US Stock Market Overview – Stock Rally Led by the Nasdaq; Microsoft and Semis Drive the Gains

US stocks moved higher on Monday, as traders anticipated a deal between the White House and Congressional Democrats. Most sectors in the S&P 500 index were higher, led by Healthcare. Real-estate bucked the trend. The Nasdaq hit a fresh new record high, led by gains in Microsoft and the Semis. The VIX volatility index hit a fresh 5-month low at 22, before rebounding into the close to settle near 24.40. Apple shares continued to rally climbing nearly 3% on Monday after notching up a 14% gain last week.

Manufacturing in the US accelerated the most in 16-months, which is a forward-looking index. This helped buoy US yields which in turn help the US dollar rebound. The dollar rebounded putting pressure on precious metals, but oil and natural gas rallied helping to buoy the energy space. Natural gas prices surged 16% on Monday on a warm weather forecast. Microsoft confirmed that it would work out a deal to purchase Chinese company TikTok from Byedance. President Trump said that he would want part of the sale to come to the American People. This enraged some businesses in China.

ISM Manufacturing Accelerates by the Fast Pace in 16-months

U.S. manufacturing expanded in July at the fastest pace since March 2019. The Institute for Supply Management reported that its manufacturing index rose to 54.2 last month from 52.6. Expectations were for a reading of 53.6. The ISM’s measure of production increased in July to 62.1, the highest level since August 2018, and a gauge of orders climbed to 61.5, which was the strongest since September of that year. Customer inventories fell to 41.6 in July, the lowest this year and showing that stockpiles were shrinking at a faster pace. Factory inventories also declined after barely growing a month earlier.

Clorox Sales Up 22% in June Quarter Amid COVID-19 Panic-Buying; Target Price $256

Clorox, a $9 billion market cap consumer products company, reported that its sales surged 22% in the June quarter, including double-digit growth across all reportable segments as people spent more time cleaning and disinfecting their homes due to the COVID-19 pandemic, sending its shares up over 1% pre-market trading.

Clorox said it delivered earnings of $310 million, or $2.41 diluted EPS in the fourth quarter, which ended June 30, 2020, compared to $241 million, or $1.88 diluted EPS, the same quarter a year earlier, representing a 28% increase in diluted earnings per share. The company’s fourth-quarter gross margin increased 170 basis points to 46.8% from 45.1% in the year-ago quarter.

The board of directors of the Clorox Company also announced that, effective Sept. 14, 2020, Linda Rendle will be promoted to chief executive officer and elected to the company’s board of directors. Benno Dorer will continue serving as the board’s executive chair.

Clorox shares closed 2.27% higher at $236.51 on Friday, increased more than 50% since the beginning of 2020.

Clorox stock forecast

Nine analysts forecast the average price in 12 months at $202.89 with a high forecast of $256.00 and a low forecast of $164.00. The average price target represents a -14.22% decrease from the last price of $236.51. From those nine, three analysts rated ‘Buy’, four analysts rated ‘Hold’ and three rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $193 with a high of $259 under a bull scenario and $145 under the worst-case scenario. Deutsche Bank raised its target price to $223 from $174. Several other equity analysts have also updated their stock outlook. Clorox had its price target raised by investment analysts at JPMorgan Chase & Co. to $235 from $203. BofA Global Research raised price objective to $235 from $215.

We think it is good to buy at the current level with a target of $256 as 100-day Moving Average and 100-200-day MACD Oscillator signal a mild buying opportunity.

Analyst comment

“Structural Long-term Topline Challenges Relative to HPC Peers: While CLX’s near-term topline is likely to be robustly supported by a COVID-related demand boost for cleaning products (we project +17.5% for 2H20e, driven by the 25% of CLX’s business related to cleaning), we believe that longer-term, Clorox remains over-indexed to low-growth product categories, with high exposure to the US,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“Valuation Too High: We view CLX valuation of 20.5x CY21e EV/EBITDA and 30x CY21e P/E as too high (in comparison to PG at 23x CY21e P/E) considering limited LT EPS growth and strategic potential relative to peers post a beneficial COVID impact,” he added.

Upside and Downside Risks

Topline and margin upside from improved pricing, longer-lasting COVID-related demand impact, better than expected volume, declining commodity costs, successful innovation driving recaptured shelf space, consolidation potential, and cost-cutting, Morgan Stanley highlighted as upside risks to Clorox.

Pricing doesn’t take hold, worsening volumes, higher than expected commodity inflation, heightened competition from private label, Morgan Stanley highlighted as downside risks.

Marathon Petroleum to Sell Speedway for $21 billion to 7-Eleven; Target Price $48

Marathon Petroleum, an American petroleum refining, marketing, and transportation company, announced that it has entered into an agreement with 7-Eleven, a wholly-owned indirect subsidiary of Seven & i Holdings, to sell its Speedway gas stations in the United States for $21 billion in cash.

The $21 billion valuation represents a significant value unlock. The 100% cash transaction immediately captures value for MPC shareholders relative to potential valuation risks of other alternatives, the company said.

“We estimate a 17% equity valuation uplift from the transaction with proceeds evenly going to buybacks and debt, though that allocation will not be decided until deal close. Rating and price target under review,” said Jason Gabelman, equity analyst at Cowen.

“We expect MPC to target net debt at <1x mid-cycle EBITDA post-sale. We estimate $2.2 billion mid-cycle refining EBITDA plus $2.2 billion distributions from the MLP. This could mean $7.5 billion of sale proceeds go to debt paydown with the remainder to share buybacks, though one could argue the stable distributions from the MLP mean a higher debt multiple. The equity value change until deal close will impact how many shares will ultimately be repurchased and could be a driver of value creation from this sale.”

The deal is expected to result in after-tax cash proceeds of approximately $16.5 billion. Marathon Petroleum expects to use the proceeds to both repay debt to protect its investment-grade credit profile and return capital to shareholders.

The deal is anticipated to close in the first quarter of next year, subject to customary closing conditions and regulatory approvals. 7-Eleven said the agreement will help bring the total number of stores in the world’s biggest economy and Canada to nearly 14,000.

“We think this is a positive outcome for Marathon Petroleum, with the company receiving a price that’s above expectations (which we peg at ~$17-18 billion pre-tax), crystallizing Speedway value immediately, and bringing in more cash for greater financial flexibility (vs. a spin),” said Benny Wong, equity analyst at Morgan Stanley.

Following this deal, Seven & i shares fell more than 8% to JPY 2937.5 on Monday, the biggest one-day drop since March. Marathon Petroleum shares rose 0.5% to $38.38 in after-hours trading.

Executive comment

“This transaction marks a milestone on the strategic priorities we outlined earlier this year,” Michael J. Hennigan, president and chief executive officer said a press release.

“Our announcement crystalizes the significant value of the Speedway business, creates certainty around value realization and delivers on our commitment to unlock the value of our assets.  At the same time, the establishment of a long-term strategic relationship with 7-Eleven creates opportunities to improve our commercial performance.”

Marathon Petroleum stock forecast

Eleven analysts forecast the average price in 12 months at $47.09 with a high forecast of $61.00 and a low forecast of $38.00. The average price target represents a 23.27% increase from the last price of $38.20. From those 11, nine analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Marathon Petroleum had its price target trimmed by Scotiabank to $48 from $51 The firm currently has a sector outperform rating on the oil and gas company’s stock. Mizuho lowered its price target to $52 from $54. Jefferies cuts target price to $48 from $50.

Several other equity analysts have also updated their stock outlook. Jefferies Financial Group increased their target price on shares of Marathon Petroleum to $48.00 from $50.00. Morgan Stanley target price is $48 with a high of $60 under a bull scenario and $28 under the worst-case scenario. We think it is good to hold for now as 100-day Moving Average signals a mild selling opportunity.

Analyst comment

“Marathon Petroleum offers multiple ways to win. We expect MPC to benefit from the overall decline in crude prices, although we caution refined product demand risk could weigh on valuation. That said, the stock offers idiosyncratic upside as the company is undergoing a strategic review to unlock discounted value, which includes spinning out Speedway,” Morgan Stanley’s Wong said.

“We see a SoTP upside to ~$50/shr. Our SoTP is as follows: we assign $24/shr to retail, $21/shr to midstream, and $24/shr to refining. Adjusted for assets/liabilities, net debt, and synergies, our SoTP suggests a ~$51/shr valuation (>47% upside),” he added.

Upside and Downside Risks

Oil prices stay depressed or decline further; Successful spin-off of Speedway retail fuel business; Potential separation of MPLX and conversion to a C-Corp; Material widening of sweet-sour differentials, Morgan Stanley highlighted as upside risks to Marathon Petroleum.

