Another volatile week may be in store for traders as coronavirus cases rise in the U.S. and Europe while Democrats and Republicans remain at an impasse over new fiscal aid.
The Dow Jones Industrial Average and S&P 500 fell for three straight days this week. That slide was the longest losing streak for the averages since mid-September. The two market benchmarks eked out slight gains on Friday to snap their losing streak.
Investors and traders expect this choppy trading action to continue, especially as the worsening coronavirus data and a lack of U.S. coronavirus stimulus draw attention away from a strong earnings season thus far.
“The combination of no stimulus, fading economic momentum, and the threat of rising coronavirus cases, creates a rather negative dynamic for risk assets right now,” said Tom Essaye, founder of The Sevens Report, in a note to clients.
The seven-day average of new daily coronavirus infections has risen in 39 states, including New York, New Jersey and Wisconsin, according to a CNBC analysis of data from Johns Hopkins University and the U.S. Census Bureau. At the nationwide level, the rate of new daily cases is at its highest level since August.
In Europe, the seven-day average of new Covid-19 cases has surpassed that of the U.S., leading several countries in the region to reinstate tougher social distancing rules and roll back previous reopening measures.
“What this means is economic activity may slow down a bit, and we’ve already started to see some of that in the data,” said Art Hogan, chief market strategist at National Securities, noting the weekly jobless claims numbers released Thursday show they’ve reached a point where “they’re not going to get better; they’re going to get worse.”
The Labor Department said initial U.S. jobless claims hit their highest level since August, reaching 898,000 in the week ending Oct. 10.
Investors will also keep their eyes on Washington during the week ahead as lawmakers continue to struggle over new U.S. fiscal stimulus.
Political posturing on stimulus ‘hurting’ those in need
This week, President Donald Trump said he would raise his offer for a coronavirus aid above the current level of $1.8 trillion. The White House’s current offer is smaller than a $2.2 trillion package passed by the House. House Speaker Nancy Pelosi, D-Calif., has said the administration’s proposal “falls significantly short” of what is needed.
This back and forth between the two parties has dwindled expectations among market participants of a compromise being reached before the Nov. 3 election. It has also added to the concerns surrounding the U.S. economic recovery.
“This political posturing is hurting that cohort of the economy that needs help the most,” said Quincy Krosby, chief market strategist at Prudential Financial. “To the small and mid-size business owner, the airlines, this is not just about politics; this is every day life. There going to be an impact in the real economy if we don’t see something now.”
Earnings season ignored?
Those talks over further stimulus are also expected to divert attention away from the corporate earnings season, which began this week but had next to no impact on the broader market.
Procter & Gamble, Netflix, Travelers, American Airlines and American Express are among the companies slated to report next week.
JPMorgan Chase, Goldman Sachs and VF Corp. are among the 49 S&P 500 companies that posted their latest quarterly results this week. Of those 49 companies, 86% reported better-than-expected earnings, according to data from The Earnings Scout.
“I wish I could say that next week we’re going to put aside the politics and the Covid concerns behind us, but we won’t trade this earnings season,” said Hogan of National Securities. “While it will likely be a record-breaking season for companies beating estimates, it’s also going to be one that is largely ignored because there’re so many other macro factors that are more important.”
There is also some important housing data in the week ahead, including home builders’ sentiment Monday, housing starts Tuesday, and existing home sales Thursday.
“The housing market is still off to the races,” said Mark Zandi, chief economist at Moody’s Analytics. “The mortgage applications were strong, suggesting very strong activity in the month of September.”
Zandi said the market will eventually cool when interest rates begin to rise. But for now, “certainly the economy could use the juice.”
5 Charts We Are Watching
There are many charts that caught our attention this week, and today we share the top 5 charts we’re watching.
The S&P 500 Index recently had a four-week losing streak and fell nearly 10% along the way, while the Nasdaq and many large cap tech stocks fell even more. Then in a big move higher over the past two weeks, many stocks moved from oversold to overbought in a very quick timeframe.
As the LPL Chart of the Day shows, more than 90% of the components in the S&P 500 were beneath their 10-day moving average on September 24 and within two weeks saw more than 90% above this short-term trend line. This type of buying thrust is consistent with future strong returns, suggests quick reversals from oversold to overbought are a good thing, and could bode well for stocks to outperform bonds well into 2021.
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Parts of the economy are opening back up, while employment continues to disappoint. One specific area that continues to improve is how many people are flying, as the seven-day average number of travelers going through Transportation Security Administration (TSA) checkpoints hit a new recovery high. We discuss other high-frequency data points in our COVID Surge Stalling Europe’s Recovery blog.
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We’ve noted before that stock market gains ahead of the election historically support the incumbent party, while if stocks are lower it tends to support new leadership in the White House. Taking this further, the US dollar also tends to send signals for who might win. In fact, when stocks are up and the US dollar is lower ahead of the election, or if stocks are lower and the US dollar is higher before an election, the results have accurately predicted the last seven times those scenarios took place. Given stocks are up and the US dollar is slightly lower, this could be one clue the upcoming election will be much closer than many are expecting.
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Sticking with the election, many investors are worried about higher taxes and more deregulation if former Vice President Joe Biden wins. “Higher taxes may be one part of it, but Biden is also looking at huge spending initiatives,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Stock markets like spending, and this could more than help offset potentially higher taxes.” Lower tariffs could potentially provide another offset as well.
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Last, Friday’s retail sales report came in better than expected, marking five consecutive months of year-over-year gains. It is worth noting the economy has never been in a recession after 4 or more consecutive monthly gains. Still, in the face of one of the most severe recessions ever, it took only a few months for sales to get back to new highs, as shown below. Historically, new highs in retail sales happen in expansions—and this is yet another clue the recession is likely over.
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Record Surge In Business Formations As Economy Recovers From COVID
Yesterday the Census updated business formation stats for Q3, and as indicated by high-frequency data from the Atlanta Fed, business formation exploded in Q3. As shown in the first chart below, total business applications rocketed upwards by 1.57 million, a record increase. Stripping out businesses that are unlikely to result in hiring, the numbers are much smaller in absolute terms but still rose 79% to a record pace. Finally, applications for businesses with planned wages surged 70% from a record low in Q2, to the highest levels since 2008.
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In all three instances, the recent behavior is a complete reversal of the post-Financial Crisis period, when the prolonged recession led to a huge decline in business starts. That’s a good sign for the breadth of the economic rebound, as business formation tends to lead to higher productivity thanks to more innovation and investment. Below we show changes in total business applications by state; Michigan, Illinois, and Georgia are the biggest winners, with applications more than doubling. This analysis was originally published in our evening report -- The Closer -- on 10/14/20.
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B.I.G. Tips - Retail Sales Rebound
After a disappointment last month, Retail Sales saw a nice rebound in September as consumers seem undeterred from spending despite the expiration of extended UI benefits and the lack of an additional stimulus bill. For the month of September, headline Retail Sales rose 1.9% m/m versus expectations for a more modest increase of 0.8%. Ex Autos and Gas, growth was even better relative to expectations, although August’s already slower than expected growth was revised modestly lower.
Breadth in this month’s report was strong. Of the thirteen sectors that comprise the total pie, all but one of them (Electronics and Appliances) showed growth. Normally, when a sector shows m/m growth of a percent or two, it’s impressive. This month, though, the volatility of the pandemic remains in place as two sectors showed growth of over 5%, including Clothing which saw double-digit growth relative to August!
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While the monthly pace of retail sales is back at all-time highs, the characteristics behind the total level of sales have changed markedly in the post COVID world. In our just-released B.I.G. Tips report, we looked at these changing dynamics to highlight the groups that have been the biggest winners and losers from the shifts.
University of Michigan Mixed Again
The University of Michigan reported preliminary consumer sentiment numbers for October. University of Michigan data has shown a much smaller bounce than other sentiment surveys, but the preliminary numbers for October did increase versus September. The strongest part of the survey was expectations, which has risen three months in a row to the highest levels since March. Consumers' current assessment of the economy fell sequentially and is sitting at about the same place it was back in early 2012.
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One feature of the University of Michigan poll with incomplete data prior to 2016 but more complete data since is a breakout of economic sentiment by political party affiliation. As shown below, their data shows Republicans getting a massive sentiment boost in the wake of the 2016 election. The key here though, is that the boost to the sentiment of Republicans and the decline for Democrats came after the election as this data is definitely lagging to political outcomes rather than leading.
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Small Business Smiles
Sentiment among small businesses continued to improve in the month of September according to the NFIB's monthly Small Business Optimism Index. As shown below, the index rose 3.8 points to 104 which is now just half of a point below the levels prior to the pandemic in February. That was also better than expectations of a smaller improvement to 101.2. Small business sentiment has now risen in four of the past five months.
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In the table below, we break down this month's report by each of the ten components of the headline number as well as the many other indices included in the report such as those not used as inputs to the headline number and what small businesses are reporting to be their biggest problems.
Across all indices of the September report, breadth was solid with only a couple of indices falling month over month—Expected Credit Conditions and Credit Conditions Availability. Some of those that were higher saw record or near-record month-over-month increases.
Some of the most notable indices this month included those regarding inventories. The Current Inventories index which gauges the net percent of owners viewing current inventory levels as too low rose 2 points to a record high reading of 5. Given this, the index for Plans to Increase Inventories is tied with the reading from November of 2004 for a record high of 11. Indicating low inventory levels, the report is consistent with some other recent data like the regional Fed manufacturing surveys. Those low inventories are resulting in higher prices as that index's 12-point increase in September marked the biggest one month gain on record. While the Higher Prices index is not at any sort of an extreme, September's move indicates that a rising number of businesses are raising prices.
Additionally, those higher prices and lower inventory numbers appear to be a result of demand that continues to rapidly improve. The indices for Actual Sales and Actual Earnings Changes remain negative for a sixth and tenth month in a row, respectively, meaning a net number of businesses continue to see lower rather than higher top and bottom-line numbers. But these indices are seeing big moves higher. For the index of Actual Earnings Changes, the 13-point climb in September was the largest on record and the 9-point increase for Actual Sales Changes followed a 13-point increase in August; both being some of the largest one-month moves on record. In order to meet the needs of this demand, a higher number of businesses plan to increase employment with that index rising to 28; the highest level since December of 2018. Even though businesses seek to hire more, they also report it is hard to fill positions as the index of Job Openings Hard to Fill rose to the top 5% of all readings. Cost and quality of labor also were reported as two of the most pressing problems for businesses.
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Small Businesses Cautiously Optimistic
In an earlier post, we highlighted the details of the September NFIB Small Business Optimism report. The report showed overall sentiment among small businesses has continued to improve as demand has bounced back (though it has not yet fully recovered as still more businesses report lower sales and earnings on a net basis) leading to low inventory levels, higher prices, and a need for more employment. While generally improved conditions have lifted optimism, that is not to say small businesses have given an all-clear. The Uncertainty Index from NFIB has risen each of the past three months with September's 2-point increase bringing it back to the same level as March of this year. In other words, it is perhaps best to say that small businesses are cautiously optimistic.
