The Stock Market This Week: October 19-23
By: Stacey Nickens
- Earnings Reports
- Procter & Gamble reported a 9% revenue increase during the first fiscal quarter while also raising their core earnings growth outlook for fiscal year 2021. Much of their fiscal first-quarter revenue growth was attributed to increased demand for their laundry and cleaning supplies.
- IBM earnings came in as expected, with revenue declining 2.5% in the third quarter. This is the company’s third consecutive quarter of annualized revenue declines, due in part to their exposure to the retail and transportation industries.
- Netflix underperformed expectations in the third quarter. The platform attracted 2.2 million new paid streaming subscribers in the third quarter, significantly less than the expected 3.3 million new subscribers. Netflix attributes the slowdown in subscriber growth to a “pull-forward effect” following their blowout first quarter. In the first nine months of 2020, Netflix earned 28.1 million paid subscribers, already exceeding the 27.8 million subscribers they added in the entirety of 2019. Netflix’s earnings-per-share came in at $1.74 and were lower than the expected $2.13. Their revenue came in slightly above the expected $6.39 billion, clocking in at $6.44 billion.
- Snapchat reported one of their best quarters in three years and reached a record level of subscriber and sales growth in the third quarter. Users seemed attracted to the service’s new augmented reality addons. Snapchat was also able to attract new advertising dollars. With this growth, Snapchat reported earnings of a penny per share, beating the expected loss of 6 cents per share.
- Abbot Laboratories reported $9 billion in sales and grew quarterly sales 10% during the last year. The company’s rapid COVID-19 test significantly helped sales growth and allowed the company to raise their profit guidance for 2020.
- Biogen’s revenue disappointed investors. At just $13.4 billion, Biogen’s revenue stream was hurt by declining demand for their multiple sclerosis treatment due to generic competition. The company expects continued erosion of their competitive advantage moving forward.
- Verizon added significantly more wireless postpaid users than expected. The company reporter 553,000 wireless postpaid net additions and topped the 475,000 estimate. Their earnings-per-share came in at $1.25 and were slightly above the expected $1.22. Verizon’s operating revenue in the third quarter clocked in at $31.5 billion, slightly missing the expected $31.6 billion.
- Intel’s third-quarter revenue and earnings fell as they lost revenue from enterprise and government clients.
- American Express’s profit third-quarter missed expectations.
- Economic News
- The NAHB Housing Market Index increased to a record-breaking 85 for October as homebuilders continue to have confidence in the housing market.
- A rebound in September’s housing starts underscored strength in the housing market. Housing starts rose 1.9% m/m in September after falling in August. Starts for single-family homes increased significantly, growing 8.5%, and made up 80% of new housing starts. Similarly, building permits increased by 5.2% m/m, beating expectations and demonstrating future demand for housing development.
- The MBA Mortgage Applications Index fell 0.6%.
- Initial jobless claims for the week ending in October 17 fell to 787,000. This decrease could point to a reduction in layoffs and improvements in the labor market. However, this decline could also be due to the fact that many people have exhausted state unemployment benefits and are now accessing other relief programs.
- Existing home sales climbed 9.4% m/m in September. With this increase, home sales reached a 14-year high.
- The Leading Economic Index added 0.7% m/m in September and demonstrated that the economy is continuing to recover. However, the index’s improvement was not as rapid as in August, suggesting the pace of economic recovery may have slowed.
- The manufacturing sector showed strength as the Markit Manufacturing PMI rose to 53.3 in October. Additionally, the Markit Services PMI climbed to 56 in October.
On Monday, major indexes declined due to pessimism around fiscal stimulus. The Dow Jones fell 1.4%. The S&P 500 declined 1.6%, and the Nasdaq lost 1.7%. House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin continued discussions about fiscal stimulus over the weekend; however, Speaker Pelosi gave them a Tuesday deadline to agree on a pre-election deal. With that news, traders began selling off stocks across the board, and by close, all 11 of the S&P 500’s sectors finished in negative territory. Comparatively, the airline industry did have a stronger day. Airline stocks climbed following reports that daily passenger levels reached one million for the first time since March. Other positive news included suggestions that AstraZeneca could have a vaccine available after Christmas and that ConocoPhillips would be acquiring Concho Resources. In economic news, the NAHB Housing Market Index increased to a record-breaking 85 for October as homebuilders continue to have confidence in the housing market.