Demand risk and Sweet-sour differentials narrow materially are two major downside risks.

Starbucks Could Test March Low

Starbucks Corp. (SBUX) rallied 3.7% on Wednesday after beating fiscal Q3 2020 consensus estimates but still lost $0.46 per-share on $4.22 billion in revenue, a staggering 38.1% decline compared to the same quarter in 2019. The company reported weakness all across the world, with revenue at the Global and Americas divisions dropping around 40%. Higher individual sales eased the bearish results but it wasn’t enough to lift earnings into the green.

Starbucks Vulnerable To Second Wave

The coffee giant now expects a fiscal year revenue decline of 10% to 15%, which forecasts a major sales uptick between now and year’s end. The positive guidance seems unrealistic, given the current path of the COVID-19 pandemic and likelihood of a second wave in the Northern Hemisphere this winter. Valuation could take a major hit in 2021 if sales continue to fall, sending the stock price to much lower levels.

Telsey Advisory Group analyst Bob Derrington recently lowered his target and discussed the long-term outlook, noting management was attempting to “restore and build confidence” by accelerating roll-outs of mobile order pay systems. He also outlined realignment initiatives for the new environment, indicating the retailer will “optimize its global store portfolio, including accelerated development of its smaller, more efficient pick-up stores and suburban drive-thru locations, and the closure of up to 400 urban cafes in the U.S. and 200 in Canada.”

Wall Street And Technical Outlook

Wall Street currently rates Starbucks as a ‘Moderate Buy’, based upon 10 ‘Buy’ and 14 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions at this time. Price targets currently range from a low of $73 to a street-high $95 while the stock closed Friday’s U.S. session about $7 below the median $83 target. This placement suggests that higher sales will be needed to generate upside but that doesn’t seem likely in the third quarter.

Starbucks posted an all-time high near 100 in August 2019 and completed a double top breakdown in February 2020, establishing strong resistance in the low-80s. The stock sold off to a 19-month low in March and reversed at new resistance in June, easing into a holding pattern below that critical level. While a breakout will improve the technical outlook, the stock is trading perilously close to support at 71, with a breakdown raising odds for a decline into the March low.

 

 

 

Positives to Outweigh Negatives, Constructive on Stocks and Other Risk Assets: Fidelity’s Timmer

The direction in which the stock market may head is not as clear as it was at the end of March as some things are working in favour of stocks going up and also against them; however, the positives continue to outweigh the negatives, said Fidelity’s Global Asset Allocation Division director of global macro, Jurrien Timmer, who remains constructive on stocks and other risk assets in general.

So far, the deadly virus has infected more than 18 million people in over 210 countries and killed nearly 700 thousand, wherein the United States is the worst hit. Despite that, stocks continue to act as if we have already beaten the COVID-19, the infectious disease caused by the most recently discovered coronavirus.

The S&P 500 index has gained 50% since hitting a three-year low on March 23 of 2191.86, largely spurred by the Federal Reserve’s massive stimulus and COVID-19 vaccine optimism. However, the year is already halfway through and now it rests with the stock market to prove that it was right about a sharp V-shaped rebound in economic growth.

Since nearly all the country’s economic activity has been suspended since late March amid rising concerns about the spread of the coronavirus disease, federal governments and central banks around the world has spent trillions of dollars trying to help restart the economy and provide some relief to the financial markets.

That stimulus has given the initial impetus to stock as liquidity increased in the debt markets and volatility subdued in several markets. However, the long-term impact of these massive stimuli on the economy and the financial markets is unknown. The S&P 500 ended 1% higher at 3271.12 on Friday, just 122.4 points below its all-time high of 3,393.52 registered on February 19.

The COVID-19 related collapse in earnings will be reversed slowly as the economy re-opens and the recovery matures into expansion in 2021, causing a full recovery in the market to the February highs by the end of this year. The S&P 500 stock index to hit 3,400 By the end of this year and 3,600 next year; earnings to also rebound in 2021, according to Mizuho Securities.

Empirically, big price gains, combined with a large retracement after a fall amid strength in market broadness – a trend that can be seen in the S&P 500 today, has always led to a start of a bull market.

“If there ever was a pivotal moment for making a call on which direction the next 10% or 25% move will be for the S&P 500, now is it, I believe. A few months ago, it seemed to me, it was a relatively simple call, at least based on the study of market history. The stock market typically rallies after the type of historic selling climax experienced in late March, and this time has not been any different so far. But after a 46% rally (which never produced a retest) I think it’s much more of a toss-up now,” said Fidelity’s Global Asset Allocation Division director of global macro, Jurrien Timmer.

On the positives, Fidelity’s Timmer said:

“On the plus side, the economy has bottomed and is recovering, with earnings growth following along. Earnings season is looking good so far, with 85% of companies beating estimates by an average of 15 percentage points. It’s still early days for earnings season with 181 companies reporting, and the differences between estimates and reported earnings are unusually large given how little guidance there has been on the earnings front. The policy response has been another plus, of course. The Fed is keeping its foot on the monetary gas pedal, and more fiscal relief may be on the way as well, as transfer payments threaten to dry up. The promise that the Fed and Treasury (and their global counterparts) can build a bridge across the COVID-19 abyss and on to the other side of this pandemic has been an important factor behind the market’s powerful rally,” Fidelity’s Timmer said.

“The tape (momentum and breadth) has been another plus for the US market. The sentiment picture is another positive. Finally, on the plus side, there appear to be a number of potential positive developments underway in terms of COVID-19 treatments and vaccines. This prospect, along with the Fed, have put a floor under the market, including the more economically sensitive ‘reopen’ sectors,” he added.

On the negatives, Fidelity’s Timmer said

“COVID-19 continues to burn its way through sections of the U.S. and the world, and this is causing some states to delay or reverse their reopening plans. As a result, some of the high-frequency economic indicators are suggesting that the economy is starting to stall out following the initially strong V-shaped recovery. The longer the recovery gets dragged out, the greater the risk that this V could turn into a U or L, and that the liquidity crisis that the Fed was able to mitigate will turn into a solvency crisis not unlike 2008,” Fidelity’s Timmer said.

“The risk is not that the economy will not recover, just that it won’t recover back to its full potential. If the economy recovers, but only to say 70% of what it was pre-COVID, then it will be a long slog back to normal. Right now, the stock market seems to be priced for something quicker. On top of this we have a pivotal election in a few months, bringing with it various potential policy outcomes, which could eventually affect corporate taxes and U.S.-China relations,” he added.

“A well-diversified portfolio of both growth stocks and deep value stocks (especially emerging market and non-US developed), gold and Treasury Inflation-Protected Securities (TIPS), and long-duration bonds. A portfolio similar to this, in my view, is pretty close to an all-weather portfolio,” he concluded.

The Week Ahead – COVID-19, Economic Data and US Politics in Focus

On the Macro

It’s a busier week ahead on the economic calendar, with 59 stats in focus in the week ending 7th August. In the week prior, just 57 stats had been in focus.

For the Dollar:

It’s another busy week ahead on the economic data front.

In the 1st half, the ISM’s July private sector PMIs, ADP nonfarm employment change figures, and June factory orders are in focus.

We would expect Wednesday’s ISM Non-Manufacturing PMI and ADP Nonfarm Employment Change to have the greatest impact.

The focus will then to Thursday’s initial jobless claims and Friday’s nonfarm payroll numbers and unemployment rate.

Following some disappointing weekly jobless claims figures and the rise in COVID-19 cases, the labor market figures will be key.

For the service sector, any contraction in July, following a jump in productivity in June, would also weigh on riskier assets.

The Dollar Spot Index ended the week down by 1.15% to 93.349.

For the EUR:

It’s also another busy week ahead on the economic data front.

On Monday and Wednesday, July’s manufacturing and services PMIs are due out of Italy and Spain.

Finalized PMIs are also due out of France, Germany, and the Eurozone.

With Spain seeing a spike in new COVID-19 cases, expect some attention to the PMIs. Ultimately, however, the Eurozone’s services and composite will likely have the greatest impact.

The focus will then shift German factory orders for June, due out on Thursday.

At the end of the week, Germany remains in focus, with June’s industrial production and trade figures due out.

Barring disappointing numbers, June retail sales figures for the Eurozone should have a muted impact on Thursday.

The EUR/USD ended the week up by 1.05% to $1.1778.

For the Pound:

It’s a relatively busy week ahead on the economic calendar. July’s finalized private sector PMIs are due out and will garner plenty of interest.