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From the pandemic to the Election, there are plenty of reasons for businesses to be uncertain. As for what they are reporting to be the biggest problems, labor remains at the top. 30% of businesses have reported that either cost (9%) or more predominately quality (21%) of labor are their biggest issues. While off the highs from the past few years, the current readings are still historically elevated.
Behind labor, government related problems also are largely on the minds of business owners. Government red tape and taxes combine to account for 29% of businesses' biggest problems. While that is a large share, neither of those indices are at any sort of extreme.
Poor sales, on the other hand, remains as the third major concern for businesses. 12% of businesses reported poor sales as the single most important issue in September, down from 15% in August and 7-percentage points lower than the April peak. While improved, the number of businesses seeing demand as a major issue is still at some of the highest levels of the past several years.
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Sentiment By State
Below is a look at the year-to-date reading for the high-frequency Morning Consult daily consumer sentiment indicator. While still well off highs seen prior to the COVID Crash in late February and early March, sentiment has generally been ticking higher off the lows. You'll notice in the chart below, however, that while the "Future Expectations" reading is still bouncing back nicely, the "Current Conditions" reading has been going more sideways over the last couple of months.
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We can also look closer into state level readings from the daily Morning Consult sentiment numbers. In the heat map below, we show the changes in the levels of consumer sentiment for each state since mid-February. As shown, the lower 48 have seen much larger improvements than Alaska or Hawaii with the largest improvements coming in the Northeast and parts of the Midwest. On the other hand, in addition to Hawaii and Alaska, some of the key swing states like Maine, New Hampshire, and Nevada have improved the least. Of all 50 states, Vermont's current reading on sentiment is the closest to its February levels, but even Vermont is still down 17.9 points.
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Monday 10.19.20 Before Market Open:
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Monday 10.19.20 After Market Close:
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Tuesday 10.20.20 Before Market Open:
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Tuesday 10.20.20 After Market Close:
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Wednesday 10.21.20 Before Market Open:
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Wednesday 10.21.20 After Market Close:
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Thursday 10.22.20 Before Market Open:
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Thursday 10.22.20 After Market Close:
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Friday 10.23.20 Before Market Open:
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Friday 10.23.20 After Market Close:
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Tesla, Inc. $439.67
Tesla, Inc. (TSLA) is confirmed to report earnings at approximately 4:25 PM ET on Wednesday, October 21, 2020. The consensus earnings estimate is $0.56 per share on revenue of $8.20 billion and the Earnings Whisper ® number is $0.82 per share. Investor sentiment going into the company's earnings release has 70% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 68.36% with revenue increasing by 30.10%. Short interest has increased by 309.2% since the company's last earnings release while the stock has drifted lower by 73.8% from its open following the earnings release to be 93.2% above its 200 day moving average of $227.62. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, October 14, 2020 there was some notable buying of 24,439 contracts of the $500.00 call expiring on Friday, October 23, 2020. Option traders are pricing in a 10.9% move on earnings and the stock has averaged a 8.9% move in recent quarters.
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Netflix, Inc. $530.79
Netflix, Inc. (NFLX) is confirmed to report earnings at approximately 4:00 PM ET on Tuesday, October 20, 2020. The consensus earnings estimate is $2.12 per share on revenue of $6.38 billion and the Earnings Whisper ® number is $2.19 per share. Investor sentiment going into the company's earnings release has 67% expecting an earnings beat The company's guidance was for earnings of approximately $2.09 per share. Consensus estimates are for year-over-year earnings growth of 44.22% with revenue increasing by 21.64%. Short interest has decreased by 14.3% since the company's last earnings release while the stock has drifted higher by 7.3% from its open following the earnings release to be 23.1% above its 200 day moving average of $431.11. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, October 16, 2020 there was some notable buying of 5,864 contracts of the $550.00 call expiring on Friday, October 23, 2020. Option traders are pricing in a 10.1% move on earnings and the stock has averaged a 4.5% move in recent quarters.
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Procter & Gamble Co. $144.39
Procter & Gamble Co. (PG) is confirmed to report earnings at approximately 7:00 AM ET on Tuesday, October 20, 2020. The consensus earnings estimate is $1.43 per share on revenue of $18.21 billion and the Earnings Whisper ® number is $1.49 per share. Investor sentiment going into the company's earnings release has 68% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 4.38% with revenue increasing by 2.31%. Short interest has decreased by 17.9% since the company's last earnings release while the stock has drifted higher by 10.5% from its open following the earnings release to be 16.7% above its 200 day moving average of $123.73. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, September 25, 2020 there was some notable buying of 1,880 contracts of the $140.00 call expiring on Friday, December 18, 2020. Option traders are pricing in a 3.3% move on earnings and the stock has averaged a 2.5% move in recent quarters.
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Intel Corp. $54.16
Intel Corp. (INTC) is confirmed to report earnings at approximately 4:00 PM ET on Thursday, October 22, 2020. The consensus earnings estimate is $1.10 per share on revenue of $18.21 billion and the Earnings Whisper ® number is $1.19 per share. Investor sentiment going into the company's earnings release has 64% expecting an earnings beat The company's guidance was for earnings of approximately $1.10 per share. Consensus estimates are for earnings to decline year-over-year by 22.54% with revenue decreasing by 5.11%. Short interest has increased by 251.8% since the company's last earnings release while the stock has drifted higher by 3.9% from its open following the earnings release to be 4.2% below its 200 day moving average of $56.53. Overall earnings estimates have been revised lower since the company's last earnings release. On Tuesday, October 13, 2020 there was some notable buying of 10,216 contracts of the $60.00 call expiring on Friday, November 20, 2020. Option traders are pricing in a 6.4% move on earnings and the stock has averaged a 7.2% move in recent quarters.
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Lockheed Martin Corp. $386.50
Lockheed Martin Corp. (LMT) is confirmed to report earnings at approximately 7:30 AM ET on Tuesday, October 20, 2020. The consensus earnings estimate is $6.07 per share on revenue of $16.24 billion and the Earnings Whisper ® number is $6.30 per share. Investor sentiment going into the company's earnings release has 66% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 7.24% with revenue increasing by 7.05%. Short interest has increased by 4.0% since the company's last earnings release while the stock has drifted higher by 2.2% from its open following the earnings release to be 1.1% above its 200 day moving average of $382.22. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, October 16, 2020 there was some notable buying of 924 contracts of the $140.00 put expiring on Friday, January 21, 2022. Option traders are pricing in a 4.2% move on earnings and the stock has averaged a 2.0% move in recent quarters.
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Abbott $109.67
Abbott (ABT) is confirmed to report earnings at approximately 7:30 AM ET on Wednesday, October 21, 2020. The consensus earnings estimate is $0.90 per share on revenue of $8.43 billion and the Earnings Whisper ® number is $1.01 per share. Investor sentiment going into the company's earnings release has 68% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 7.14% with revenue increasing by 4.38%. Short interest has decreased by 13.4% since the company's last earnings release while the stock has drifted higher by 12.1% from its open following the earnings release to be 18.6% above its 200 day moving average of $92.46. Overall earnings estimates have been revised higher since the company's last earnings release. On Tuesday, October 13, 2020 there was some notable buying of 4,200 contracts of the $55.00 call expiring on Friday, January 15, 2021. Option traders are pricing in a 4.9% move on earnings and the stock has averaged a 2.7% move in recent quarters.
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Coca-Cola Company $50.03
Coca-Cola Company (KO) is confirmed to report earnings at approximately 6:55 AM ET on Thursday, October 22, 2020. The consensus earnings estimate is $0.45 per share on revenue of $8.35 billion and the Earnings Whisper ® number is $0.48 per share. Investor sentiment going into the company's earnings release has 55% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 19.64% with revenue decreasing by 12.17%. Short interest has decreased by 19.7% since the company's last earnings release while the stock has drifted higher by 5.3% from its open following the earnings release to be 1.5% above its 200 day moving average of $49.31. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, October 2, 2020 there was some notable buying of 1,479 contracts of the $50.50 call expiring on Friday, November 6, 2020. Option traders are pricing in a 3.4% move on earnings and the stock has averaged a 3.0% move in recent quarters.
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AT&T Corp. $27.33
AT&T Corp. (T) is confirmed to report earnings at approximately 7:05 AM ET on Thursday, October 22, 2020. The consensus earnings estimate is $0.77 per share on revenue of $41.63 billion and the Earnings Whisper ® number is $0.79 per share. Investor sentiment going into the company's earnings release has 48% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 18.09% with revenue decreasing by 6.63%. The stock has drifted lower by 9.4% from its open following the earnings release to be 13.3% below its 200 day moving average of $31.52. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, October 7, 2020 there was some notable buying of 40,305 contracts of the $25.00 call expiring on Friday, January 15, 2021. Option traders are pricing in a 3.9% move on earnings and the stock has averaged a 3.0% move in recent quarters.
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Halliburton Company $12.25
Halliburton Company (HAL) is confirmed to report earnings at approximately 6:45 AM ET on Monday, October 19, 2020. The consensus earnings estimate is $0.08 per share on revenue of $3.09 billion and the Earnings Whisper ® number is $0.12 per share. Investor sentiment going into the company's earnings release has 43% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 76.47% with revenue decreasing by 44.32%. Short interest has decreased by 8.8% since the company's last earnings release while the stock has drifted lower by 10.6% from its open following the earnings release to be 13.2% below its 200 day moving average of $14.11. Overall earnings estimates have been revised higher since the company's last earnings release. On Tuesday, October 6, 2020 there was some notable buying of 5,493 contracts of the $11.00 call expiring on Friday, November 20, 2020. Option traders are pricing in a 8.6% move on earnings and the stock has averaged a 3.3% move in recent quarters.
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Snap Inc. $27.83
Snap Inc. (SNAP) is confirmed to report earnings at approximately 4:10 PM ET on Tuesday, October 20, 2020. The consensus estimate is for a loss of $0.05 per share on revenue of $547.24 million and the Earnings Whisper ® number is ($0.04) per share. Investor sentiment going into the company's earnings release has 63% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 66.67% with revenue increasing by 22.64%. Short interest has decreased by 34.4% since the company's last earnings release while the stock has drifted higher by 18.5% from its open following the earnings release to be 39.5% above its 200 day moving average of $19.95. Overall earnings estimates have been revised lower since the company's last earnings release. On Tuesday, October 6, 2020 there was some notable buying of 20,380 contracts of the $24.00 put expiring on Friday, November 20, 2020. Option traders are pricing in a 12.9% move on earnings and the stock has averaged a 14.7% move in recent quarters.
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Another volatile week may be in store for traders as coronavirus cases rise in the U.S. and Europe while Democrats and Republicans remain at an impasse over new fiscal aid.
The Dow Jones Industrial Average and S&P 500 fell for three straight days this week. That slide was the longest losing streak for the averages since mid-September. The two market benchmarks eked out slight gains on Friday to snap their losing streak.
