Markets Recover From Rough Start as Earnings Season Continues
Markets got off to a rough start this week with the major indices falling hard Monday as concerns over the Delta Covid variant rose. However, stocks recovered strongly the rest of the week to end higher across the board as the S&P 500 gained 1.96% overall.
This week was particularly dense with earnings reports with earnings season raging on and next week consisting of some of the biggest names including Tesla ((TSLA)), Apple (AAPL), Alphabet (GOOG), Amazon (AMZN), Microsoft ((MSFT)), and others. In addition to earnings, new economic data for housing starts and building permits was released along with the usual unemployment claims data.
Markets focused mostly around earnings as a number of large firms reported quarterly results and most surpassing estimates once again. The strong outperformance so far is a great sign as we move further into earnings season. Bloomberg was estimating a 59.8% jump in earnings per share (EPS) overall on a year-to-year basis before companies started reporting. If that number is reached, then it would be the highest increase in profit since 2010 when the economy was in the middle of recovering from the global financial crisis. Of course the reason for this massive bump in earnings is due to a crisis caused by the coronavirus but investors can be bullish on the fact that only a year later earnings are looking to be up roughly 60% compared to when the economy was mostly shut down from quarantine measures.
Some of the biggest names to exceed earnings estimates this past week include Chipotle (CMG), United Airlines (UAL), Johnson & Johnson (JNJ), Coca-Cola (KO), Verizon (VZ), AT&T (T), American Airlines ((AAL)), and Intel (INTC). Both United and American Airlines just barely beat estimates coming off a larger beat by Delta Airlines (DAL) last week. UAL stock saw its share price inch higher as a result while (AAL) shares fell slightly following the earnings announcement. Additionally, two of the biggest telecommunications companies, Verizon and AT&T, saw their share prices bump higher immediately after earnings but cooled off the rest of the week with both ending just barely above their pre-earnings prices.
As far as the losers of this earnings week, Netflix (NFLX) and Boston Beer Company (SAM) stand out in particular. Boston Beer missed on both earnings and revenue estimates while Netflix managed to just miss on earnings. As a result, NFLX shares dropped roughly 5% and recovered somewhat to end the week as it did hit on subscriber growth in addition to revenue. SAM shares meanwhile fared much worse with its price crashing 26% during trading on Friday after missing on estimates and its bet on hard seltzer not paying off yet.
There wasn’t much new economic data this week with just housing starts and building permits being the biggest. Housing starts rose from an annualized rate of 1,572,000 in May to 1,643,000 in June, analysts were expecting a smaller increase to only 1.6 million. Building permits on the other hand dropped from an annualized rate of 1,681,000 to 1,598,000 in June, missing on estimates for an increase to 1.7 million. Lastly, initial unemployment claims rose from 360,000 to 419,000 last week, economists were expecting that number to stay flat at 360,000.
All in all, the S&P 500 rose 1.96%, the Dow Jones Industrial Average gained 1.08%, and the NASDAQ increased 2.84%.