Expect any downward revision to the Services PMI on Wednesday to have the greatest impact.

On Thursday, the focus will then shift to the BoE. More action is expected and the Bank may consider an extension to the suspension of banks paying dividends and buybacks.

While the BoE is in action, we can also expect any further updates on Brexit to also influence in the week.

The GBP/USD ended the week up by 2.27% to $1.3085.

For the Loonie:

It’s a relatively busy week ahead on the economic calendar.

On Wednesday, June’s trade figures are due out ahead of July employment numbers on Friday.

Expect the employment figures to have the greatest impact, however.

Barring dire numbers, the Ivey PMI for July should have a muted impact on the Loonie on Friday.

Away from the stats, COVID-19 and geopolitics will continue to influence crude oil prices and risk sentiment.

The Loonie ended the week up by 0.02% to C$1.3412 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a relatively busy week ahead for the Aussie Dollar.

At the start of the week, the Manufacturing Index figures are due out ahead of a busy Tuesday.

We would expect manufacturing PMIs from China, the EU, and the U.S to have a greater impact, however, on Monday.

The focus will then shift June trade and retail sales figures due out on Tuesday. Expect the retail sales figures to have the greatest impact. The RBA continues to rely on consumer spending to support the economy. Weak numbers will be a test for the Aussie Dollar.

For the week, however, the main event is the RBA monetary policy decision on Tuesday.

Following the spike in new COVID-19 cases, will the RBA remain optimistic about the economic recovery?\

Any dovish chatter and the Aussie Dollar could eye sub-$0.70 levels. At the end of the week, the RBA’s statement on monetary policy will also draw interest.

The Aussie Dollar ended the week up by 0.53% to $0.7143.

For the Kiwi Dollar:

It’s another quiet week ahead on the economic calendar.

2nd quarter employment figures are due out on Wednesday. The markets will likely be forgiving to an extent, with COVID-19 expected to have an impact on employment.

With economic data on the lighter side, private sector PMIs from China, the EU, and the U.S will influence.

Expect geopolitics and COVID-19 news to also have an impact in the week. Any signs of a slowdown in new cases globally and expect support to kick in.

The Kiwi Dollar ended the week down by 0.18% to $0.6629.

For the Japanese Yen:

It is a busy week ahead on the economic calendar.

Finalized 2nd quarter GDP and July’s manufacturing PMI numbers are due out on Monday.

The focus will then shift to July’s service PMI on Wednesday and June household spending figures on Friday.

While the stats will influence sentiment towards BoJ monetary policy, the Yen will remain at the mercy of COVID-19 and geopolitics.

The Japanese Yen ended the week up by 0.29% to ¥105.83 against the U.S Dollar.

Out of China

It’s a relatively busy week ahead on the economic data front.

July’s private sector PMIs are due out on Monday and Wednesday. Expect the figures to influence risk appetite in the week.

On Friday, July trade figures will also garner plenty of attention. While exports remain the main area of focus, any sizeable fall in imports would test risk appetite on the day.

Away from the economic calendar, any chatter from Beijing will also need monitoring.

The Chinese Yuan ended the week up 0.62% to CNY6.9752 against the U.S Dollar.

Geo-Politics

UK Politics:

Brexit will remain in focus. Talks are set to continue through August and September ahead of an EU Summit in October.

60 days may sound like a lot but when considering the lack of progress over 4-years…

A light economic calendar and Brexit chatter have provided the Pound with support. We may even see the markets brush off the chances of a hard Brexit.

Getting on with it seems to be the key desire now rather than dragging it out any longer. Either way, we’re not expecting Johnson and the team to give too much away…

U.S Politics:

Last week, the Republicans showed signs of fragmentation. As Presidential Election stress builds, we could see more fractures as Trump attempts to distract voters.

The immediate issue at hand, however, is the COVID-19 stimulus package. Any failure to deliver will weigh on the Dollar. Labor market conditions have not improved and the 2nd wave has shown little sign of slowing. A lack of benefits for the unemployed will raise more issues than a fall in household spending. We have already seen social unrest…

The Coronavirus:

It was yet another bad week, with the number of new COVID-19 cases continuing to rise at a marked pace.

From the market’s perspective, the 3 key considerations have been:

  1. Progress is made with COVID-19 treatment drugs and vaccines.
  2. No spikes in new cases as a result of the easing of lockdown measures.
  3. Governments continue to progress towards fully opening economies and borders.

Last week, we saw a number of countries including Hong Kong and the UK reintroduce containment measures. Hopes of progress towards a vaccine had limited the damage last week. In the week ahead, however, the numbers will need to ease off to avoid spooking the markets.

At the time of writing, the total number of coronavirus cases stood at 17,981,937. Monday to Saturday, the total number of new cases increased by 1,782,490. Over the same period in the previous week, the total number had risen by 1,531,149.

Monday through Saturday, the U.S reported 447,236 new cases to take the total to 4,762,945. This was up marginally from the previous week’s 417,070

For Germany, Italy, and Spain, there were 22,814 new cases Monday through Saturday. This took the total to 793,804. In the previous week, there had been 17,083 cases over the same period. Spain accounted for 16,101 of the total new cases in the week.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Upside Momentum Can Build Over 10768.75

September E-mini NASDAQ-100 Index futures surged more than 1% on Friday, boosted by strong earnings from some of the largest U.S. companies, however, gains may have been limited by uncertainty about the government’s next round of coronavirus aid.

The index was primarily boosted by strong performances by Apple Inc, Amazon.com and Facebook. Perhaps putting a lid on prices was a poor performance by Google parent Alphabet. The four companies are among the top five in market capitalization. Additionally, Apple’s gain pushed it ahead of Saudi Aramco as the world’s most valuable public company, according to Refinitiv data.

On Friday, September E-mini NASDAQ-100 Index futures settled at 10914.25, up 120.25 or 1.10%.

Meanwhile, the White House and Democrats were still negotiating on coronavirus relief aid, but not yet on a path toward reaching a deal, according to House of Representatives Speaker Nancy Pelosi, hours before the expiration of a federal unemployment benefit.

Daily September E-mini NASDAQ-100 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The trend turned up on Thursday after the index spent nearly a week in a downtrend.

A trade through 10939.00 will signal a resumption of the uptrend while a move through 11058.00 to 11058.50 will reaffirm the uptrend. The main trend will change to down on a move through 10502.75.

From the bottom up, the intermediate range is 9728.75 to 11058.50. Its retracement zone at 10393.50 to 10236.75 is the key support. It stopped the selling on July 24 at 10301.00.

The short-term range is 11058.00 to 10301.00. Its retracement zone at 10679.50 to 10768.75 is now support after spending most of the week as resistance.

Short-Term Outlook

Holding above the retracement zone at 10768.75 to 10679.50 will be the key to sustaining the upside momentum. This may be enough to trigger a rally into the double-top at 11058.00 to 11058.50. The latter is a potential trigger point for an acceleration to the upside.

On the downside, 10393.50 to 10236.75 is holding the rally together. Buyers came in strong to defend this zone when they produced a bottom at 10301.00.

The daily chart indicates there is plenty of room to the downside under the Fibonacci level at 10236.75. Taking out this level with conviction could trigger an acceleration to the downside with the next major target the June 29 main bottom at 9728.75.

For a look at all of today’s economic events, check out our economic calendar.

The Weekly Wrap – Economic Data, the FED, and Trump Sank the Dollar

The Stats

It was a busy week on the economic calendar, in the week ending 31st July.

A total of 56 stats were monitored, following the 41 stats from the week prior.

Of the 56 stats, 31 came in ahead forecasts, with 24 economic indicators coming up short of forecasts. Just 1 stat was in line with forecasts in the week.

Looking at the numbers, 19 of the stats reflected an upward trend from previous figures. Of the remaining 37, 35 stats reflected a deterioration from previous.

For the Greenback, it was a 6th consecutive week in the red. In the week ending 31st July, the Dollar Spot Index fell by 1.15% to 93.349. In the week prior, the Dollar had fallen by 1.57%.

The continued slide through the month of July left the Dollar Spot Index down by 4.15% for the month.

Dire economic data, the continued spread of COVID-19, and a dovish FED delivered the loss. Adding to the Dollar angst in the week was Trump’s Presidential Election delay tweet on Thursday…

According to a Reuters report, U.S Dollar net shorts surged to the highest in 9-years, delivering the largest monthly loss Since Sept-2010.