Investors and traders expect this choppy trading action to continue, especially as the worsening coronavirus data and a lack of U.S. coronavirus stimulus draw attention away from a strong earnings season thus far.
“The combination of no stimulus, fading economic momentum, and the threat of rising coronavirus cases, creates a rather negative dynamic for risk assets right now,” said Tom Essaye, founder of The Sevens Report, in a note to clients.
The seven-day average of new daily coronavirus infections has risen in 39 states, including New York, New Jersey and Wisconsin, according to a CNBC analysis of data from Johns Hopkins University and the U.S. Census Bureau. At the nationwide level, the rate of new daily cases is at its highest level since August.
In Europe, the seven-day average of new Covid-19 cases has surpassed that of the U.S., leading several countries in the region to reinstate tougher social distancing rules and roll back previous reopening measures.
“What this means is economic activity may slow down a bit, and we’ve already started to see some of that in the data,” said Art Hogan, chief market strategist at National Securities, noting the weekly jobless claims numbers released Thursday show they’ve reached a point where “they’re not going to get better; they’re going to get worse.”
The Labor Department said initial U.S. jobless claims hit their highest level since August, reaching 898,000 in the week ending Oct. 10.
Investors will also keep their eyes on Washington during the week ahead as lawmakers continue to struggle over new U.S. fiscal stimulus.
Political posturing on stimulus ‘hurting’ those in need
This week, President Donald Trump said he would raise his offer for a coronavirus aid above the current level of $1.8 trillion. The White House’s current offer is smaller than a $2.2 trillion package passed by the House. House Speaker Nancy Pelosi, D-Calif., has said the administration’s proposal “falls significantly short” of what is needed.
This back and forth between the two parties has dwindled expectations among market participants of a compromise being reached before the Nov. 3 election. It has also added to the concerns surrounding the U.S. economic recovery.
“This political posturing is hurting that cohort of the economy that needs help the most,” said Quincy Krosby, chief market strategist at Prudential Financial. “To the small and mid-size business owner, the airlines, this is not just about politics; this is every day life. There going to be an impact in the real economy if we don’t see something now.”
Earnings season ignored?
Those talks over further stimulus are also expected to divert attention away from the corporate earnings season, which began this week but had next to no impact on the broader market.
Procter & Gamble, Netflix, Travelers, American Airlines and American Express are among the companies slated to report next week.
JPMorgan Chase, Goldman Sachs and VF Corp. are among the 49 S&P 500 companies that posted their latest quarterly results this week. Of those 49 companies, 86% reported better-than-expected earnings, according to data from The Earnings Scout.
“I wish I could say that next week we’re going to put aside the politics and the Covid concerns behind us, but we won’t trade this earnings season,” said Hogan of National Securities. “While it will likely be a record-breaking season for companies beating estimates, it’s also going to be one that is largely ignored because there’re so many other macro factors that are more important.”
There is also some important housing data in the week ahead, including home builders’ sentiment Monday, housing starts Tuesday, and existing home sales Thursday.
“The housing market is still off to the races,” said Mark Zandi, chief economist at Moody’s Analytics. “The mortgage applications were strong, suggesting very strong activity in the month of September.”
Zandi said the market will eventually cool when interest rates begin to rise. But for now, “certainly the economy could use the juice.”
5 Charts We Are Watching
There are many charts that caught our attention this week, and today we share the top 5 charts we’re watching.
The S&P 500 Index recently had a four-week losing streak and fell nearly 10% along the way, while the Nasdaq and many large cap tech stocks fell even more. Then in a big move higher over the past two weeks, many stocks moved from oversold to overbought in a very quick timeframe.
As the LPL Chart of the Day shows, more than 90% of the components in the S&P 500 were beneath their 10-day moving average on September 24 and within two weeks saw more than 90% above this short-term trend line. This type of buying thrust is consistent with future strong returns, suggests quick reversals from oversold to overbought are a good thing, and could bode well for stocks to outperform bonds well into 2021.
(CLICK HERE FOR THE CHART!)
Parts of the economy are opening back up, while employment continues to disappoint. One specific area that continues to improve is how many people are flying, as the seven-day average number of travelers going through Transportation Security Administration (TSA) checkpoints hit a new recovery high. We discuss other high-frequency data points in our COVID Surge Stalling Europe’s Recovery blog.
(CLICK HERE FOR THE CHART!)
We’ve noted before that stock market gains ahead of the election historically support the incumbent party, while if stocks are lower it tends to support new leadership in the White House. Taking this further, the US dollar also tends to send signals for who might win. In fact, when stocks are up and the US dollar is lower ahead of the election, or if stocks are lower and the US dollar is higher before an election, the results have accurately predicted the last seven times those scenarios took place. Given stocks are up and the US dollar is slightly lower, this could be one clue the upcoming election will be much closer than many are expecting.
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Sticking with the election, many investors are worried about higher taxes and more deregulation if former Vice President Joe Biden wins. “Higher taxes may be one part of it, but Biden is also looking at huge spending initiatives,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Stock markets like spending, and this could more than help offset potentially higher taxes.” Lower tariffs could potentially provide another offset as well.
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Last, Friday’s retail sales report came in better than expected, marking five consecutive months of year-over-year gains. It is worth noting the economy has never been in a recession after 4 or more consecutive monthly gains. Still, in the face of one of the most severe recessions ever, it took only a few months for sales to get back to new highs, as shown below. Historically, new highs in retail sales happen in expansions—and this is yet another clue the recession is likely over.
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Record Surge In Business Formations As Economy Recovers From COVID
Yesterday the Census updated business formation stats for Q3, and as indicated by high-frequency data from the Atlanta Fed, business formation exploded in Q3. As shown in the first chart below, total business applications rocketed upwards by 1.57 million, a record increase. Stripping out businesses that are unlikely to result in hiring, the numbers are much smaller in absolute terms but still rose 79% to a record pace. Finally, applications for businesses with planned wages surged 70% from a record low in Q2, to the highest levels since 2008.
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In all three instances, the recent behavior is a complete reversal of the post-Financial Crisis period, when the prolonged recession led to a huge decline in business starts. That’s a good sign for the breadth of the economic rebound, as business formation tends to lead to higher productivity thanks to more innovation and investment. Below we show changes in total business applications by state; Michigan, Illinois, and Georgia are the biggest winners, with applications more than doubling. This analysis was originally published in our evening report -- The Closer -- on 10/14/20.
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B.I.G. Tips - Retail Sales Rebound
After a disappointment last month, Retail Sales saw a nice rebound in September as consumers seem undeterred from spending despite the expiration of extended UI benefits and the lack of an additional stimulus bill. For the month of September, headline Retail Sales rose 1.9% m/m versus expectations for a more modest increase of 0.8%. Ex Autos and Gas, growth was even better relative to expectations, although August’s already slower than expected growth was revised modestly lower.
Breadth in this month’s report was strong. Of the thirteen sectors that comprise the total pie, all but one of them (Electronics and Appliances) showed growth. Normally, when a sector shows m/m growth of a percent or two, it’s impressive. This month, though, the volatility of the pandemic remains in place as two sectors showed growth of over 5%, including Clothing which saw double-digit growth relative to August!
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While the monthly pace of retail sales is back at all-time highs, the characteristics behind the total level of sales have changed markedly in the post COVID world. In our just-released B.I.G. Tips report, we looked at these changing dynamics to highlight the groups that have been the biggest winners and losers from the shifts.
University of Michigan Mixed Again
The University of Michigan reported preliminary consumer sentiment numbers for October. University of Michigan data has shown a much smaller bounce than other sentiment surveys, but the preliminary numbers for October did increase versus September. The strongest part of the survey was expectations, which has risen three months in a row to the highest levels since March. Consumers' current assessment of the economy fell sequentially and is sitting at about the same place it was back in early 2012.
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One feature of the University of Michigan poll with incomplete data prior to 2016 but more complete data since is a breakout of economic sentiment by political party affiliation. As shown below, their data shows Republicans getting a massive sentiment boost in the wake of the 2016 election. The key here though, is that the boost to the sentiment of Republicans and the decline for Democrats came after the election as this data is definitely lagging to political outcomes rather than leading.
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Small Business Smiles
Sentiment among small businesses continued to improve in the month of September according to the NFIB's monthly Small Business Optimism Index. As shown below, the index rose 3.8 points to 104 which is now just half of a point below the levels prior to the pandemic in February. That was also better than expectations of a smaller improvement to 101.2. Small business sentiment has now risen in four of the past five months.
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In the table below, we break down this month's report by each of the ten components of the headline number as well as the many other indices included in the report such as those not used as inputs to the headline number and what small businesses are reporting to be their biggest problems.
Across all indices of the September report, breadth was solid with only a couple of indices falling month over month—Expected Credit Conditions and Credit Conditions Availability. Some of those that were higher saw record or near-record month-over-month increases.
Some of the most notable indices this month included those regarding inventories. The Current Inventories index which gauges the net percent of owners viewing current inventory levels as too low rose 2 points to a record high reading of 5. Given this, the index for Plans to Increase Inventories is tied with the reading from November of 2004 for a record high of 11. Indicating low inventory levels, the report is consistent with some other recent data like the regional Fed manufacturing surveys. Those low inventories are resulting in higher prices as that index's 12-point increase in September marked the biggest one month gain on record. While the Higher Prices index is not at any sort of an extreme, September's move indicates that a rising number of businesses are raising prices.
Additionally, those higher prices and lower inventory numbers appear to be a result of demand that continues to rapidly improve. The indices for Actual Sales and Actual Earnings Changes remain negative for a sixth and tenth month in a row, respectively, meaning a net number of businesses continue to see lower rather than higher top and bottom-line numbers. But these indices are seeing big moves higher. For the index of Actual Earnings Changes, the 13-point climb in September was the largest on record and the 9-point increase for Actual Sales Changes followed a 13-point increase in August; both being some of the largest one-month moves on record. In order to meet the needs of this demand, a higher number of businesses plan to increase employment with that index rising to 28; the highest level since December of 2018. Even though businesses seek to hire more, they also report it is hard to fill positions as the index of Job Openings Hard to Fill rose to the top 5% of all readings. Cost and quality of labor also were reported as two of the most pressing problems for businesses.
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Small Businesses Cautiously Optimistic
In an earlier post, we highlighted the details of the September NFIB Small Business Optimism report. The report showed overall sentiment among small businesses has continued to improve as demand has bounced back (though it has not yet fully recovered as still more businesses report lower sales and earnings on a net basis) leading to low inventory levels, higher prices, and a need for more employment. While generally improved conditions have lifted optimism, that is not to say small businesses have given an all-clear. The Uncertainty Index from NFIB has risen each of the past three months with September's 2-point increase bringing it back to the same level as March of this year. In other words, it is perhaps best to say that small businesses are cautiously optimistic.
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From the pandemic to the Election, there are plenty of reasons for businesses to be uncertain. As for what they are reporting to be the biggest problems, labor remains at the top. 30% of businesses have reported that either cost (9%) or more predominately quality (21%) of labor are their biggest issues. While off the highs from the past few years, the current readings are still historically elevated.
