The market’s age-old nemesis, tension with China, threatens to derail what started out as a pretty decent week. Earnings take center stage later on.
The U.S. ordered China’s consulate in Houston shut “to protect American intellectual property.” China threatened to respond. It’s unclear if this potential tit-for-tat threatens the trade deal Beijing and Washington signed early this year, so stay tuned. In fact, it wouldn’t be too surprising if this relationship has more bumps in the road as the U.S. election approaches.
Today is kind of back-loaded, meaning much of the big news won’t drop until after the close. Tesla Motors Inc /zigman2/quotes/203558040/composite TSLA +3.96% and Microsoft Corporation /zigman2/quotes/207732364/composite MSFT +1.10% earnings following the bell both loom large and could have a lot to say about where things go the rest of the week. Many eyes will be on TSLA and MSFT, but especially on TSLA considering the run it’s had.
Eyes are also on crude, which is lower this morning after hitting four-month highs yesterday. A private industry report showed stockpiles climbing much more than expected last week, bringing some pressure. The official weekly U.S. stockpiles number comes out later this morning and might be worth a look, because rising stockpiles could suggest softer demand. U.S. crude was recently down 1.5%.
The Netflix Inc /zigman2/quotes/202353025/composite NFLX +0.32% earnings disappointment last week might have left a sour taste in some mouths. With such an amazing influx of investment in the FAANGs and mega-cap Techs so far this year, traders and investors might be wondering whether these prices are sustainable, and whether guidance from these firms will look as rosy as people hope.
TSLA shares have had a bumper few weeks after erasing all their coronavirus-spurred losses. But there’s been such a high-voltage jolt to the upside that heading into earnings you kind of wonder if the momentum can continue. That’s a little less the case for MSFT, though that stock’s also had a pretty amazing ride lately.
Looking back at yesterday, it wasn’t too surprising to see MSFT, TSLA, semiconductor firms, the FAANGs, and Tech in general cool down a bit. As we noted in Tuesday’s column, a little profit taking after Monday’s huge Nasdaq rally looked like a possibility going in. Plus, so many earnings reports are coming out in this sector that people might be hedging a bit.
After a little softness yesterday, one question is whether the Tech sector can regain some of its Monday mojo. A firm earnings report late Tuesday from Texas Instruments Incorporated /zigman2/quotes/202237907/composite TXN -0.31% suggests a rebound is possible, though the stock didn’t exactly go gangbusters in pre-market trading.
TXN had a solid quarter as far as beating Wall Street’s projections. Even more important, maybe, was its strong guidance, which also came in ahead of analysts’ expectations. It wouldn’t be surprising to see the semiconductor sub-sector of Tech get some traction from this.
Another thing to consider watching today is whether Energy can build on Tuesday’s impressive performance. The 6% sector leap was fueled in part by European stimulus that raised hopes for economic gains there that could potentially raise crude demand. Another factor was Chevron Corporation /zigman2/quotes/205871374/composite CVX -0.88% getting a 7% boost after announcing a $5 billion purchase of Noble Energy, Inc /zigman2/quotes/210375673/composite NBL -0.94% , a move some investors hope can cut costs.
Energy remains the worst-performing sector over the last month and year-to-date. There’s no reason to necessarily think this trend can change on a dime after one strong day. For these stocks to really turn up the dial, we’d probably need to see crude prices way above their current levels. A little strength in Treasury yields and signs of a U.S. fiscal stimulus package coming together quickly wouldn’t hurt either, necessarily. Some analysts say the late selloff Tuesday reflected concerns a stimulus here might take longer to come together.
If you’re a sector watcher, it does seem positive that Materials and Industrials are two of the leaders over the last week, outpacing Information Technology. It might be a good idea to keep monitoring that in the coming days as a bunch of big Tech and Communication Services companies are due up at the reporting table and might start hogging the headlines.
One thing to consider is that the Cboe Volatility Index (VIX) posted a 1.5% gain Tuesday despite the S&P 500 Index finishing in the green. Lately, this combination has sometimes signaled selling ahead. However, past isn’t necessarily precedent.
Looking across the Pacific, China’s stock market has settled down a little after last week’s spike, but remains pretty elevated compared with where it was, say, a month ago. It could conceivably continue being an influence on U.S. stocks, so consider keeping an eye on things over there.
If there’s any pattern at all lately, it’s investors seeking positive news and embracing it. That’s basically the opposite of what we usually see in the market, where rallies often climb a wall of worry. Yesterday, for example, some of the department and sporting goods stores, which many investors left for dead in the first weeks of the pandemic, gained ground on a random piece of good news. Foot Locker, Inc /zigman2/quotes/204092533/composite FL +0.09% , Kohl’s Corporation /zigman2/quotes/210414114/composite KSS -0.88% , Dicks Sporting Goods Inc /zigman2/quotes/200566298/composite DKS +2.36% and Nordstrom, Inc /zigman2/quotes/203902116/composite JWN -0.74% scored big advances.
The happy tidings came from Hibbett Sports (HIBB), which forecast 70% same-store sales growth based on pent-up demand and stimulus checks, according to MarketWatch. Shares of that company initially rallied 18% on the news and then settled for a 13% daily gain.