Looking at the latest coronavirus numbers

At the time of writing, the total number of coronavirus cases stood at 17,731,750 for Friday, rising from last Friday’s 15,930,779 total cases. Week-on-week (Saturday thru Friday), the total number of cases was up by 1,801,071 on a global basis. This was higher than the previous week’s increase of 1,741,556 in new cases.

In the U.S, the total rose by 454,463 to 4,702,774. In the week prior, the total number of new cases had risen by 478,299.

Across Germany, Italy, and Spain combined, the total number of new cases increased by 22,753 to bring total infections to 793,804. In the previous week, the total number of new cases had risen by 17,404. Spain alone reported 16,101 new cases in the week.

Out of the U.S

It was a busy week on the economic data front.

Key stats included July consumer confidence, the weekly jobless claims, and 2nd quarter GDP figures.

The stats were skewed to the negative. Consumer confidence deteriorated in July, as a result of the 2nd wave of the pandemic. Initial jobless claims increased for a 2nd consecutive week, with the U.S economy contracting by 32.9% in the 2nd quarter.

At the end of the week, July consumer sentiment figures were also revised down.

There were some positives, however. Durable and core durable goods continued to rise in June.

Chicago’s PMI returned to expansion in July, with personal spending rising for a 2nd consecutive month in June. These were good enough to give the Dollar much-needed support at the end of the week.

In the equity markets, the NASDAQ and S&P500 rose by 3.69% and by 1.73% respectively. The Dow bucked the trend, however, falling by 0.16%.

Out of the UK

It was a particularly quiet week on the economic calendar, with no material stats to provide the Pound with direction.

A lack of economic data contributed to the upside in the Pound that benefitted from Dollar weakness. News of the government reintroducing lockdown measures in the North weighed at the end of the week, however.

In the week, the Pound rallied by 2.27% to $1.3085 in the week, following on from a 1.80% gain from the previous week. The FTSE100 ended the week down by 3.69%, following on from a 2.65% loss from the previous week.

Out of the Eurozone

It was a busy week on the economic data front.

In a quiet 1st half of the week, Germany’s IFO Business Climate Index figures for July provided support on Monday.

The focus then shifted to 2nd quarter GDP numbers. France, Germany, and the Eurozone reported particularly dire 2nd quarter numbers.

The German economy contracted by 10.1%, the French economy by 13.8%, and the Eurozone economy by 12.1%.

It wasn’t enough to send the EUR into the red, however, as the U.S delivered darker numbers.

For the week, the EUR rose by 1.05% to $1.1778, following a 2.00% rally from the previous week. A 0.58% pullback on Friday limited the upside for the week.

For the European major indexes, it was another bearish week. The DAX30 slid by 4.09%, with the CAC40 and EuroStoxx600 falling by 3.49% and by 2.98% respectively.

For the Loonie

It was a quiet week on the economic calendar.

Economic data included May GDP and June RMPI numbers at the end of the week.

The stats were positive, with the Canadian economy expanding by 4.5% in May, following April’s 11.7% contraction. In June, the RMPI rose by a further 7.5%, following a 16.4% jump in May.

While the other majors lost ground against the Greenback on Friday, the stats delivered support at the end of the week.

The Loonie rose by 0.02% to end the week at C$1.3412 against the Greenback. In the week prior, the Loonie had rallied by 1.22% to C$1.3415.

Elsewhere

It was a mixed week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 31st July, the Aussie Dollar rose by 0.53% to $0.7143, while the Kiwi Dollar fell by 0.18% to $0.6629. A 1.04% slide on Friday, left the Kiwi in the red for the week.

For the Aussie Dollar

It was a relatively quiet week for the Aussie Dollar.

Inflation and private sector credit figures delivered mixed results in the week.

In the 2nd quarter, consumer prices slid by 1.9%, with prices down by 0.30% year-on-year.

Final delivery numbers were not much better, with the Producer Price Index falling by 1.20% in the 2nd quarter. Year-on-year, the index fell by 0.40%.

The numbers were better than forecasts, which propped up the Aussie Dollar.

Private sector credit disappointed, however, falling by 0.3% in June.

While the Aussie Dollar found support against the Greenback, the latest COVID-19 outbreak pinned back the Aussie.

For the Kiwi Dollar

It was another relatively quiet week on the economic data front.

While stats included building consent and business confidence figures, the focus was on the business confidence figures.

A marginal improvement in business confidence did little to support the Kiwi, however.

In July, the ANZ Business Confidence Index rose from -34.4 to -31.8.

According to the latest ANZ Report,

  • A net 9% of firms expect weaker economic activity in their own business, rising from -26% in June.
  • The retail sector drove the recovery, while the agriculture sector was the most negative.
  • 31% of firms say they intend to lay off staff, and 24% say they have less staff than a year ago.

For the Japanese Yen

It was a relatively quiet week on the economic calendar.

Retail sales continued to fall in June. Following a 12.5% slump in May, retail sales fell by 1.20%.

Industrial production delivered hope, however, rising by 2.7% in June, according to prelim figures. In May, production had tumbled by 8.9%.

A weakening U.S Dollar stemming from particularly dire economic data and a dovish FED supported the Yen.

The Japanese Yen rose by 0.29% to end the week at ¥105.83 against the Greenback. A 1.05% slide on Friday, cut the gains from earlier in the week. In the week prior, the Yen had risen by 0.82%.

Out of China

It was a quiet week on the economic data front.

July’s NBS private sector PMI figures delivered mixed results on Friday.

While the Non-Manufacturing PMI slipped from 54.4 to 54.2, the Manufacturing PMI rose from 50.9 to 51.1.

With Beijing and Washington silent, following the previous week’s diplomatic spat, the Yuan recovered to sub-CNY7 levels.

In the week ending 24th July, the Chinese Yuan rose by 0.62% to CNY6.9752 against the Dollar. In the week prior, the Yuan had fallen by 0.37%.

The CSI300 rallied by 4.20%, while the Hang Seng falling 0.45%, as a 2nd wave of the pandemic hit HK.

US Stock Market Overview – Stocks Close Higher to Close out the Month on an Up Note

US stocks moved higher on Friday as the Nasdaq roared higher. Better than expected earnings from Apple, Amazon and Facebook helped buoy the Nasdaq. Apple shares soared more than 10% as iPhone 11 sales surged. Facebook was up more than 7%, as both the top and bottom-line beat expectations. All sectors in the S&P 500 index were lower, led down by losses in cyclicals. The technology was the best performing sector. Personal spending rose more than expected, and inflation ticked up slightly. Crude oil prices edged higher following news that the oil rig count declined by one rig.

Personal Spending Rose

Consumer spending, rose 5.6% last month after a record 8.5% jump in May as more businesses reopened. Expectations had been for consumer spending to rise by 5.5% in June. When adjusted for inflation, consumer spending increased 5.2% last month after surging 8.4% in May. Personal income dropped 1.1% last month after decreasing 4.4% in May. Wages increased 2.2% after rebounding by 2.6% in May. The saving rate fell to a still-high 19% from 24.2% in May.

Inflation edged higher in June

Monthly inflation ticked up in June, driven by food and energy goods and services prices, though the trend remained muted. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components rose 0.2%, matching May’s gain. On a year over year basis, the core PCE price index increased 0.9% after rising 1.0% in May.

Stimulus Bill Hits a Road Block

Negotiators on the next coronavirus relief bill hit a roadblock Friday and have not been able to reach a middle ground. Underscoring the gulf between Democrats and Republicans as they try to boost an economy. The current $600 per week enhanced federal unemployment benefit lapses on 7/31. After last-ditch efforts to pass an extension failed Thursday, the Senate left for the weekend.

Facebook Q2 Revenue Surges 11% Despite COVID-19 Crisis; Target Price $300

Facebook Inc, the world’s largest online social network, reported revenue growth of 11% in the second quarter despite ongoing COVID-19 pandemic and advertising boycott on social media platforms, sending its shares up over 6% pre-market on Friday.

The social media conglomerate said its revenue rose to $18.7 billion in the second quarter, with a net income of $5.2 billion, or $1.80 per share.

That is despite several companies, including UnileverStarbucksCoca-ColaHonda and others, have signed for an advertising boycott of social media platforms including Facebook and Twitter in June. Ben & Jerry’s, Verizon Wireless and Eddie Bauer have also joined the race to pause advertisements for July.

Advertisement sales, the primary source of Facebook’s revenue, jumped 10% to $18.3 billion in the second quarter ended June 30. Facebook’s monthly active users increased 12% year-over-year to 2.70 billion and headcount was 52,534, an increase of 32% year-over-year.