Behind labor, government related problems also are largely on the minds of business owners. Government red tape and taxes combine to account for 29% of businesses' biggest problems. While that is a large share, neither of those indices are at any sort of extreme.
Poor sales, on the other hand, remains as the third major concern for businesses. 12% of businesses reported poor sales as the single most important issue in September, down from 15% in August and 7-percentage points lower than the April peak. While improved, the number of businesses seeing demand as a major issue is still at some of the highest levels of the past several years.
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Sentiment By State
Below is a look at the year-to-date reading for the high-frequency Morning Consult daily consumer sentiment indicator. While still well off highs seen prior to the COVID Crash in late February and early March, sentiment has generally been ticking higher off the lows. You'll notice in the chart below, however, that while the "Future Expectations" reading is still bouncing back nicely, the "Current Conditions" reading has been going more sideways over the last couple of months.
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We can also look closer into state level readings from the daily Morning Consult sentiment numbers. In the heat map below, we show the changes in the levels of consumer sentiment for each state since mid-February. As shown, the lower 48 have seen much larger improvements than Alaska or Hawaii with the largest improvements coming in the Northeast and parts of the Midwest. On the other hand, in addition to Hawaii and Alaska, some of the key swing states like Maine, New Hampshire, and Nevada have improved the least. Of all 50 states, Vermont's current reading on sentiment is the closest to its February levels, but even Vermont is still down 17.9 points.
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Tesla, Inc. $439.67
Tesla, Inc. (TSLA) is confirmed to report earnings at approximately 4:25 PM ET on Wednesday, October 21, 2020. The consensus earnings estimate is $0.56 per share on revenue of $8.20 billion and the Earnings Whisper ® number is $0.82 per share. Investor sentiment going into the company's earnings release has 70% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 68.36% with revenue increasing by 30.10%. Short interest has increased by 309.2% since the company's last earnings release while the stock has drifted lower by 73.8% from its open following the earnings release to be 93.2% above its 200 day moving average of $227.62. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, October 14, 2020 there was some notable buying of 24,439 contracts of the $500.00 call expiring on Friday, October 23, 2020. Option traders are pricing in a 10.9% move on earnings and the stock has averaged a 8.9% move in recent quarters.
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Netflix, Inc. $530.79
Netflix, Inc. (NFLX) is confirmed to report earnings at approximately 4:00 PM ET on Tuesday, October 20, 2020. The consensus earnings estimate is $2.12 per share on revenue of $6.38 billion and the Earnings Whisper ® number is $2.19 per share. Investor sentiment going into the company's earnings release has 67% expecting an earnings beat The company's guidance was for earnings of approximately $2.09 per share. Consensus estimates are for year-over-year earnings growth of 44.22% with revenue increasing by 21.64%. Short interest has decreased by 14.3% since the company's last earnings release while the stock has drifted higher by 7.3% from its open following the earnings release to be 23.1% above its 200 day moving average of $431.11. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, October 16, 2020 there was some notable buying of 5,864 contracts of the $550.00 call expiring on Friday, October 23, 2020. Option traders are pricing in a 10.1% move on earnings and the stock has averaged a 4.5% move in recent quarters.
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Procter & Gamble Co. $144.39
Procter & Gamble Co. (PG) is confirmed to report earnings at approximately 7:00 AM ET on Tuesday, October 20, 2020. The consensus earnings estimate is $1.43 per share on revenue of $18.21 billion and the Earnings Whisper ® number is $1.49 per share. Investor sentiment going into the company's earnings release has 68% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 4.38% with revenue increasing by 2.31%. Short interest has decreased by 17.9% since the company's last earnings release while the stock has drifted higher by 10.5% from its open following the earnings release to be 16.7% above its 200 day moving average of $123.73. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, September 25, 2020 there was some notable buying of 1,880 contracts of the $140.00 call expiring on Friday, December 18, 2020. Option traders are pricing in a 3.3% move on earnings and the stock has averaged a 2.5% move in recent quarters.
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Intel Corp. $54.16
Intel Corp. (INTC) is confirmed to report earnings at approximately 4:00 PM ET on Thursday, October 22, 2020. The consensus earnings estimate is $1.10 per share on revenue of $18.21 billion and the Earnings Whisper ® number is $1.19 per share. Investor sentiment going into the company's earnings release has 64% expecting an earnings beat The company's guidance was for earnings of approximately $1.10 per share. Consensus estimates are for earnings to decline year-over-year by 22.54% with revenue decreasing by 5.11%. Short interest has increased by 251.8% since the company's last earnings release while the stock has drifted higher by 3.9% from its open following the earnings release to be 4.2% below its 200 day moving average of $56.53. Overall earnings estimates have been revised lower since the company's last earnings release. On Tuesday, October 13, 2020 there was some notable buying of 10,216 contracts of the $60.00 call expiring on Friday, November 20, 2020. Option traders are pricing in a 6.4% move on earnings and the stock has averaged a 7.2% move in recent quarters.
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Lockheed Martin Corp. $386.50
Lockheed Martin Corp. (LMT) is confirmed to report earnings at approximately 7:30 AM ET on Tuesday, October 20, 2020. The consensus earnings estimate is $6.07 per share on revenue of $16.24 billion and the Earnings Whisper ® number is $6.30 per share. Investor sentiment going into the company's earnings release has 66% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 7.24% with revenue increasing by 7.05%. Short interest has increased by 4.0% since the company's last earnings release while the stock has drifted higher by 2.2% from its open following the earnings release to be 1.1% above its 200 day moving average of $382.22. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, October 16, 2020 there was some notable buying of 924 contracts of the $140.00 put expiring on Friday, January 21, 2022. Option traders are pricing in a 4.2% move on earnings and the stock has averaged a 2.0% move in recent quarters.
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Abbott $109.67
Abbott (ABT) is confirmed to report earnings at approximately 7:30 AM ET on Wednesday, October 21, 2020. The consensus earnings estimate is $0.90 per share on revenue of $8.43 billion and the Earnings Whisper ® number is $1.01 per share. Investor sentiment going into the company's earnings release has 68% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 7.14% with revenue increasing by 4.38%. Short interest has decreased by 13.4% since the company's last earnings release while the stock has drifted higher by 12.1% from its open following the earnings release to be 18.6% above its 200 day moving average of $92.46. Overall earnings estimates have been revised higher since the company's last earnings release. On Tuesday, October 13, 2020 there was some notable buying of 4,200 contracts of the $55.00 call expiring on Friday, January 15, 2021. Option traders are pricing in a 4.9% move on earnings and the stock has averaged a 2.7% move in recent quarters.
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Coca-Cola Company $50.03
Coca-Cola Company (KO) is confirmed to report earnings at approximately 6:55 AM ET on Thursday, October 22, 2020. The consensus earnings estimate is $0.45 per share on revenue of $8.35 billion and the Earnings Whisper ® number is $0.48 per share. Investor sentiment going into the company's earnings release has 55% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 19.64% with revenue decreasing by 12.17%. Short interest has decreased by 19.7% since the company's last earnings release while the stock has drifted higher by 5.3% from its open following the earnings release to be 1.5% above its 200 day moving average of $49.31. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, October 2, 2020 there was some notable buying of 1,479 contracts of the $50.50 call expiring on Friday, November 6, 2020. Option traders are pricing in a 3.4% move on earnings and the stock has averaged a 3.0% move in recent quarters.
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AT&T Corp. $27.33
AT&T Corp. (T) is confirmed to report earnings at approximately 7:05 AM ET on Thursday, October 22, 2020. The consensus earnings estimate is $0.77 per share on revenue of $41.63 billion and the Earnings Whisper ® number is $0.79 per share. Investor sentiment going into the company's earnings release has 48% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 18.09% with revenue decreasing by 6.63%. The stock has drifted lower by 9.4% from its open following the earnings release to be 13.3% below its 200 day moving average of $31.52. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, October 7, 2020 there was some notable buying of 40,305 contracts of the $25.00 call expiring on Friday, January 15, 2021. Option traders are pricing in a 3.9% move on earnings and the stock has averaged a 3.0% move in recent quarters.
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Halliburton Company $12.25
Halliburton Company (HAL) is confirmed to report earnings at approximately 6:45 AM ET on Monday, October 19, 2020. The consensus earnings estimate is $0.08 per share on revenue of $3.09 billion and the Earnings Whisper ® number is $0.12 per share. Investor sentiment going into the company's earnings release has 43% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 76.47% with revenue decreasing by 44.32%. Short interest has decreased by 8.8% since the company's last earnings release while the stock has drifted lower by 10.6% from its open following the earnings release to be 13.2% below its 200 day moving average of $14.11. Overall earnings estimates have been revised higher since the company's last earnings release. On Tuesday, October 6, 2020 there was some notable buying of 5,493 contracts of the $11.00 call expiring on Friday, November 20, 2020. Option traders are pricing in a 8.6% move on earnings and the stock has averaged a 3.3% move in recent quarters.
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Snap Inc. $27.83
Snap Inc. (SNAP) is confirmed to report earnings at approximately 4:10 PM ET on Tuesday, October 20, 2020. The consensus estimate is for a loss of $0.05 per share on revenue of $547.24 million and the Earnings Whisper ® number is ($0.04) per share. Investor sentiment going into the company's earnings release has 63% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 66.67% with revenue increasing by 22.64%. Short interest has decreased by 34.4% since the company's last earnings release while the stock has drifted higher by 18.5% from its open following the earnings release to be 39.5% above its 200 day moving average of $19.95. Overall earnings estimates have been revised lower since the company's last earnings release. On Tuesday, October 6, 2020 there was some notable buying of 20,380 contracts of the $24.00 put expiring on Friday, November 20, 2020. Option traders are pricing in a 12.9% move on earnings and the stock has averaged a 14.7% move in recent quarters.
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Another volatile week may be in store for traders as coronavirus cases rise in the U.S. and Europe while Democrats and Republicans remain at an impasse over new fiscal aid.
The Dow Jones Industrial Average and S&P 500 fell for three straight days this week. That slide was the longest losing streak for the averages since mid-September. The two market benchmarks eked out slight gains on Friday to snap their losing streak.
Investors and traders expect this choppy trading action to continue, especially as the worsening coronavirus data and a lack of U.S. coronavirus stimulus draw attention away from a strong earnings season thus far.
“The combination of no stimulus, fading economic momentum, and the threat of rising coronavirus cases, creates a rather negative dynamic for risk assets right now,” said Tom Essaye, founder of The Sevens Report, in a note to clients.
The seven-day average of new daily coronavirus infections has risen in 39 states, including New York, New Jersey and Wisconsin, according to a CNBC analysis of data from Johns Hopkins University and the U.S. Census Bureau. At the nationwide level, the rate of new daily cases is at its highest level since August.
In Europe, the seven-day average of new Covid-19 cases has surpassed that of the U.S., leading several countries in the region to reinstate tougher social distancing rules and roll back previous reopening measures.
