Big Tech Survives the Week Pushing Major Indexes Higher

August 3, 2020

Major indices pushed higher last week on the back of positive earnings from tech titans – Amazon, Apple and Facebook. Despite contentious anti-trust hearings Wednesday on Capitol Hill, the mega-tech companies came through earnings relatively unscathed even with high expectations coming in.

On the week, the S&P 500 increased 1.75% while the DJIA slipped 0.15%. Small companies represented by the Russell 2000 increased 0.89%. International markets were volatile with developed markets giving back 2.12% and emerging markets increasing 1.77%. The yield on the on the 10yr US Treasury declined to 0.55%. Gold prices continued to advance closing at $1965/oz. marking a 3.3% advance on the week. Oil (WTI) pulled back to $40.25 per barrel.

U.S. economic data varied last week. Manufactured durable goods orders increased 7.3% in June, beating expectations. The Bureau of Economic Analysis reported that the economy contracted a “post-depression” record 32.9% in the 2nd quarter which was actually better-than-feared. Analyst expectations were for a 34.5% contraction. The economy likely bottomed out at the end of April/beginning of May so expectations are for a record advance in GDP in the 3rd quarter. Consumer spending increased 5.6% in June, outpacing expectations for a 5.2% increase. On the negative side, jobless claims increased for the second week in a row while personal income declined 1.1% in June. There will be reports released this week on manufacturing and services PMIs and July U.S. employment.

Earnings continue to come in well ahead of expectations. 83.9% of companies have reported a positive EPS surprise. Earnings growth is down roughly 33.4% year over year vs expectations of an overall decline of 37.7%. Revenues have declined 9% year over year versus expectations of a 10.5% decline. Earnings season will continue this week with CVS and Disney among those scheduled to report.

We anticipate markets taking a breather here. With earnings season more than half way over, investor attention will begin turning to COVID-19 response and the upcoming election. We are sticking close to our investment policy targets and selectively adding to dividend growth opportunities where prudent.

“If all economists were laid end to end, they’d never reach a conclusion.” – George Bernard Shaw