“Due to the strong second-quarter numbers, we have increased our projections for this year and 2021 which resulted in a $265 fair value estimate, up from $245. We recommend waiting for a wider margin of safety before investing in this wide-moat and high uncertainty name,” said Ali Mogharabi, senior equity analyst at Morningstar.

Facebook forecasts its full quarter year-over-year ad revenue growth rate for the third quarter of 2020 will be roughly similar to its July performance and total expenses in the range of $52-55 billion this year, narrowed slightly from the prior range of $52-56 billion. This year’s capital expenditures are anticipated at nearly $16 billion.

Facebook’s shares rose over 6% to $248.8 pre-market on Friday. It has risen over 14% so far in 2020, registering its biggest quarterly rise of more than 35% in the June quarter.

“Facebook 2Q20 results beat on Rev/Op Inc./EPS, as user and engagement strength led to an adv. rebound in May/June vs. April’s flattish levels. FB expects 3Q20 adv revenue +10% y/y (vs. our +9% y/y pre-print estimate). The midpoint of FY20 opex guide was lowered; FY20 capex guide is a bit higher as data center construction resumes. We raised estimate, price target to $290 vs. $280, maintain Outperform. FB shares +7% AH,” said John Blackledge, equity analyst at Cowen.

Facebook stock forecast

Thirty analysts forecast the average price in 12 months at $268.31 with a high forecast of $320.00 and a low forecast of $220.00. The average price target represents a 14.42% increase from the last price of $234.50. From those 30, 27 analysts rated ‘Buy’, three analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Just after the earnings result, Credit Suisse upped its target price to $315 from $305; JP Morgan raised its target price to $300 from $290; Cowen and Company raised target price to $290 from $280; RBC raised target price to $290 from $280 and Canaccord Genuity raised it to $290 from $275. Morgan Stanley target price is $285 with a high of $340 under a bull scenario and $200 under the worst-case scenario.

We think it is good to buy at the current level and target at least $300 in the short-term and $400 in a best-case scenario as 100-day Moving Average signals a strong buying opportunity.

Analyst comment

“Monetization Potential: We are positive on FB’s monetization roll-out of Instagram as well as FB’s ability to continue to innovate and improve its monetization (Canvas Ads, Dynamic Ads, video). Combined with the high and growing engagement we see monetization upside going forward, Brian Nowak, equity analyst at Morgan Stanley noted.

“Investing from Position of Strength to Drive Faster Long-Term Growth: We are modelling 11% GAAP opex (excl. one-time items) growth in 2020, implying an incremental $5 billion in opex. Our base case model implies opex per employee moderates in ’20 while FB hiring remains roughly flat on an absolute basis. We believe FB will grow EPS at a 14% CAGR (2019-2022),” he added.

Amazon.com Posts Record Q2 Profit Amid COVID-19 Pandemic; Buy with Target Price of $3500

Amazon.com, the world’s largest online retailer, reported that its profit hit an all-time high in the second quarter as online sales surged amid the COVID-19 pandemic, sending its shares up 5% to $3,204.60 in after-hours trade on Thursday.

The multinational technology company based in Seattle said its net sales rose 40% to $88.9 billion in the second quarter, compared with $63.4 billion a year earlier. The company’s online store sales surged nearly 48% to $45.89 billion its second quarter ended June 30, 2020.

Net income surged to $5.2 billion in the second quarter, or $10.30 per diluted share, from $2.6 billion, or $5.22 per diluted share, in second-quarter 2019. Operating income increased to $5.8 billion in the quarter-end on June 30, from $3.1 billion in the same period last year.

“We are reiterating our BUY rating for Amazon.com, while increasing our price target to$3,800 from $2,625. Our new price target is based on our updated discounted cash flow model, including our long-term adj. EBITDA margin forecast 22.0% (unchanged) versus 15.4% in 2019,” said Tom Forte, senior research analyst at D.A. Davidson.

“COVID-19 has been like injecting Amazon with a growth hormone and is driving sales expansion in ways that even the rollout of one-day Prime shipping was not able to. The company indicated it expects $2 billion of incremental spending to combat COVID-19 in 3Q 2020, down from more than $4 billion in 2Q 2020. As we expected and consistent with the CIO survey led by our colleague, Andrew Nowinski, its cloud computing sales growth decelerated in the quarter to 29.0% from 32.8%,” he added.

Amazon’s shares rose over 70% so far in 2020, registering its biggest quarterly rise of more than 40% in the June quarter.

On the third quarter 2020 guidance, Amazon.com forecast its net sales between $87.0 billion and $93.0 billion, or to grow between 24% and 33% compared with third-quarter 2019 and operating income is anticipated between $2.0 billion and $5.0 billion.

“First, U.S. retail inflecting as Amazon.com drives surging e-commerce, Second, this is global too as bottom-up work leads us to raise int’l retail, Third, expect ad revs upside, Fourth, Amazon.com adding record high-margin dollar growth, creating a path to $95 billion of ’22 EBITDA even with investment. Top pick; Bull case to $4,200,” said Brian Nowak, equity analyst at Morgan Stanley.

Executive comment

“As expected, we spent over $4 billion on incremental COVID-19-related costs in the quarter to help keep employees safe and deliver products to customers in this time of high demand—purchasing personal protective equipment, increasing cleaning of our facilities, following new safety process paths, adding new backup family care benefits, and paying a special thank you bonus of over $500 million to front-line employees and delivery partners,” Jeff Bezos, Amazon founder and CEO said in a press release.

“We’ve created over 175,000 new jobs since March and are in the process of bringing 125,000 of these employees into regular, full-time positions. And third-party sales again grew faster this quarter than Amazon’s first-party sales. Lastly, even in this unpredictable time, we injected significant money into the economy this quarter, investing over $9 billion in capital projects, including fulfilment, transportation, and AWS,” he added.

Amazon.com stock forecast

Thirty-eight analysts forecast the average price in 12 months at $3,242.66 with a high forecast of $3,800.00 and a low forecast of $2,162.00. The average price target represents a 6.25% increase from the last price of $3,051.88. From those 38, 36 analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Just after the earnings result, Keybanc upped its target price to $3,500 from $3,285; Canaccord Genuity raised its target price to $3800 from $3300 and BMO raised target price to $3500 from $2850. Morgan Stanley target price is $3,450 with a high of $4,200 under a bull scenario and $2,200 under the worst-case scenario.

Earlier this month, Suntrust Robinson raised the target price to $3,400 from $2,700, Deutsche Bank raised the target price to $3333 from $2750 and Wedbush raised the target price to $3,050 from $2,750.

We think it is good to buy at the current level and target at least $3,500 in the short-term and $4,000 in a best-case scenario as 100-day Moving Average signals a strong buying opportunity.

Analyst comment

“We went to a Buy from Neutral Rating in June at about 2600 and about 30% upside at the time. The stock has quickly hit our target with strong results. The max PE we use is 65X for conviction. Even though Amazon and other stocks have traded much higher than that, that’s our max. So keeping PE constant and factoring in the EPS upside (even though there’s a ton of upside coming) we’re moving to Neutral now that valuation wise our risk/reward is more even rather than upside,” said Chaim Siegel from Elazar Advisors.

“Retail trends accelerated. AWS revenues slowed but two-quarters of margin acceleration helps our EPS model. We have a big EPS upside if you scroll through our model. Still, at fair value, we’re moving to Neutral Rating.”

US Stock Market Overview – Stocks Close Mixed Ahead of Key Large Cap Tech Earnings

US stocks were mixed on Thursday ahead of earnings from the major large-cap tech stocks. After the closing bell, Apple, Amazon, Facebook, and Alphabet are scheduled to release financial results. Most sectors in the S&P 500 index were lower on Thursday led down by energy following a 5% decline in crude oil prices. Technology shares bucked the trend. US GDP tumbled declining nearly 33% year over year which weighed on the US 10-year yield. The yield closed below 55-basis points. US Jobless claims came out in line with expectations rising for the second consecutive week.

US Jobless Claims Rise for Second Consecutive Week

US jobless claims rose to 1.434 million, according to the Labor Department in line with expectations. This was the 19th straight week in which initial claims totaled at least 1 million and the second consecutive week in which initial claims rose after declining for 15 straight weeks.

Q2 GDP Contracts Sharply

Second-quarter GDP plunged the most in history contracting by 32.9% on a year over year basis according to the Commerce Department’s first reading on US growth. Economists had been looking for a drop of 34.7%, which means that despite the decline it was better than expected. With Q1 growth down 5% this number officially put the US economy in a recession. This news is not good for the incumbent President. No president in modern history has won reelection while there was a recession.

