the market somewhat, but the virus and its impact remain the main driver of where the markets go, said Liz Ann Sonders, chief investment strategist at Charles Schwab.
“A lot of what we’re looking for rests on whether consumption can stay afloat,” she said. “Even absent additional shutdowns, what are the implications of the fear factor, of consumers just opting to not go out as much?”
The Federal Reserve’s efforts to support markets and expectations that Washington eventually will deliver more financial aid to help Americans weather the economic downturn have been key in keeping markets mostly pushing higher since stocks plunged in March.
Still, worries remain that the rise of coronavirus counts across much of the country will derail efforts to reopen businesses shut down due to the pandemic.
Adding to unease Wednesday was a report by the U.S. Centers for Disease Control that the number of coronavirus cases in some states is much higher than has been reported. Experts have said all along that the toll from the COVID-19 pandemic is much higher than tallies of confirmed cases would indicate, due to issues with testing and data collection.
Uncertainty over prospects for more financial aid to Americans and U.S. businesses also is casting a shadow, analysts said. Republicans and Democrats remain divided over how much support is needed, as states grapple with rebounds in cases that have prompted some local governments to order some businesses to close to help snuff out flare-ups of the virus.
“The market is anticipating that there will be something, what the final (package) looks like is a different question,” Northey said. “Ultimately, we expect some agreement that provides another round of stimulus support.”
Investors continued to weigh company earnings reports Wednesday. So far, earnings have been coming in moderately better than expected, though companies have worked to lower expectations.
HCA Healthcare jumped 12%, the biggest gain in the S&P 500, after reporting earnings and revenue that topped analysts' forecasts. Tesla's latest quarterly results also exceeded Wall Street's expectations. After the market closed, the electric car maker reported a surprise $104 million net profit for the second quarter. That gives Tesla its fourth-straight positive quarter, a prerequisite for admission into the S&P 500 index.
Among big companies reporting results this week: Intel, AT&T and Twitter report on Thursday and Verizon Communications and American Express report earnings Friday.
The yield on the 10-year Treasury note fell to 0.59% from 0.60%.
Gold for August delivery rose $21.20 to $1,865.10 an ounce, another sign that investors were shifting some of their holdings to traditionally less risky assets.
The price of benchmark U.S oil for September delivery fell 6 cents to settle at $41.90 a barrel Wednesday. Brent crude oil for September delivery fell 3 cents to $44.29 a barrel.
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Shaking off a stellar quarter
Despite fiscal Q4 results that were largely positive, shares of Microsoft (NASDAQ:MSFT) fell as much as 3% in AH trading on Wednesday. The software giant easily beat analyst estimates, reporting a net profit of $11.2B and revenue that rose 13% to $38B. Traders may have been looking for more. The company's cloud computing operation saw sales growth under 50% for the first time, while transactional license purchasing continued to slow and subsidiary LinkedIn was negatively impacted by the weak job market.
Traders are barely digesting the high-profile results from Tesla (TSLA) and Microsoft (MSFT) before the next round of earnings make headlines. Dow and S&P 500 futures are ahead by 0.4%, while the Nasdaq advanced 0.9%, ahead of figures from Twitter (NYSE:TWTR), AT&T (NYSE:T) and Intel (NASDAQ:INTC), as well as American (NASDAQ:AAL) and Southwest Airlines (NYSE:LUV). Weekly jobless claims are also on the radar. Another 1.3M American workers are expected to have filed for first-time benefits during the week ended July 18, bringing that total to 52.58M since coronavirus lockdowns began in mid-March.
Next coronavirus aid package
Senate Republicans have "reached a fundamental agreement" with White House negotiators Steven Mnuchin and Mark Meadows on how to move forward with the next coronavirus relief bill. What's in the proposal? Another round of direct stimulus payments, $16B for coronavirus testing, $105B for K-12 education, colleges and universities, though there was no agreement on a payroll tax cut. The plan, set to be unveiled today, will serve as a starting point for negotiations with Democrats, who have passed a $3.4T bill in the House. Lawmakers are also racing to reach a deal on the $600 weekly supplement to unemployment benefits that's due to expire on July 31.
Looser regulation
With the coronavirus pandemic weighing heavily on Europe's economy, the EU is now arguing that softer rules on the finance industry are needed to help the recovery. The bloc is planning to loosen a key plank of MiFID II that forces investors to pay banks and brokerages for research separately from their trading fees. The proposal also trims investor protection rules like record keeping and disclosure requirements primarily focused on professional investors. Over in the U.S., the SEC has proposed raising the Form 13F reporting threshold and voted to regulate proxy advisers more closely, while a new U.S. derivatives rule is set to complete Dodd-Frank.
Buffett makes moves
Warren Buffett scooped up 34M shares of Bank of America (NYSE:BAC) over the last few days - at an average price of about $24 - taking his stake in the banking giant to over 11% (from about 7.4%). Big discount? The Oracle spent the $816M after BAC shares plunged nearly 32% since the beginning of the year. Buffett has been criticized in recent weeks over failing to deploy Berkshire Hathaway's (BRK.A, BRK.B) enormous cash hoard, which climbed to $137B in Q1. BAC +1.6% premarket.
Foray into auto insurance
There was big news from India overnight as Amazon Pay (NASDAQ:AMZN) partnered with private firm Acko General Insurance to offer car and motorcycle insurance. It's the e-commerce giant's first market for the service, where it will compete with local rivals including Paytm and Policybazaar. Amazon is moving fast to become a full-fledged financial services platform, with Amazon Pay supporting a range of payments services, including the popular UPI, and debit and credit cards. Meanwhile, India's Flipkart (FPKT) announced it would acquire parent Walmart's (NYSE:WMT) local cash-and-carry business, attempting to strengthen its wholesale offering to compete better with Amazon.
Twitter security in question
The hackers who took over prominent accounts on Twitter (TWTR) last week were able to access direct messages. "We believe that for up to 36 of the 130 targeted accounts, the attackers accessed the DM inbox, including 1 elected official in the Netherlands," the company said in its latest update. While many of the high-profile hacked accounts tweeted a scam asking for bitcoin, an analysis of transactions showed that the scheme only collected $121,000. Direct messages, however, could be used or publicized by hackers at a later point in the future.
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| Today's Markets
In Asia, Japan closed. Hong Kong +0.8%. China -0.2%. India +0.7%.
Today's Economic CalendarIn Europe, at midday, London +0.6%. Paris +0.4%. Frankfurt +0.5%. Futures at 6:20, Dow +0.4%. S&P +0.4%. Nasdaq +0.9%. Crude +0.1% to $4194. Gold +0.8% to $1880.20. Bitcoin -0.2% to $9508. Ten-year Treasury Yield flat at 0.59%
8:30 Initial Jobless Claims
10:00 Leading Indicators 10:30 EIA Natural Gas Inventory 11:00 Kansas City Fed Mfg Survey 4:30 PM Money Supply Today earnings "
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