Ever wonder why there is such a dislocation between the market and reality.
And why is it almost never reflected in a company’s earnings results?
It’s because analysts have done an AMAZING job of keeping expectations low… I’m not kidding.
Check it out:
- The 5-Year average S&P 500 companies beating estimates is 72%.
- Only once has it been above 80%, and that was Q2 of 2018 at 81%.
- Earnings surprises came in at 23.1%, with the highest reading before that at…7.1%!
Of course, if you’re looking for a shift in the actual economy. It won’t happen from sifting through earnings reports…
The numbers you are interested in are right below:
Covid Case Counts
Ever so slowly, the number of COVID cases in the U.S. has steadily dropped both nationally and in hotspots.
States like Florida finally managed to report several days with positivity rates below 9%.
Except there’s one tiny problem.
Total testing in the United States has also dropped.
Experts aren’t sure why this is happening, nor whether the two are related.
That hasn’t stopped states like New York from finally grinding open the doors of its economy.
Schools began in-person classes across the nation, with clusters of cases popping up.
Thankfully, the trends in age held as few of the infections in children required hospitalizations.
Plus, Harvard epidemiologist Michael Mina along with economist James Stock of the same university provided targeted recommendations for further lockdowns that offer a better balance of health and economic trade offs.
Yet, there’s troubling signs coming from across the pond.
Europe’s seeing a resurgence in cases in many places that thought they had it under control. Many worry about a second wave.
And unfortunately, we have yet to see clear evidence from Sweden of developing herd immunity.
As vaccine trials continue, COVID plays like Johnson & Johnson (JNJ) content with more focused names like Moderna (MRNA).
All in all, it’s a mixed bag.
I continue to watch for any clusters of cases related to schools that lead to hospitalizations. Any trend in that direction would derail the economic recovery quickly.
And it’s not on great footing at the moment.
Stubbornly high unemployment
Jobless claims remain steady around 1 million per week.
Friday’s jobs numbers provide the market with its first look at how sticky our recovery is.
Over 22 million people lost their jobs during the pandemic, of which we regained only around 9.3 million.
Expectations for August aren’t super either – only 1.5 million being added.
That leaves 11 million people out of work compared to February, putting our number of employed somewhere near the levels in early 2015.
Chances are things will get worse in the fall, not better.
Stories of companies like MGM laying off 18,000 workers abound.
The most galling came from Salesforce (CRM) last week.
After the best earnings in the company’s history, they announced 1,000 employee layoffs, or around 1.9% of their workforce.
If you were curious why politics related to inequality seem to resonate at the moment, look no further.
Gentlemen start your engines
Speaking of politics, with conventions out of the way, campaign season kicks into high gear.
While the industry only thrives every other year, this year is expected to beat the others.
Politico estimates 8 million ads airing with spending in excess of $10 billion.
And things are already getting nasty.
Norms of civility that once governed politicians within their own party and against opponents became vestiges of a bygone era.
On the right, Republicans contend with a party remade in the image of Donald Trump. The question is whether that helps or hinders them.
On the left, endorsements of challengers incinerated unspoken rules protecting incumbents. While the Democratic party may unify around Joe Biden to remove Donald Trump from office, divisions between progressives and moderates began to widen.
All this could leave markets scratching their head after the election, wondering what the future might hold.
In the short-term, it’s a boon for those platforms that allow for political ads. It will almost certainly play a role for stocks like Facebook (FB), Twitter (TWTR), and other social media platforms.
With the Nasdaq running hard, news events could act like catalysts in these names, creating a springboard.
Turning information into trades
But my best trade idea of the week is reserved for Bullseye Members.
They get my top trade idea for the week delivered to their inbox Monday morning.
A trade idea aimed at hitting+100% on my options contract selection.
Are you ready?
Expected earnings dates listed in (…)
Stocks I want to bet against this week…
SC, DFS, PENN, IWM, SNAP, ROKU, SPOT, WK, ECL, TWLO
Stocks I want to buy this week…
MJ (none), DKNG (Nov 13), ZM (Sept 3), CVNA (Nov 4), CARR (July 30), GDX (none), RNG (Nov 2), NEM (Nov 3), CLX (Oct 29), RH (Sep 8), SHOP (Nov 3), JNJ (Oct 20), MSFT (Oct 28), TTD (Nov 5), GOOGL (Oct 26), FSLY (Nov 5), WMT (Aug 18), WORK (Sept 2), TWTR (Oct 27), AVLR (Aug 5), SQ (Aug 5), JD (Aug 11), NET (Nov 5), ADBE (Sept 25), MCD (Oct 27), COST (Oct 1), FB (Nov 4), PYPL (Oct 28), MTCH (Nov 4), ZEN (Nov 3)
This Week’s Calendar
Monday, August 31st
- 10:30 AM EST – Dallas Fed Manufacturing Activity August
- Major earnings: Catalent Inc (CTLT), Zoom Video Communications (ZM)
Tuesday, September 1st
- 7:45 AM EST – ICSC Weekly Retail Sales
- 9:45 AM EST – Markit US Manufacturing PMI August
- 10:00 AM EST – ISM Manufacturing August
- 10:00 AM EST – July Construction Spending
- 4:30 PM EST – API Weekly Inventory Data
- Major earnings: Caleres Inc (CAL), At Home Grp Inc (HOME), Block (H&R) (HRB), Nutanix Inc Cl A (NTNX)
Wednesday, September 2nd
- 7:00 AM EST – MBA Mortgage Applications Data
- 8:15 AM EST – ADP Employment Numbers for August
- 10:00 AM EST – Factory & Durable Goods Orders for July
- 10:30 AM EST – Weekly DOE Inventory Data
- Major earnings: Guess? Inc (GES), Macy’s, Inc. (M), Cloudera Inc (CLDR), Copart Inc (CPRT), CrowdStrike Holdings Inc (CRWD), Five Below Inc (FIVE), Guidewire Software Inc (GWRE), MongoDB Inc (MDB), Pagerduty Inc (PD), PVH Corp. (PVH), Science App’s Int’l Corp (SAIC), Smartsheet Inc (SMAR), Sportsman’s Warehouse Hldg (SPWH), Zuora Inc (ZUO)
Thursday, September 3rd
- 8:30 AM EST – Weekly Jobless & Continuing Claims
- 8:30 AM EST – Nonfarm Productivity & Unit Labor Costs Q2 Final
- 8:30 AM EST – Trade Balance for July
- 9:45 AM EST – Markit US Services & Composite PMI for August Final
- 10:00 AM EST – ISM Non-Manufacturing Index for August
- 10:30 AM EST – EIA Natural Gas Inventory Data
- Major earnings: Barnes & Noble Ed Inc (BNED), Ciena Corp (CIEN), Conn’s Inc (CONN), Campbell Soup (CPB), Designer Brands Inc (DBI), Donaldson Co (DCI), Kirkland’s Inc (KIRK), The Michaels Companies Inc (MIK), Signet Jewelers Ltd (SIG), The Toro Co (TTC), Broadcom Inc (AVGO), DocuSign Inc (DOCU), Domo Inc (DOMO), Medallia Inc (MDLA)
Friday, September 4th
- 8:30 AM EST – Jobs Numbers for August
- 1:00 PM EST – Baker Hughes Rig Count
- Major earnings: None of note