Personal consumption, subtracted 25% from the Q2 total, with services accounting for nearly all that drop. Prices for domestic purchases, known as the GDP deflator fell 1.5% for the period, compared with a 1.4% increase in the first quarter. The personal consumption expenditures price index dropped 1.9% after rising a tepid 1.3% in Q1. Excluding food and energy, the core PCE was off 1.1%.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Strong Over 10679.50, Weak Under 10529.75

September E-mini NASDAQ-100 Index futures are trading higher at the mid-session after shrugging off bearish economic news and worries ahead of the release of quarterly earnings reports by tech heavyweights Apple Inc, Amazon.com Inc, Alphabet Inc and Facebook. Shares of the companies have a combined market value of about $5 trillion or almost a fifth of the whole S&P 500 Index.

At 16:33 GMT, September E-mini NASDAQ-100 Index futures are trading 10687.50, up 13.25 or +0.12%. This is up from an intraday low of 10707.00.

Earlier in the session, the index fell after the Commerce Department reported that Gross Domestic Product collapsed at a 32.9% annualized rate last quarter. Jobless claims numbers also showed another rise in the latest week and coronavirus cases continued to surge.

Daily September E-mini NASDAQ-100

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 10301.00 will signal a resumption of the downtrend. The main trend will change to up on a trade through 10758.50.

The minor range is 10301.00 to 10758.50. Its 50% level at 10529.75 provided support earlier in the session.

The short-term range is 11058.00 to 10301.00. Its retracement zone at 10679.50 to 10769.00 is potential resistance. It is currently being tested.

The main range is 9728.75 to 11058.50. Its retracement zone at 10393.50 to 10236.75 is key support. It stopped the selling last week at 10301.00.

Daily Swing Chart Technical Forecast

Based on the early price action and the current price at 10687.50, the direction of the September E-mini NASDAQ-100 Index into the close is likely to be determined by trader reaction to the 50% level at 10679.50.

Bullish Scenario

A sustained move over 10679.50 will indicate the presence of buyers. This could trigger a rally into the main top at 10758.50, followed closely by the Fibonacci level at 10769.00. The latter is a potential trigger point for an acceleration to the upside.

Bearish Scenario

Remember with the main trend down, traders are likely to sell rallies. A sustained move under 10679.50 will signal the presence of sellers. This could lead to a retest of the 50% level at 10529.75.

If 10529.75 fails as support then look for the selling to possibly extend into a series of levels at 10393.50, 10301.00 and 10238.75.

Taking out 10238.75 could trigger an acceleration to the downside with 9728.75 the next major downside target zone.

For a look at all of today’s economic events, check out our economic calendar.

What To Expect After Amazon.Com Earnings

Amazon.Com Inc. (AMZN) reports Q2 2020 earnings after Thursday’s closing bell in the United States, with Wall Street analysts looking for the e-commerce behemoth to report $1.62 earnings-per-share (EPS) on a staggering $81.3 billion in revenue. The stock fell 7.6% after missing Q1 profit estimates and lowering Q2 operating income guidance in April, but bottomed out quickly and rallied 30% into Wednesday’s close at 3,033.

Amazon.Com CEO Grilled By Congress

CEO Jeff Bezos and other big tech executives appeared before Congress on Wednesday and got grilled about allegedly monopolistic practices. Bezos denied the charges, insisting the company was competing against a host of large players. He also noted that Amazon accounts for less than 1% of the $25 trillion global retail market and less than 4% of retail in the United States. Finally, he claimed the company has done a good deed by inviting 3rd party retailers to participate, advising “we could have kept this valuable real estate to ourselves”.

BMO Markets analyst Daniel Salmon raised his Amazon.Com price target from $2850 to $3500 ahead of the release, noting “we believe AMZN’s long-term opportunity is stronger than ever and we continue to see outperformance over the next 12 months. But per CEO Bezos, you may want to take a seat, because [they] are not thinking small and we are cautious into the print, owing to recent stock outperformance and the potential for significant new investment spending.”

Wall Street And Technical Outlook

Wall Street rates the stock as a ‘Strong Buy’, based upon an astounding 36 ‘Buy’ and just 2 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions and move to the sidelines at this time. Price targets currently range from a low of $2,162 to a street-high $3,800 while the stock is trading close to $200 below the median $3,200 target. This positioning favors higher prices after a strong report and bullish guidance.

Technically speaking, Amazon.Com is showing signs of fatigue after an historic uptrend underpinned by COVID-19 tailwinds. The stock has gained more than 50% since breaking out above 2018 resistance at 2,000 in March, setting off extremely overbought relative strength readings that now favor a consolidation of gains, rather than quick assault on 3,500. This pullback may have already begun, with steady profit-taking since the July 13 high at 3,344.

 

 

General Electric Q2 Loss Widens; Target Price $3 in a Worst-Case Scenario

General Electric Co, a globally diversified technology and financial services company, reported a wider-than-anticipated quarterly loss of $2.2 billion in the second quarter, compared to a loss of $61 million during the same period a year ago, as coronavirus wrecked its aviation business, sending its shares down over 4%.

Following this release, the Boston-based industrial conglomerate’s shares closed down 4.35% at $6.59 on Wednesday, down over 40% year-to-date.

General Electric’s revenue declined 24% year-on-year to $17.7 billion in the second quarter and reported a cash outflow of $2.1 billion from industrial operations. The company also suffered a 44% decline in revenues in its aviation business.

“Narrow-moat-rated General Electric had a difficult second quarter. That was expected. GE’s higher-margin businesses within aviation, healthcare, and gas power were more heavily impacted by coronavirus and were down three times relative to the rest of GE Industrial. While we arguably overly anticipated the revenue pressures, we failed to fully appreciate the magnitude of difficulties management faces in excising fixed costs from GE’s business. To that end, we cut our fair value estimate by about 6.5% to $9.90 (from$10.60 previously), said Joshua Aguilar, equity analyst at Morningstar.

“We now expect adjusted EPS of $0.05 for full-year 2020, $0.47 in 2021, and $0.71 in 2022, as well as industrial free cash flow burn of just over negative $2billion for 2020. Our valuation implies a value of roughly 21 times our 2021 earnings expectations.  Given the unique challenges in the commercial aerospace industry, we encourage investors to look out to next year’s earnings, despite the clear level of macroeconomic uncertainty (which should be appropriately built into an investor’s margin of safety).”

Executive comment

“Our earnings performance was impacted by the ongoing impact of COVID-19 on our businesses, but Industrial free cash flow was better than our expectations and previously communicated range. We made faster progress on elements within our control, including our targeted cost and cash preservation actions,” said GE Chairman and CEO H. Lawrence Culp.

“We’re working through a still-difficult COVID-19 environment, and while it’s too early to predict the trajectory for the recovery of commercial aviation, we continue to plan for a prolonged return to prior levels of activity. Still, based on what we see today and the actions we’ve taken, sequential improvement in earnings and cash in the second half of the year is achievable. We expect to return to positive Industrial free cash flow in 2021. We are accelerating our transformation to make GE stronger and drive long-term, profitable growth.”

General Electric stock forecast

Eleven analysts forecast the average price in 12 months at $8.22 with a high forecast of $11.00 and a low forecast of $5.00. The average price target represents a 24.73% increase from the last price of $6.59. From those 11, five analysts rated ‘Buy’, six analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Deutsche Bank lowered its target price to $6.51 from $7.4, while UBS raised its target price to $8.5 from $8. Morgan Stanley target price is $8 with a high of $13 under a bull scenario and $3 under the worst-case scenario.

We think it is good to sell at the current level and target at least $5 in the short-term and $3 in a worst-case scenario as 100-day Moving Average signals a strong selling opportunity.

Analyst comment

“While we view Aviation as a best-in-class franchise and see long-term upside on shop visits growth, we see a scenario where engines are cannibalized for available flight hours through 2021 and that maintenance gets deferred until 2022,” Joshua Pokrzywinski, equity analyst at Morgan Stanley said.

“Tail risks from Power, pension, and Long-Term Care are declining as 2021 brings a wall of cash and strong improvement in risk/reward. We see a clear path to ~2.0x Industrial Net-Debt/Ebitda in 2020, and as cash flow ramps in 2021 and beyond, we see a broadening set of strategic opportunities,” he added.

Buy PayPal; Target Price $210 in Base-Case and $240 Under Most Bullish Scenario

PayPal Holding Inc, a leading global payments platform, reported that its second-quarter profit surged 86%, the strongest quarterly performance in the company’s history, largely due to a solid rise in e-commerce transactions and new active accounts, sending its shares up about 5% in extended trading after hitting all-time high earlier in the day.