“What this means is economic activity may slow down a bit, and we’ve already started to see some of that in the data,” said Art Hogan, chief market strategist at National Securities, noting the weekly jobless claims numbers released Thursday show they’ve reached a point where “they’re not going to get better; they’re going to get worse.”
The Labor Department said initial U.S. jobless claims hit their highest level since August, reaching 898,000 in the week ending Oct. 10.
Investors will also keep their eyes on Washington during the week ahead as lawmakers continue to struggle over new U.S. fiscal stimulus.
Political posturing on stimulus ‘hurting’ those in need
This week, President Donald Trump said he would raise his offer for a coronavirus aid above the current level of $1.8 trillion. The White House’s current offer is smaller than a $2.2 trillion package passed by the House. House Speaker Nancy Pelosi, D-Calif., has said the administration’s proposal “falls significantly short” of what is needed.
This back and forth between the two parties has dwindled expectations among market participants of a compromise being reached before the Nov. 3 election. It has also added to the concerns surrounding the U.S. economic recovery.
“This political posturing is hurting that cohort of the economy that needs help the most,” said Quincy Krosby, chief market strategist at Prudential Financial. “To the small and mid-size business owner, the airlines, this is not just about politics; this is every day life. There going to be an impact in the real economy if we don’t see something now.”
Earnings season ignored?
Those talks over further stimulus are also expected to divert attention away from the corporate earnings season, which began this week but had next to no impact on the broader market.
Procter & Gamble, Netflix, Travelers, American Airlines and American Express are among the companies slated to report next week.
JPMorgan Chase, Goldman Sachs and VF Corp. are among the 49 S&P 500 companies that posted their latest quarterly results this week. Of those 49 companies, 86% reported better-than-expected earnings, according to data from The Earnings Scout.
“I wish I could say that next week we’re going to put aside the politics and the Covid concerns behind us, but we won’t trade this earnings season,” said Hogan of National Securities. “While it will likely be a record-breaking season for companies beating estimates, it’s also going to be one that is largely ignored because there’re so many other macro factors that are more important.”
There is also some important housing data in the week ahead, including home builders’ sentiment Monday, housing starts Tuesday, and existing home sales Thursday.
“The housing market is still off to the races,” said Mark Zandi, chief economist at Moody’s Analytics. “The mortgage applications were strong, suggesting very strong activity in the month of September.”
Zandi said the market will eventually cool when interest rates begin to rise. But for now, “certainly the economy could use the juice.”
5 Charts We Are Watching
There are many charts that caught our attention this week, and today we share the top 5 charts we’re watching.
The S&P 500 Index recently had a four-week losing streak and fell nearly 10% along the way, while the Nasdaq and many large cap tech stocks fell even more. Then in a big move higher over the past two weeks, many stocks moved from oversold to overbought in a very quick timeframe.
As the LPL Chart of the Day shows, more than 90% of the components in the S&P 500 were beneath their 10-day moving average on September 24 and within two weeks saw more than 90% above this short-term trend line. This type of buying thrust is consistent with future strong returns, suggests quick reversals from oversold to overbought are a good thing, and could bode well for stocks to outperform bonds well into 2021.
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Parts of the economy are opening back up, while employment continues to disappoint. One specific area that continues to improve is how many people are flying, as the seven-day average number of travelers going through Transportation Security Administration (TSA) checkpoints hit a new recovery high. We discuss other high-frequency data points in our COVID Surge Stalling Europe’s Recovery blog.
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We’ve noted before that stock market gains ahead of the election historically support the incumbent party, while if stocks are lower it tends to support new leadership in the White House. Taking this further, the US dollar also tends to send signals for who might win. In fact, when stocks are up and the US dollar is lower ahead of the election, or if stocks are lower and the US dollar is higher before an election, the results have accurately predicted the last seven times those scenarios took place. Given stocks are up and the US dollar is slightly lower, this could be one clue the upcoming election will be much closer than many are expecting.
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Sticking with the election, many investors are worried about higher taxes and more deregulation if former Vice President Joe Biden wins. “Higher taxes may be one part of it, but Biden is also looking at huge spending initiatives,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Stock markets like spending, and this could more than help offset potentially higher taxes.” Lower tariffs could potentially provide another offset as well.
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Last, Friday’s retail sales report came in better than expected, marking five consecutive months of year-over-year gains. It is worth noting the economy has never been in a recession after 4 or more consecutive monthly gains. Still, in the face of one of the most severe recessions ever, it took only a few months for sales to get back to new highs, as shown below. Historically, new highs in retail sales happen in expansions—and this is yet another clue the recession is likely over.
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Record Surge In Business Formations As Economy Recovers From COVID
Yesterday the Census updated business formation stats for Q3, and as indicated by high-frequency data from the Atlanta Fed, business formation exploded in Q3. As shown in the first chart below, total business applications rocketed upwards by 1.57 million, a record increase. Stripping out businesses that are unlikely to result in hiring, the numbers are much smaller in absolute terms but still rose 79% to a record pace. Finally, applications for businesses with planned wages surged 70% from a record low in Q2, to the highest levels since 2008.
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In all three instances, the recent behavior is a complete reversal of the post-Financial Crisis period, when the prolonged recession led to a huge decline in business starts. That’s a good sign for the breadth of the economic rebound, as business formation tends to lead to higher productivity thanks to more innovation and investment. Below we show changes in total business applications by state; Michigan, Illinois, and Georgia are the biggest winners, with applications more than doubling. This analysis was originally published in our evening report -- The Closer -- on 10/14/20.
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B.I.G. Tips - Retail Sales Rebound
After a disappointment last month, Retail Sales saw a nice rebound in September as consumers seem undeterred from spending despite the expiration of extended UI benefits and the lack of an additional stimulus bill. For the month of September, headline Retail Sales rose 1.9% m/m versus expectations for a more modest increase of 0.8%. Ex Autos and Gas, growth was even better relative to expectations, although August’s already slower than expected growth was revised modestly lower.
Breadth in this month’s report was strong. Of the thirteen sectors that comprise the total pie, all but one of them (Electronics and Appliances) showed growth. Normally, when a sector shows m/m growth of a percent or two, it’s impressive. This month, though, the volatility of the pandemic remains in place as two sectors showed growth of over 5%, including Clothing which saw double-digit growth relative to August!
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While the monthly pace of retail sales is back at all-time highs, the characteristics behind the total level of sales have changed markedly in the post COVID world. In our just-released B.I.G. Tips report, we looked at these changing dynamics to highlight the groups that have been the biggest winners and losers from the shifts.
University of Michigan Mixed Again
The University of Michigan reported preliminary consumer sentiment numbers for October. University of Michigan data has shown a much smaller bounce than other sentiment surveys, but the preliminary numbers for October did increase versus September. The strongest part of the survey was expectations, which has risen three months in a row to the highest levels since March. Consumers' current assessment of the economy fell sequentially and is sitting at about the same place it was back in early 2012.
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One feature of the University of Michigan poll with incomplete data prior to 2016 but more complete data since is a breakout of economic sentiment by political party affiliation. As shown below, their data shows Republicans getting a massive sentiment boost in the wake of the 2016 election. The key here though, is that the boost to the sentiment of Republicans and the decline for Democrats came after the election as this data is definitely lagging to political outcomes rather than leading.
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Small Business Smiles
Sentiment among small businesses continued to improve in the month of September according to the NFIB's monthly Small Business Optimism Index. As shown below, the index rose 3.8 points to 104 which is now just half of a point below the levels prior to the pandemic in February. That was also better than expectations of a smaller improvement to 101.2. Small business sentiment has now risen in four of the past five months.
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In the table below, we break down this month's report by each of the ten components of the headline number as well as the many other indices included in the report such as those not used as inputs to the headline number and what small businesses are reporting to be their biggest problems.
Across all indices of the September report, breadth was solid with only a couple of indices falling month over month—Expected Credit Conditions and Credit Conditions Availability. Some of those that were higher saw record or near-record month-over-month increases.
Some of the most notable indices this month included those regarding inventories. The Current Inventories index which gauges the net percent of owners viewing current inventory levels as too low rose 2 points to a record high reading of 5. Given this, the index for Plans to Increase Inventories is tied with the reading from November of 2004 for a record high of 11. Indicating low inventory levels, the report is consistent with some other recent data like the regional Fed manufacturing surveys. Those low inventories are resulting in higher prices as that index's 12-point increase in September marked the biggest one month gain on record. While the Higher Prices index is not at any sort of an extreme, September's move indicates that a rising number of businesses are raising prices.
Additionally, those higher prices and lower inventory numbers appear to be a result of demand that continues to rapidly improve. The indices for Actual Sales and Actual Earnings Changes remain negative for a sixth and tenth month in a row, respectively, meaning a net number of businesses continue to see lower rather than higher top and bottom-line numbers. But these indices are seeing big moves higher. For the index of Actual Earnings Changes, the 13-point climb in September was the largest on record and the 9-point increase for Actual Sales Changes followed a 13-point increase in August; both being some of the largest one-month moves on record. In order to meet the needs of this demand, a higher number of businesses plan to increase employment with that index rising to 28; the highest level since December of 2018. Even though businesses seek to hire more, they also report it is hard to fill positions as the index of Job Openings Hard to Fill rose to the top 5% of all readings. Cost and quality of labor also were reported as two of the most pressing problems for businesses.
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Small Businesses Cautiously Optimistic
In an earlier post, we highlighted the details of the September NFIB Small Business Optimism report. The report showed overall sentiment among small businesses has continued to improve as demand has bounced back (though it has not yet fully recovered as still more businesses report lower sales and earnings on a net basis) leading to low inventory levels, higher prices, and a need for more employment. While generally improved conditions have lifted optimism, that is not to say small businesses have given an all-clear. The Uncertainty Index from NFIB has risen each of the past three months with September's 2-point increase bringing it back to the same level as March of this year. In other words, it is perhaps best to say that small businesses are cautiously optimistic.
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From the pandemic to the Election, there are plenty of reasons for businesses to be uncertain. As for what they are reporting to be the biggest problems, labor remains at the top. 30% of businesses have reported that either cost (9%) or more predominately quality (21%) of labor are their biggest issues. While off the highs from the past few years, the current readings are still historically elevated.
Behind labor, government related problems also are largely on the minds of business owners. Government red tape and taxes combine to account for 29% of businesses' biggest problems. While that is a large share, neither of those indices are at any sort of extreme.
Poor sales, on the other hand, remains as the third major concern for businesses. 12% of businesses reported poor sales as the single most important issue in September, down from 15% in August and 7-percentage points lower than the April peak. While improved, the number of businesses seeing demand as a major issue is still at some of the highest levels of the past several years.
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Sentiment By State
Below is a look at the year-to-date reading for the high-frequency Morning Consult daily consumer sentiment indicator. While still well off highs seen prior to the COVID Crash in late February and early March, sentiment has generally been ticking higher off the lows. You'll notice in the chart below, however, that while the "Future Expectations" reading is still bouncing back nicely, the "Current Conditions" reading has been going more sideways over the last couple of months.