On Tuesday, the market flipped its expectations on fiscal stimulus, going optimistic and rising as a result. Comments from Speaker Pelosi on Monday suggested Pelosi and Mnuchin may reach a fiscal stimulus deal before the election. With that, the S&P 500 rose 0.5%, though the index was up as much as 1.5% midday. As trading progressed, investors seemed to hedge their bets on the fiscal relief talks, paring back some of the index’s gains. The Dow Jones added 0.4%, and the Nasdaq climbed 0.3%. Most sectors finished in positive territory. Consumer staples was the only outlier, dropping just 0.1%. The energy sector performed strongly during the day as oil prices rose. The market was also helped along by financial stocks and by Alphabet, whose shares rose despite the Department of Justice filing an antitrust lawsuit against Google. Healthcare news further helped in daily trading as reports suggested Moderna’s COVID-19 vaccine could be available in December. Additionally, we received better-than-expected earnings reports from Procter & Gamble and Travelers. Conversely, IBM and Philip Morris International traded lower on disappointing earnings results. In economic news, both housing starts and permits rose in September, largely thanks to significant strength in the single family home sector.
On Wednesday, the market opened higher, but major indexes lost their gains over the course of the day. The S&P 500 fell 0.2%. The Nasdaq lost 0.3%, and the Dow Jones declined 0.4%. 10 of the 11 sectors closed in negative territory, with the greatest losses seen in the energy sector as oil prices fell. Communication services posted gains in daily trading. The rally was led by Twitter, Facebook, and Alphabet following Snap’s strong earnings report. In other company news, Netflix stock fell after underperforming expectations around new subscriber growth. Verizon, Abbott Labs, and Texas Instruments all posted daily losses despite beating earnings expectations. Paypal climbed 5.5% after they announced they would be implementing cryptocurrency services. In economic news, the MBA Mortgage Applications Index fell 0.6%.
On Thursday, major indexes climbed after Speaker Pelosi said the stimulus package was “just about there”. The S&P 500 climbed 0.5% as value, cyclical, and small-cap stocks outperformed on optimistic stimulus news. The Dow Jones added 0.5%, and the Nasdaq climbed 0.2%. Pelosi’s comments helped the energy, financial, healthcare, and utilities sectors make strong gains. However, the information technology sector finished in negative territory and dragged on the tech-heavy Nasdaq. The real estate and consumer staples sectors also fell. Positive economic news helped the market as well. Initial jobless claims for the week ending in October 17 fell to 787,000. However, this decline could be due to the fact that many people have exhausted state unemployment benefits and are now accessing other relief programs. Existing home sales climbed 9.4% m/m in September. Finally, the Leading Economic Index added 0.7% m/m in September and demonstrated that the economy is continuing to recover. However, the index’s improvement was not as rapid as in August, suggesting the pace of economic recovery may have slowed.
On Friday, the S&P 500 rose 0.3% due to end-of-day strength in the communication services and real estate sectors. The Nasdaq also climbed 0.4%. However, the Dow Jones declined 0.1%. The Dow was dragged down by Intel and American Express after both presented less-than-stellar earnings reports. Intel’s quarterly revenue and earnings fell as they lost revenue from enterprise and government clients. American Express’s profit also missed expectations. Among S&P 500 sectors, energy was the only one to close in negative territory as oil prices fell. In other corporate news, Gilead Sciences gained in daily trading after the FDA approved their COVID-19 remdesivir drug that was used on President Trump. In economic news, the manufacturing sector showed strength as the Markit Manufacturing PMI rose to 53.3 in October. Additionally, the Markit Services PMI climbed to 56 in October.