The digital payment service company said its second-quarter net income surged to $1.53 billion, or $1.29 per share, compared to $823 million, or 69 cents per share, the same period a year ago. Revenue jumped 25% to $5.26 billion.

PayPal anticipated the trends to continue and forecast earnings per share for 2020 to rise nearly 25% on more than 20% revenue growth.

“The COVID-19 induced shift to digital is providing significant tailwinds to PayPal’s business –with record 2Q results meaningfully exceeding expectations across the board. Importantly, we believe the increases in key business drivers are sustainable. We expect the stock to be strong on July 30,” said George Mihalos, equity analyst at Cowen.

PayPal said its added 21.3 million NNAs, bringing total active accounts to 346 million accounts, up 21%. The digital payment service company processed $222 billion in payments, up 29% on a spot basis and 30% foreign exchange. Merchant Services volume grew 28% and Venmo processed approximately $37 billion in TPV, growing 52%.

“We remain overweight on PayPal as secular e-com tailwinds, coupled with greater habituation opportunity in a post-COVID-19 environment, should allow the company to grow volumes above the rate of e-com (ex-Amazon). With greater profitability on the horizon, we see an opportunity for compounding 20%+ earnings growth,” said James Faucette, equity analyst at Morgan Stanley.

Executives’ comments

“In the midst of the COVID-19 pandemic, digital payments have become more important and essential than ever. Our record performance in the second quarter – our strongest quarter ever – reaffirms the relevance of PayPal in the unfolding digital future. We’re committed to supporting our consumers and merchants as they work to safely navigate this new reality,” said President and CEO Dan Schulman.

“Our second-quarter performance highlights the benefits of PayPal’s diversification and scale, and our resulting earnings power. We delivered 25% revenue growth on a currency-neutral basis, 49% growth in non-GAAP earnings per share, and generated $2.2 billion in free cash flow,” said CFO and EVP Global Customer Operations John Rainey.

PayPal stock forecast

Several equity research firms upgraded their PayPal’s stock outlook just after the result. RBC raised its target price to $212 from $192; Jefferies raised its target price to $230 from $210; Credit Suisse upped its price objective to $205 from $190; Piper Sandler raised its target price to $228 from $210. Canaccord Genuity raised it to $218 from $190. Morgan Stanley target price is $206 with a high of $239 under a bull scenario and $105 under the worst-case scenario.

We think it is good to buy at the current level and target at least $210 in the short-term and $240 in a best-case scenario as 100-day Moving Average signals a strong buying opportunity.

On the other hand, thirty-three analysts forecast the average price in 12 months at $184.14 with a high forecast of $215.00 and a low forecast of $132.00. The average price target represents a -0.25% decrease from the last price of $184.60. From those 33, 27 analysts rated ‘Buy’, six analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Analysts’ comments

“PayPal, one of our top OWs, is the preferred digital wallet option for non-Amazon merchants, as evidenced by its online acceptance lead vs. other digital wallets and industry-low attrition. PayPal’s efforts to offer a seamless and secure checkout experience ties its TPV growth rate with the secular growth of eCommerce,” Morgan Stanley’s Faucette.

“As consumers increase their habitual use of PayPal, the company should grow its TPV at or above the rate of eCommerce (ex-Amazon). Venmo and partnership monetization should offer additional TPV and revenue growth, while operating leverage from its scale support 20%+ earnings growth over the medium term, despite near-term headwinds from eBay and macro impacts,” he added.

“Estimates move higher for ’20 and ’21; PT to $230. We raise our estimates to account for the momentum in the business and the updated outlook for 3Q/FY20. FY20 EPS goes to $3.68 (from $3.24) and our 2021 EPS moves to $4.34. PT increases to $230, reflecting better growth and wider margins; equal to 53x our ’21 estimate,” said John Hecht, equity analyst at Jefferies.

Upside and Downside Risks

Faster eCommerce (ex-Amazon) growth; Greater usage in existing markets and greater adoption in new markets; Faster margin expansion; Accretive acquisitions; Traction in Venmo monetization/new partnerships, Morgan Stanley highlighted as upside risks to PayPal.

A slowdown of eCommerce growth (ex-Amazon); Underperformance at eBay or faster conversion of volumes to eBay’s managed platform; Other market players with leads in offline could gain traction online, Morgan Stanley highlighted as downside risks.

Anthem Q2 Profit Doubles Amid COVID-19 Slowdown; Buy With Target Price of $310

Anthem Inc, one of the largest health benefits companies in the United States, reported that its second-quarter profit almost doubled as the ongoing COVID-19 pandemic halted less urgent health care procedures.

U.S. health insurer said its second-quarter net income climbed to $2.28 billion, or $8.91a share, compared to $1.14 billion, or $4.36 per share same period a year ago. Total revenue climbed to $29.3 billion from $25.47 billion. Adjusted net income was $9.20 per share.

The benefit expense ratio was 77.9% in the second quarter ended June 30, a decrease of 880 basis points from 86.7% in the prior-year quarter. The decrease was primarily driven by the deferral of healthcare utilization due to the COVID-19 pandemic, and to a lesser extent, the return of the health insurance tax in 2020, the company said.

Anthem stock last closed 0.5% higher at $265.23, recovered nearly 50% from March 23 low of $171.33.

“Why we are neutral longer-term: At a high level, we believe managed care organizations (MCOs) could trade sideways over the next few months. We think four factors could keep a lid on near-term stock performance 1) don’t expect investors will get paid for very high 2Q results, 2) we remain guarded that Commercial Group disenrollment could accelerate, 3) we see trading risk around a Phase 4 stimulus bill, and 4) we see election risk where Biden’s surge in the polls brings with it a louder discussion of a corporate tax rate hike to 28% from 21% ~negatively impacting managed care organization EPS by 8-9%. HOLD, Price Target $281 ~ 11.6x PE,” noted analysts Jefferies.

Anthem stock forecast

Eleven analysts forecast the average price in 12 months at $337.82 with a high forecast of $423.00 and a low forecast of $281.00. The average price target represents a 27.37% increase from the last price of $265.23. From those 11, eight analysts rated ‘Buy’, three analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $423 with a high of $533 under a bull scenario and $245 under the worst-case scenario. SVB Leerink raised its target price to $325; Jefferies raised its target price to $281 from $271; Stephens upped its price objective to $330 from $310. In May, Suntrust Robinson raised its target price to $320 from $280.

We think it is good to buy at the current level and target at least $310 in the short-term and $420 in a best-case scenario as 100-day Moving Average signals a buying opportunity.

Analyst comment

“Anthem is the largest commercial player with 17% market share and second-largest player in Medicaid and exchanges. Under the helm of new CEO Gail Boudreaux Anthem has been focused on improving its commercial business profitability and gaining share in Medicare Advantage marketplace (from current 5%),” noted Ricky Goldwasser, equity analyst at Morgan Stanley.

“Insourcing of PBM is accretive to earnings and positions Anthem to more effectively compete in the marketplace,” she added.

Middle-Week Screening: Gold Glitters and Shines!

Overview and trends

US stocks rose on Monday as investors looked to major earnings on deck this week and awaited the release of the GOP’s coronavirus stimulus plan. Senate Majority Leader Mitch McConnell finally said that Republicans were ready to present their long-awaited $1 trillion COVID-19 package details, as Democrats remained wary. S&P 500 ended up 0.74%, while Dow Jones Industrial Average was higher 0.44%, and Nasdaq Composite shot up 1.86%.

US stock indices ended down from 0.65% to 1.27% yesterday as investors mulled Senate Republicans’ coronavirus stimulus package and a slew of very surprising earnings reports.

The U.S. republicans continued debating on its fiscal relief plan most of the day. The projected $1 trillion packages will include another round of $1,200 payment checks and additional funds for small-business loans.

A large portion of reporting yesterday companies sadly missed their earnings figures, with most disappointments coming from 3M, McDonald’s and even biotech Pfizer. Oil tumbled through the session, with West Texas Intermediate crude dropping as much as 1.5%, to $41.10 per barrel.

Gold was the leading instrument in the 1st half of trading week. Gold prices took a stratospheric leap last week, jumping from the previous week’s support test at $1800 an ounce to the $1900 level that hasn’t been traded since 2011.

Next day Gold jumped to a record high of $1944 per ounce, driven by an uptick in new U.S. coronavirus cases that have added to economic uncertainty. Shares of Moderna surged after the company said it received an additional $472 million in funding for its COVID-19 vaccine.