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We can also look closer into state level readings from the daily Morning Consult sentiment numbers. In the heat map below, we show the changes in the levels of consumer sentiment for each state since mid-February. As shown, the lower 48 have seen much larger improvements than Alaska or Hawaii with the largest improvements coming in the Northeast and parts of the Midwest. On the other hand, in addition to Hawaii and Alaska, some of the key swing states like Maine, New Hampshire, and Nevada have improved the least. Of all 50 states, Vermont's current reading on sentiment is the closest to its February levels, but even Vermont is still down 17.9 points.
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Tesla, Inc. $439.67
Tesla, Inc. (TSLA) is confirmed to report earnings at approximately 4:25 PM ET on Wednesday, October 21, 2020. The consensus earnings estimate is $0.56 per share on revenue of $8.20 billion and the Earnings Whisper ® number is $0.82 per share. Investor sentiment going into the company's earnings release has 70% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 68.36% with revenue increasing by 30.10%. Short interest has increased by 309.2% since the company's last earnings release while the stock has drifted lower by 73.8% from its open following the earnings release to be 93.2% above its 200 day moving average of $227.62. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, October 14, 2020 there was some notable buying of 24,439 contracts of the $500.00 call expiring on Friday, October 23, 2020. Option traders are pricing in a 10.9% move on earnings and the stock has averaged a 8.9% move in recent quarters.
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Netflix, Inc. $530.79
Netflix, Inc. (NFLX) is confirmed to report earnings at approximately 4:00 PM ET on Tuesday, October 20, 2020. The consensus earnings estimate is $2.12 per share on revenue of $6.38 billion and the Earnings Whisper ® number is $2.19 per share. Investor sentiment going into the company's earnings release has 67% expecting an earnings beat The company's guidance was for earnings of approximately $2.09 per share. Consensus estimates are for year-over-year earnings growth of 44.22% with revenue increasing by 21.64%. Short interest has decreased by 14.3% since the company's last earnings release while the stock has drifted higher by 7.3% from its open following the earnings release to be 23.1% above its 200 day moving average of $431.11. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, October 16, 2020 there was some notable buying of 5,864 contracts of the $550.00 call expiring on Friday, October 23, 2020. Option traders are pricing in a 10.1% move on earnings and the stock has averaged a 4.5% move in recent quarters.
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Procter & Gamble Co. $144.39
Procter & Gamble Co. (PG) is confirmed to report earnings at approximately 7:00 AM ET on Tuesday, October 20, 2020. The consensus earnings estimate is $1.43 per share on revenue of $18.21 billion and the Earnings Whisper ® number is $1.49 per share. Investor sentiment going into the company's earnings release has 68% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 4.38% with revenue increasing by 2.31%. Short interest has decreased by 17.9% since the company's last earnings release while the stock has drifted higher by 10.5% from its open following the earnings release to be 16.7% above its 200 day moving average of $123.73. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, September 25, 2020 there was some notable buying of 1,880 contracts of the $140.00 call expiring on Friday, December 18, 2020. Option traders are pricing in a 3.3% move on earnings and the stock has averaged a 2.5% move in recent quarters.
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Intel Corp. $54.16
Intel Corp. (INTC) is confirmed to report earnings at approximately 4:00 PM ET on Thursday, October 22, 2020. The consensus earnings estimate is $1.10 per share on revenue of $18.21 billion and the Earnings Whisper ® number is $1.19 per share. Investor sentiment going into the company's earnings release has 64% expecting an earnings beat The company's guidance was for earnings of approximately $1.10 per share. Consensus estimates are for earnings to decline year-over-year by 22.54% with revenue decreasing by 5.11%. Short interest has increased by 251.8% since the company's last earnings release while the stock has drifted higher by 3.9% from its open following the earnings release to be 4.2% below its 200 day moving average of $56.53. Overall earnings estimates have been revised lower since the company's last earnings release. On Tuesday, October 13, 2020 there was some notable buying of 10,216 contracts of the $60.00 call expiring on Friday, November 20, 2020. Option traders are pricing in a 6.4% move on earnings and the stock has averaged a 7.2% move in recent quarters.
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Lockheed Martin Corp. $386.50
Lockheed Martin Corp. (LMT) is confirmed to report earnings at approximately 7:30 AM ET on Tuesday, October 20, 2020. The consensus earnings estimate is $6.07 per share on revenue of $16.24 billion and the Earnings Whisper ® number is $6.30 per share. Investor sentiment going into the company's earnings release has 66% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 7.24% with revenue increasing by 7.05%. Short interest has increased by 4.0% since the company's last earnings release while the stock has drifted higher by 2.2% from its open following the earnings release to be 1.1% above its 200 day moving average of $382.22. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, October 16, 2020 there was some notable buying of 924 contracts of the $140.00 put expiring on Friday, January 21, 2022. Option traders are pricing in a 4.2% move on earnings and the stock has averaged a 2.0% move in recent quarters.
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Abbott $109.67
Abbott (ABT) is confirmed to report earnings at approximately 7:30 AM ET on Wednesday, October 21, 2020. The consensus earnings estimate is $0.90 per share on revenue of $8.43 billion and the Earnings Whisper ® number is $1.01 per share. Investor sentiment going into the company's earnings release has 68% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 7.14% with revenue increasing by 4.38%. Short interest has decreased by 13.4% since the company's last earnings release while the stock has drifted higher by 12.1% from its open following the earnings release to be 18.6% above its 200 day moving average of $92.46. Overall earnings estimates have been revised higher since the company's last earnings release. On Tuesday, October 13, 2020 there was some notable buying of 4,200 contracts of the $55.00 call expiring on Friday, January 15, 2021. Option traders are pricing in a 4.9% move on earnings and the stock has averaged a 2.7% move in recent quarters.
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Coca-Cola Company $50.03
Coca-Cola Company (KO) is confirmed to report earnings at approximately 6:55 AM ET on Thursday, October 22, 2020. The consensus earnings estimate is $0.45 per share on revenue of $8.35 billion and the Earnings Whisper ® number is $0.48 per share. Investor sentiment going into the company's earnings release has 55% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 19.64% with revenue decreasing by 12.17%. Short interest has decreased by 19.7% since the company's last earnings release while the stock has drifted higher by 5.3% from its open following the earnings release to be 1.5% above its 200 day moving average of $49.31. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, October 2, 2020 there was some notable buying of 1,479 contracts of the $50.50 call expiring on Friday, November 6, 2020. Option traders are pricing in a 3.4% move on earnings and the stock has averaged a 3.0% move in recent quarters.
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AT&T Corp. $27.33
AT&T Corp. (T) is confirmed to report earnings at approximately 7:05 AM ET on Thursday, October 22, 2020. The consensus earnings estimate is $0.77 per share on revenue of $41.63 billion and the Earnings Whisper ® number is $0.79 per share. Investor sentiment going into the company's earnings release has 48% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 18.09% with revenue decreasing by 6.63%. The stock has drifted lower by 9.4% from its open following the earnings release to be 13.3% below its 200 day moving average of $31.52. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, October 7, 2020 there was some notable buying of 40,305 contracts of the $25.00 call expiring on Friday, January 15, 2021. Option traders are pricing in a 3.9% move on earnings and the stock has averaged a 3.0% move in recent quarters.
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Halliburton Company $12.25
Halliburton Company (HAL) is confirmed to report earnings at approximately 6:45 AM ET on Monday, October 19, 2020. The consensus earnings estimate is $0.08 per share on revenue of $3.09 billion and the Earnings Whisper ® number is $0.12 per share. Investor sentiment going into the company's earnings release has 43% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 76.47% with revenue decreasing by 44.32%. Short interest has decreased by 8.8% since the company's last earnings release while the stock has drifted lower by 10.6% from its open following the earnings release to be 13.2% below its 200 day moving average of $14.11. Overall earnings estimates have been revised higher since the company's last earnings release. On Tuesday, October 6, 2020 there was some notable buying of 5,493 contracts of the $11.00 call expiring on Friday, November 20, 2020. Option traders are pricing in a 8.6% move on earnings and the stock has averaged a 3.3% move in recent quarters.
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Snap Inc. $27.83
Snap Inc. (SNAP) is confirmed to report earnings at approximately 4:10 PM ET on Tuesday, October 20, 2020. The consensus estimate is for a loss of $0.05 per share on revenue of $547.24 million and the Earnings Whisper ® number is ($0.04) per share. Investor sentiment going into the company's earnings release has 63% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 66.67% with revenue increasing by 22.64%. Short interest has decreased by 34.4% since the company's last earnings release while the stock has drifted higher by 18.5% from its open following the earnings release to be 39.5% above its 200 day moving average of $19.95. Overall earnings estimates have been revised lower since the company's last earnings release. On Tuesday, October 6, 2020 there was some notable buying of 20,380 contracts of the $24.00 put expiring on Friday, November 20, 2020. Option traders are pricing in a 12.9% move on earnings and the stock has averaged a 14.7% move in recent quarters.
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Another volatile week may be in store for traders as coronavirus cases rise in the U.S. and Europe while Democrats and Republicans remain at an impasse over new fiscal aid.
The Dow Jones Industrial Average and S&P 500 fell for three straight days this week. That slide was the longest losing streak for the averages since mid-September. The two market benchmarks eked out slight gains on Friday to snap their losing streak.
Investors and traders expect this choppy trading action to continue, especially as the worsening coronavirus data and a lack of U.S. coronavirus stimulus draw attention away from a strong earnings season thus far.
“The combination of no stimulus, fading economic momentum, and the threat of rising coronavirus cases, creates a rather negative dynamic for risk assets right now,” said Tom Essaye, founder of The Sevens Report, in a note to clients.
The seven-day average of new daily coronavirus infections has risen in 39 states, including New York, New Jersey and Wisconsin, according to a CNBC analysis of data from Johns Hopkins University and the U.S. Census Bureau. At the nationwide level, the rate of new daily cases is at its highest level since August.
In Europe, the seven-day average of new Covid-19 cases has surpassed that of the U.S., leading several countries in the region to reinstate tougher social distancing rules and roll back previous reopening measures.
“What this means is economic activity may slow down a bit, and we’ve already started to see some of that in the data,” said Art Hogan, chief market strategist at National Securities, noting the weekly jobless claims numbers released Thursday show they’ve reached a point where “they’re not going to get better; they’re going to get worse.”
The Labor Department said initial U.S. jobless claims hit their highest level since August, reaching 898,000 in the week ending Oct. 10.
Investors will also keep their eyes on Washington during the week ahead as lawmakers continue to struggle over new U.S. fiscal stimulus.
Political posturing on stimulus ‘hurting’ those in need
This week, President Donald Trump said he would raise his offer for a coronavirus aid above the current level of $1.8 trillion. The White House’s current offer is smaller than a $2.2 trillion package passed by the House. House Speaker Nancy Pelosi, D-Calif., has said the administration’s proposal “falls significantly short” of what is needed.
