Stimulus Gridlock Puts a Damper on Earnings Season

Job claims are rising, while GDP is at a record low

Digital Content Manager
Jul 31, 2020 at 1:30 PM
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More earnings data, the next round of coronavirus stimulus, and the Fed's interest rate decision highlighted the last week of July. All major benchmarks started the week in the black, boosted by Big Tech and various quarterly beats on Monday. Investor sentiment was not as optimistic on Tuesday, after Senate majority leader Mitch McConnell unveiled the Senate's proposed HEALS Act, kicking off unsuccessful negotiations on additional COVID-19 relief. 

Mid week, the Federal Reserve fulfilled the expectation that federal interest rates would remain unchanged, near zero. Meanwhile, investors tuned in to testimonies from top chief executives in technology, as they answered to a year-long anti-practice probe. Towards the end of the week, the country's gross domestic product (GDP) showed a record drop, while jobless claims rose for a second week. The lack of progress in a second stimulus package also weighed on the market, as did U.S. President Donald Trump's suggestion to delay the presidential election. By Friday morning, earnings from several FAANG names and other tech giants weren't enough to ease tensions over the relief gridlock, with lingering COVID-19 anxieties sending the Dow toward a weekly loss. The S&P 500 and the Nasdaq though, were on their way to weekly wins.

A Busy Week for Technology Stocks

The technology sector was front and center over the past week. Universal Display (OLED) rose after it earned an upgrade to "outperform" from "market perform" from Oppenheimer, which was attributed to the semiconductor stock's ability to beat expectations. That same day, Zoom Communications (ZM) was also higher, with shares pulling back to a historical area of support that could soon serve as additional tailwinds. By Tuesday, Intel (INTC) was down, after it announced its chief engineering officer would be stepping down on August 3. And on Thursday, Qualcomm (QCOM) was considerably higher following the company's fiscal third-quarter beat, which helped the security walk away with no fewer than 12 price-target hikes.

Lastly on Friday, Alphabet (GOOGL) also earned its fair share of price-target hikes, after it reported second-quarter profits and revenue that were higher than expected. Meanwhile, Apple (AAPL) surged even higher, entering the earnings confessional to beat revenue and earnings estimates, with gains in every product category as consumers and students move to remote work and learning.

Food Stocks Struggle to Shake Off Pessimism

It was a mostly dismal week for food stocks. On Monday, McDonald's (MCD) moved lower after it reported earnings that were lower than Wall Street's estimates, marking the fast food chain's second quarterly miss in the last 12 months. Meanwhile, Starbucks (SBUX) was higher  after the coffee giant reported a smaller-than-expected third-quarter loss, as stores reopen around the world. Meanwhile, Kraft Heinz (KHC) was sinking after the company took a writedown charge on several businesses worth $3 billion. On Thursday, Yum! Brands (YUM) was also sliding, despite an encouraging second-quarter earnings thanks to increased demand during the pandemic. 

More Earnings, Jobless Claims Define Upcoming Week

The first week of August will be even busier in terms of earnings reports, with high-profile names like Square (SQ), Uber (UBER), Roku (ROKU), and Walt Disney (DIS) lined up to enter the earnings confessional. As for economic data, all eyes will be on what has become an important indicator of how the pandemic has progressed -- initial and continuous jobless claims. Until then, you can prepare for the next time the S&P 500 loses steam, and find out which index levels to watch closely amid historic optimism. 

 

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