This back and forth between the two parties has dwindled expectations among market participants of a compromise being reached before the Nov. 3 election. It has also added to the concerns surrounding the U.S. economic recovery.
“This political posturing is hurting that cohort of the economy that needs help the most,” said Quincy Krosby, chief market strategist at Prudential Financial. “To the small and mid-size business owner, the airlines, this is not just about politics; this is every day life. There going to be an impact in the real economy if we don’t see something now.”
Earnings season ignored?
Those talks over further stimulus are also expected to divert attention away from the corporate earnings season, which began this week but had next to no impact on the broader market.
Procter & Gamble, Netflix, Travelers, American Airlines and American Express are among the companies slated to report next week.
JPMorgan Chase, Goldman Sachs and VF Corp. are among the 49 S&P 500 companies that posted their latest quarterly results this week. Of those 49 companies, 86% reported better-than-expected earnings, according to data from The Earnings Scout.
“I wish I could say that next week we’re going to put aside the politics and the Covid concerns behind us, but we won’t trade this earnings season,” said Hogan of National Securities. “While it will likely be a record-breaking season for companies beating estimates, it’s also going to be one that is largely ignored because there’re so many other macro factors that are more important.”
There is also some important housing data in the week ahead, including home builders’ sentiment Monday, housing starts Tuesday, and existing home sales Thursday.
“The housing market is still off to the races,” said Mark Zandi, chief economist at Moody’s Analytics. “The mortgage applications were strong, suggesting very strong activity in the month of September.”
Zandi said the market will eventually cool when interest rates begin to rise. But for now, “certainly the economy could use the juice.”
5 Charts We Are Watching
There are many charts that caught our attention this week, and today we share the top 5 charts we’re watching.
The S&P 500 Index recently had a four-week losing streak and fell nearly 10% along the way, while the Nasdaq and many large cap tech stocks fell even more. Then in a big move higher over the past two weeks, many stocks moved from oversold to overbought in a very quick timeframe.
As the LPL Chart of the Day shows, more than 90% of the components in the S&P 500 were beneath their 10-day moving average on September 24 and within two weeks saw more than 90% above this short-term trend line. This type of buying thrust is consistent with future strong returns, suggests quick reversals from oversold to overbought are a good thing, and could bode well for stocks to outperform bonds well into 2021.
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Parts of the economy are opening back up, while employment continues to disappoint. One specific area that continues to improve is how many people are flying, as the seven-day average number of travelers going through Transportation Security Administration (TSA) checkpoints hit a new recovery high. We discuss other high-frequency data points in our COVID Surge Stalling Europe’s Recovery blog.
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We’ve noted before that stock market gains ahead of the election historically support the incumbent party, while if stocks are lower it tends to support new leadership in the White House. Taking this further, the US dollar also tends to send signals for who might win. In fact, when stocks are up and the US dollar is lower ahead of the election, or if stocks are lower and the US dollar is higher before an election, the results have accurately predicted the last seven times those scenarios took place. Given stocks are up and the US dollar is slightly lower, this could be one clue the upcoming election will be much closer than many are expecting.
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Sticking with the election, many investors are worried about higher taxes and more deregulation if former Vice President Joe Biden wins. “Higher taxes may be one part of it, but Biden is also looking at huge spending initiatives,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Stock markets like spending, and this could more than help offset potentially higher taxes.” Lower tariffs could potentially provide another offset as well.
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Last, Friday’s retail sales report came in better than expected, marking five consecutive months of year-over-year gains. It is worth noting the economy has never been in a recession after 4 or more consecutive monthly gains. Still, in the face of one of the most severe recessions ever, it took only a few months for sales to get back to new highs, as shown below. Historically, new highs in retail sales happen in expansions—and this is yet another clue the recession is likely over.
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Record Surge In Business Formations As Economy Recovers From COVID
Yesterday the Census updated business formation stats for Q3, and as indicated by high-frequency data from the Atlanta Fed, business formation exploded in Q3. As shown in the first chart below, total business applications rocketed upwards by 1.57 million, a record increase. Stripping out businesses that are unlikely to result in hiring, the numbers are much smaller in absolute terms but still rose 79% to a record pace. Finally, applications for businesses with planned wages surged 70% from a record low in Q2, to the highest levels since 2008.
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In all three instances, the recent behavior is a complete reversal of the post-Financial Crisis period, when the prolonged recession led to a huge decline in business starts. That’s a good sign for the breadth of the economic rebound, as business formation tends to lead to higher productivity thanks to more innovation and investment. Below we show changes in total business applications by state; Michigan, Illinois, and Georgia are the biggest winners, with applications more than doubling. This analysis was originally published in our evening report -- The Closer -- on 10/14/20.
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B.I.G. Tips - Retail Sales Rebound
After a disappointment last month, Retail Sales saw a nice rebound in September as consumers seem undeterred from spending despite the expiration of extended UI benefits and the lack of an additional stimulus bill. For the month of September, headline Retail Sales rose 1.9% m/m versus expectations for a more modest increase of 0.8%. Ex Autos and Gas, growth was even better relative to expectations, although August’s already slower than expected growth was revised modestly lower.
Breadth in this month’s report was strong. Of the thirteen sectors that comprise the total pie, all but one of them (Electronics and Appliances) showed growth. Normally, when a sector shows m/m growth of a percent or two, it’s impressive. This month, though, the volatility of the pandemic remains in place as two sectors showed growth of over 5%, including Clothing which saw double-digit growth relative to August!
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While the monthly pace of retail sales is back at all-time highs, the characteristics behind the total level of sales have changed markedly in the post COVID world. In our just-released B.I.G. Tips report, we looked at these changing dynamics to highlight the groups that have been the biggest winners and losers from the shifts.
University of Michigan Mixed Again
The University of Michigan reported preliminary consumer sentiment numbers for October. University of Michigan data has shown a much smaller bounce than other sentiment surveys, but the preliminary numbers for October did increase versus September. The strongest part of the survey was expectations, which has risen three months in a row to the highest levels since March. Consumers' current assessment of the economy fell sequentially and is sitting at about the same place it was back in early 2012.
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One feature of the University of Michigan poll with incomplete data prior to 2016 but more complete data since is a breakout of economic sentiment by political party affiliation. As shown below, their data shows Republicans getting a massive sentiment boost in the wake of the 2016 election. The key here though, is that the boost to the sentiment of Republicans and the decline for Democrats came after the election as this data is definitely lagging to political outcomes rather than leading.
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Small Business Smiles
Sentiment among small businesses continued to improve in the month of September according to the NFIB's monthly Small Business Optimism Index. As shown below, the index rose 3.8 points to 104 which is now just half of a point below the levels prior to the pandemic in February. That was also better than expectations of a smaller improvement to 101.2. Small business sentiment has now risen in four of the past five months.
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In the table below, we break down this month's report by each of the ten components of the headline number as well as the many other indices included in the report such as those not used as inputs to the headline number and what small businesses are reporting to be their biggest problems.
Across all indices of the September report, breadth was solid with only a couple of indices falling month over month—Expected Credit Conditions and Credit Conditions Availability. Some of those that were higher saw record or near-record month-over-month increases.
Some of the most notable indices this month included those regarding inventories. The Current Inventories index which gauges the net percent of owners viewing current inventory levels as too low rose 2 points to a record high reading of 5. Given this, the index for Plans to Increase Inventories is tied with the reading from November of 2004 for a record high of 11. Indicating low inventory levels, the report is consistent with some other recent data like the regional Fed manufacturing surveys. Those low inventories are resulting in higher prices as that index's 12-point increase in September marked the biggest one month gain on record. While the Higher Prices index is not at any sort of an extreme, September's move indicates that a rising number of businesses are raising prices.
Additionally, those higher prices and lower inventory numbers appear to be a result of demand that continues to rapidly improve. The indices for Actual Sales and Actual Earnings Changes remain negative for a sixth and tenth month in a row, respectively, meaning a net number of businesses continue to see lower rather than higher top and bottom-line numbers. But these indices are seeing big moves higher. For the index of Actual Earnings Changes, the 13-point climb in September was the largest on record and the 9-point increase for Actual Sales Changes followed a 13-point increase in August; both being some of the largest one-month moves on record. In order to meet the needs of this demand, a higher number of businesses plan to increase employment with that index rising to 28; the highest level since December of 2018. Even though businesses seek to hire more, they also report it is hard to fill positions as the index of Job Openings Hard to Fill rose to the top 5% of all readings. Cost and quality of labor also were reported as two of the most pressing problems for businesses.
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Small Businesses Cautiously Optimistic
In an earlier post, we highlighted the details of the September NFIB Small Business Optimism report. The report showed overall sentiment among small businesses has continued to improve as demand has bounced back (though it has not yet fully recovered as still more businesses report lower sales and earnings on a net basis) leading to low inventory levels, higher prices, and a need for more employment. While generally improved conditions have lifted optimism, that is not to say small businesses have given an all-clear. The Uncertainty Index from NFIB has risen each of the past three months with September's 2-point increase bringing it back to the same level as March of this year. In other words, it is perhaps best to say that small businesses are cautiously optimistic.
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From the pandemic to the Election, there are plenty of reasons for businesses to be uncertain. As for what they are reporting to be the biggest problems, labor remains at the top. 30% of businesses have reported that either cost (9%) or more predominately quality (21%) of labor are their biggest issues. While off the highs from the past few years, the current readings are still historically elevated.
Behind labor, government related problems also are largely on the minds of business owners. Government red tape and taxes combine to account for 29% of businesses' biggest problems. While that is a large share, neither of those indices are at any sort of extreme.
Poor sales, on the other hand, remains as the third major concern for businesses. 12% of businesses reported poor sales as the single most important issue in September, down from 15% in August and 7-percentage points lower than the April peak. While improved, the number of businesses seeing demand as a major issue is still at some of the highest levels of the past several years.
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Sentiment By State
Below is a look at the year-to-date reading for the high-frequency Morning Consult daily consumer sentiment indicator. While still well off highs seen prior to the COVID Crash in late February and early March, sentiment has generally been ticking higher off the lows. You'll notice in the chart below, however, that while the "Future Expectations" reading is still bouncing back nicely, the "Current Conditions" reading has been going more sideways over the last couple of months.
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We can also look closer into state level readings from the daily Morning Consult sentiment numbers. In the heat map below, we show the changes in the levels of consumer sentiment for each state since mid-February. As shown, the lower 48 have seen much larger improvements than Alaska or Hawaii with the largest improvements coming in the Northeast and parts of the Midwest. On the other hand, in addition to Hawaii and Alaska, some of the key swing states like Maine, New Hampshire, and Nevada have improved the least. Of all 50 states, Vermont's current reading on sentiment is the closest to its February levels, but even Vermont is still down 17.9 points.
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Monday 10.19.20 Before Market Open:
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Monday 10.19.20 After Market Close:
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Tuesday 10.20.20 Before Market Open:
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Tuesday 10.20.20 After Market Close:
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Wednesday 10.21.20 Before Market Open:
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Wednesday 10.21.20 After Market Close:
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Thursday 10.22.20 Before Market Open:
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Thursday 10.22.20 After Market Close:
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Friday 10.23.20 Before Market Open:
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Friday 10.23.20 After Market Close:
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Tesla, Inc. $439.67
Tesla, Inc. (TSLA) is confirmed to report earnings at approximately 4:25 PM ET on Wednesday, October 21, 2020. The consensus earnings estimate is $0.56 per share on revenue of $8.20 billion and the Earnings Whisper ® number is $0.82 per share. Investor sentiment going into the company's earnings release has 70% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 68.36% with revenue increasing by 30.10%. Short interest has increased by 309.2% since the company's last earnings release while the stock has drifted lower by 73.8% from its open following the earnings release to be 93.2% above its 200 day moving average of $227.62. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, October 14, 2020 there was some notable buying of 24,439 contracts of the $500.00 call expiring on Friday, October 23, 2020. Option traders are pricing in a 10.9% move on earnings and the stock has averaged a 8.9% move in recent quarters.
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Netflix, Inc. $530.79
Netflix, Inc. (NFLX) is confirmed to report earnings at approximately 4:00 PM ET on Tuesday, October 20, 2020. The consensus earnings estimate is $2.12 per share on revenue of $6.38 billion and the Earnings Whisper ® number is $2.19 per share. Investor sentiment going into the company's earnings release has 67% expecting an earnings beat The company's guidance was for earnings of approximately $2.09 per share. Consensus estimates are for year-over-year earnings growth of 44.22% with revenue increasing by 21.64%. Short interest has decreased by 14.3% since the company's last earnings release while the stock has drifted higher by 7.3% from its open following the earnings release to be 23.1% above its 200 day moving average of $431.11. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, October 16, 2020 there was some notable buying of 5,864 contracts of the $550.00 call expiring on Friday, October 23, 2020. Option traders are pricing in a 10.1% move on earnings and the stock has averaged a 4.5% move in recent quarters.
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Procter & Gamble Co. $144.39
Procter & Gamble Co. (PG) is confirmed to report earnings at approximately 7:00 AM ET on Tuesday, October 20, 2020. The consensus earnings estimate is $1.43 per share on revenue of $18.21 billion and the Earnings Whisper ® number is $1.49 per share. Investor sentiment going into the company's earnings release has 68% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 4.38% with revenue increasing by 2.31%. Short interest has decreased by 17.9% since the company's last earnings release while the stock has drifted higher by 10.5% from its open following the earnings release to be 16.7% above its 200 day moving average of $123.73. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, September 25, 2020 there was some notable buying of 1,880 contracts of the $140.00 call expiring on Friday, December 18, 2020. Option traders are pricing in a 3.3% move on earnings and the stock has averaged a 2.5% move in recent quarters.
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Intel Corp. $54.16
Intel Corp. (INTC) is confirmed to report earnings at approximately 4:00 PM ET on Thursday, October 22, 2020. The consensus earnings estimate is $1.10 per share on revenue of $18.21 billion and the Earnings Whisper ® number is $1.19 per share. Investor sentiment going into the company's earnings release has 64% expecting an earnings beat The company's guidance was for earnings of approximately $1.10 per share. Consensus estimates are for earnings to decline year-over-year by 22.54% with revenue decreasing by 5.11%. Short interest has increased by 251.8% since the company's last earnings release while the stock has drifted higher by 3.9% from its open following the earnings release to be 4.2% below its 200 day moving average of $56.53. Overall earnings estimates have been revised lower since the company's last earnings release. On Tuesday, October 13, 2020 there was some notable buying of 10,216 contracts of the $60.00 call expiring on Friday, November 20, 2020. Option traders are pricing in a 6.4% move on earnings and the stock has averaged a 7.2% move in recent quarters.
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Lockheed Martin Corp. $386.50
Lockheed Martin Corp. (LMT) is confirmed to report earnings at approximately 7:30 AM ET on Tuesday, October 20, 2020. The consensus earnings estimate is $6.07 per share on revenue of $16.24 billion and the Earnings Whisper ® number is $6.30 per share. Investor sentiment going into the company's earnings release has 66% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 7.24% with revenue increasing by 7.05%. Short interest has increased by 4.0% since the company's last earnings release while the stock has drifted higher by 2.2% from its open following the earnings release to be 1.1% above its 200 day moving average of $382.22. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, October 16, 2020 there was some notable buying of 924 contracts of the $140.00 put expiring on Friday, January 21, 2022. Option traders are pricing in a 4.2% move on earnings and the stock has averaged a 2.0% move in recent quarters.
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Abbott $109.67
Abbott (ABT) is confirmed to report earnings at approximately 7:30 AM ET on Wednesday, October 21, 2020. The consensus earnings estimate is $0.90 per share on revenue of $8.43 billion and the Earnings Whisper ® number is $1.01 per share. Investor sentiment going into the company's earnings release has 68% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 7.14% with revenue increasing by 4.38%. Short interest has decreased by 13.4% since the company's last earnings release while the stock has drifted higher by 12.1% from its open following the earnings release to be 18.6% above its 200 day moving average of $92.46. Overall earnings estimates have been revised higher since the company's last earnings release. On Tuesday, October 13, 2020 there was some notable buying of 4,200 contracts of the $55.00 call expiring on Friday, January 15, 2021. Option traders are pricing in a 4.9% move on earnings and the stock has averaged a 2.7% move in recent quarters.
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Coca-Cola Company $50.03
Coca-Cola Company (KO) is confirmed to report earnings at approximately 6:55 AM ET on Thursday, October 22, 2020. The consensus earnings estimate is $0.45 per share on revenue of $8.35 billion and the Earnings Whisper ® number is $0.48 per share. Investor sentiment going into the company's earnings release has 55% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 19.64% with revenue decreasing by 12.17%. Short interest has decreased by 19.7% since the company's last earnings release while the stock has drifted higher by 5.3% from its open following the earnings release to be 1.5% above its 200 day moving average of $49.31. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, October 2, 2020 there was some notable buying of 1,479 contracts of the $50.50 call expiring on Friday, November 6, 2020. Option traders are pricing in a 3.4% move on earnings and the stock has averaged a 3.0% move in recent quarters.
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AT&T Corp. $27.33
AT&T Corp. (T) is confirmed to report earnings at approximately 7:05 AM ET on Thursday, October 22, 2020. The consensus earnings estimate is $0.77 per share on revenue of $41.63 billion and the Earnings Whisper ® number is $0.79 per share. Investor sentiment going into the company's earnings release has 48% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 18.09% with revenue decreasing by 6.63%. The stock has drifted lower by 9.4% from its open following the earnings release to be 13.3% below its 200 day moving average of $31.52. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, October 7, 2020 there was some notable buying of 40,305 contracts of the $25.00 call expiring on Friday, January 15, 2021. Option traders are pricing in a 3.9% move on earnings and the stock has averaged a 3.0% move in recent quarters.
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Halliburton Company $12.25
Halliburton Company (HAL) is confirmed to report earnings at approximately 6:45 AM ET on Monday, October 19, 2020. The consensus earnings estimate is $0.08 per share on revenue of $3.09 billion and the Earnings Whisper ® number is $0.12 per share. Investor sentiment going into the company's earnings release has 43% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 76.47% with revenue decreasing by 44.32%. Short interest has decreased by 8.8% since the company's last earnings release while the stock has drifted lower by 10.6% from its open following the earnings release to be 13.2% below its 200 day moving average of $14.11. Overall earnings estimates have been revised higher since the company's last earnings release. On Tuesday, October 6, 2020 there was some notable buying of 5,493 contracts of the $11.00 call expiring on Friday, November 20, 2020. Option traders are pricing in a 8.6% move on earnings and the stock has averaged a 3.3% move in recent quarters.
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Snap Inc. $27.83
Snap Inc. (SNAP) is confirmed to report earnings at approximately 4:10 PM ET on Tuesday, October 20, 2020. The consensus estimate is for a loss of $0.05 per share on revenue of $547.24 million and the Earnings Whisper ® number is ($0.04) per share. Investor sentiment going into the company's earnings release has 63% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 66.67% with revenue increasing by 22.64%. Short interest has decreased by 34.4% since the company's last earnings release while the stock has drifted higher by 18.5% from its open following the earnings release to be 39.5% above its 200 day moving average of $19.95. Overall earnings estimates have been revised lower since the company's last earnings release. On Tuesday, October 6, 2020 there was some notable buying of 20,380 contracts of the $24.00 put expiring on Friday, November 20, 2020. Option traders are pricing in a 12.9% move on earnings and the stock has averaged a 14.7% move in recent quarters.
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Like Las Vegas — as well as Indiana, where regulators announced this week the state’s 13 casinos can reopen at 6 a.m. June 15 — Illinois casinos will be capped at 50% capacity, though that ... Illinois Readies to Reopen Casinos on January 15 News Break. Casinos in Illinois have been on a two month shutdown since mid-November with Gov. J.B. Pritzker giving some hope on Wednesday that the state may restart some businesses as early as January 15. Easing up of Restrictions Likely. Illinois casinos have been closed since November due to the COVID-19 pandemic, but a handful are on track to reopen as soon as Friday.. Illinois Gov. JB Pritzker tweeted the following last week: I’m cautiously optimistic to see early signs of progress in some regions across our state. So on January 15th, any region that has met @IDPH metrics for a reduction of mitigations will be able to ... According to the Illinois Gaming Board, those businesses may reopen as soon as Friday, June 26. This date is in line with the Phase 4 of the state’s plan for reopening of businesses by Gov. J.B. Pritzker . The Illinois Gaming Board hasn't announced when it will allow casinos to reopen or when video-gaming machines will be turned on at bars, restaurants and gaming parlors, but officials are Illinois may restart casinos on January 15 should everything go according to plan and regions meet anti-Covid-19 prerequisites The state saw recovering sports betting results but overall decline in gambling tax for its last fiscal year Tier 3 to Tier 2. A few Illinois casinos can reopen starting at 8am on January 16, thanks to the reclassification of regions in the state by the Department of Public Health. Regions 1, 2, and 5 have moved from Tier 3 to Tier 2 on the state’s COVID-19 mitigation response scale, which means certain services, like casino gaming, can resume. That will depend on Illinois’ COVID-19 numbers in the coming weeks and months. Nov. 17, 2020. Illinois Gov. JB Pritzker will shut down casinos and video gaming terminals (VGTs) effective midnight on Friday, Nov. 20, according to the Chicago Tribune. The move comes as Illinois is in the midst of arguably its worst COVID-19 stretch to date. Along with gaming facilities, the governor is closing movie theaters, indoor recreational facilities and reducing capacity at retail centers during the ... Chicago-area gamblers will soon have some places to place their bets. The Illinois Gaming Board announced Thursday casinos and video gaming operators across the state can reopen at 9 a.m. July 1 ... It’s estimated Illinois casinos lost more than $100 million in the first month of being shut down. Across the state line, Indiana casinos are set to reopen at 6 a.m. Monday.
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