Trading ideas

According to a new court filing, multiple California state offices are actively investigating Amazon (AMZN) over worker safety concerns as the coronavirus continues to rage throughout the U.S. An eighth Amazon employee has died of COVID-19, and the virus has spread quickly through clusters of employees at factory floors and warehouses nationwide where social distancing isn’t enforced. Amazon’s own shipping centers have reported outbreaks, including one in the Pocono Mountains and another in Oregon.

The earnings date for Amazon is July 31, an overwhelming majority of high-profile analysts think the numbers will be as stellar as never before. Amazon’s average EPS estimate is $3.6 versus $5.01 it actually earned last quarter. It’s easy to guess that Amazon will beat that number indeed. However, even the bigger question will be how the tech giant is going to address these mounting allegations about poor safety of its employees. It looks like this time around it’s no longer just curiosity.

Global payments processor Visa reports earnings today, on July 29, and it will be more than just one more set of quarterly financial numbers. Investors will get a direct insight into how consumer spending is being affected by the pandemic and an uncertain economy. This quarter revenue for the payments processing giant are expected to drop by roughly 17% to $4.81 billion versus $5.84 billion a year ago. This anticipated drop has a lot to do with lower transaction volume as many stores were closed throughout the quarter. With that said, there is optimism for a potential beat driven by increased digital payment volume as more and more people shopped online.

Indeed, dealing with paper money has now become not only unsafe but also unsanitary. So VISA’s performance will be more or less accurately reflecting the real global consumer spending, and households’ entire propensity to consume, and how efficient the world’s largest central banks’ and governments’ efforts to offset the COVID-19 impact. So fasten your seatbelts!

The Australian dollar has rallied rather significantly on Monday, showing signs of life yet again as the U.S. dollar continues to get hammered against most currencies. Aussie pierced below 1.40 mark, and now this level became its support, rather than resistance level. A couple of times over the past several trading sessions it tried to approach it, but the big return looked invariably spectacular.

So, this level now can be seen as a cemented support for the Australian currency. Its further growth towards 1.35 is highly dependent on the continuation of the gold rally. Australia is the second-largest gold producer in the world with 325 tons per year, right after China. By the way, 2019 was a record year for Australian gold production.

So, the momentum the Australian currency has been gaining lately is not just a coincidence, and if greenback keeps getting softer, and metals keep getting stronger, it would be hard to find a better choice than to take a chance on the Aussie.

One of the less-talked-about but more potent beneficiaries of this year’s gold rally Kinross Gold (KGC) is scheduled to announce Q2 earnings results today, on July 29th, after market close.

The consensus EPS estimate is 13 cents and the consensus revenue estimate is around $1 billion (assuming a 20% growth Year-over-Year). Over the last 2 years, Kinross Gold has beaten EPS estimates 63% of the time and has beaten revenue estimates 50% of the time.

Kinross is gaining from higher production at its two main deposit fields, which already had shown strong momentum in this year’s first quarter. Strong production is likely to have continued in the second quarter. Further, gold prices have been soaring this year making it the most attractive safe-haven asset. Gold prices have gained around 13% in the second quarter — the highest quarterly percentage increase in more than four years.

by Vladimir Rojankovski, Grand Capital Chief Analyst

Visa Q3 Profit Plunges 23% as Consumers Cut Spending Amid COVID-19 Crisis; Target Price $210

Visa Inc, the world’s largest card payment company, reported that its quarterly profit plunged 23% in the third quarter of fiscal 2020 as large-scale layoffs due to the lockdowns, aimed at limiting the spread of coronavirus, dented consumer spending.

The global technology payment company, which has a presence in more than 200 countries, said in the quarter ended June 30, its net income fell to $2.4 billion, or $1.07 per share, compared to $3.10 billion, or $1.37 per share, seen a year earlier.

Just after the result, Visa shares fell about 2% after market hours, closed 0.1% lower at $196.74 on Tuesday. So far, the deadly virus has infected more than 16.57 million people in 210 countries and killed over 650 thousand.

“Visa’s F3Q20 results were slightly ahead of our expectations, but positive US volume trends seem to flatten vs. late June as we had feared. Cross-border volumes have stabilized but remain under pressure – a trend we expect will continue through FY20. We expect the stock to be range-bound near term,” said George Mihalos, equity analyst at Cowen.

Visa’s payments volume for the three months ended June 30, 2020, decreased 10% over the prior year on a constant-dollar basis and total processed transactions, which represent transactions processed by Visa, were 30.7 billion, a 13% decrease over the prior year.

The company said its cross-border volume excluding transactions within Europe, which drive their international transaction revenues, declined 47% on a constant-dollar basis. Including cross-border transactions within Europe, the decline on a constant-dollar basis was 37% in the quarter. Net revenues fell 17% to $4.8 billion.

“Domestic recovery appears to have stalled and no sign of a bounce in cross-border in updated volumes through July 21st. The uptrend in domestic volumes has stalled July MTD, with growth rates showing modest deceleration relative to the start of the month likely the result of recently tightened COVID-related restrictions in several key states,” said Trevor Williams, equity analyst at Jefferies, who gave a price target of $185.

“Interestingly, while card-present growth has remained largely flat relative to 2H June, card not present growth (ex-Travel) has decelerated modestly from early in July, though as stayed in a fairly consistent band of +30-40% y/y growth since early June. Cross-border growth remains depressed excluding intra-Europe transactions, down more than 40% y/y MTD in July, which marks a slight deceleration relative to trends in early June.”

Executive comment

“We continue to focus on managing our business for the medium and long-term despite the challenges of the global pandemic. In the quarter, we were pleased to see strong growth in areas that are strategically important, including eCommerce, tap to pay, new flows and value-added services. We remain committed to our strategy and are thoughtfully investing to fuel Visa’s future performance,” said Chairman and Chief Executive Officer Alfred F. Kelly.

Visa stock forecast

Nineteen analysts forecast the average price in 12 months at $211.58 with a high forecast of $247.00 and a low forecast of $188.00. The average price target represents a 7.54% increase from the last price of $196.74. From those 19, 17 analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $203 with a high of $277 under a bull scenario and $137 under the worst-case scenario. Evercore ISI raised its target price to $247 from $226; Piper Sandler raised the price target to $206 from $200 and Compass Point raised its target price to $230 from $200.

Several other equity researches have also recently upgraded their stock outlook. Wells Fargo raised the target price to $220 from $205, Citigroup raised the target price to $227 from $223, JP Morgan raised it to $203 from $182. Barclays raised it to $220 from $209 and RBC raised it to $247 from $212.

We think it is good to buy at the current level and target at least $210 in the short-term and $250 in a best-case scenario as 50-day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity.

Analyst comment

“Visa is on of our preferred stocks, as it is a key beneficiary of resilient global consumer spend growth, the ongoing shift from cash to electronic payments, and broadening merchant acceptance. Global Personal Consumption Expenditure and secular growth drivers should support high-single digit volume growth and low double-digit revenue growth in the near-to-medium term,” noted James Faucette, equity analyst at Morgan Stanley.

“The threat of disruption from new entrants is fairly low given Visa’s competitive cost structure and moat. Continued investment in longer-term initiatives (faster payments, P2P, B2B) and partnerships continue to increase its TAM and offer an opportunity for compounding double-digit earnings growth for the foreseeable future,” he added.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Is Bearish Secondary Lower Top Forming?

September E-mini NASDAQ-100 Index futures are trading lower as we approach the mid-session. Nervous investors are squaring positions ahead of several key earnings reports this week, Federal Reserve monetary policy decisions and the start of a debate in Congress over additional fiscal stimulus funds.

NASDAQ Components Amgen, eBay, Starbucks report after the bell on Tuesday.

Apple Inc, Amazon.com Inc, and Alphabet Inc report later this week.

At 15:11 GMT, September E-mini NASDAQ-100 Index futures are trading 10602.00, down 80.00 or -0.83%.

Daily September E-mini NASDAQ-100 Index

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 10301.00 will signal a resumption of the downtrend. The main trend will change to up on a trade through the double-top at 11058.00 and 11058.50.

The short-term range is 11058.00 to 10301.00. Its retracement zone at 10679.50 to 10769.00 is resistance. This zone stopped the rally earlier today at 10758.50. The subsequent sell-off indicates a potentially bearish secondary lower top may be forming.

The minor range is 10301.00 to 10758.50. Trader reaction to its 50% level at 10529.75 will tell us if the selling is getting stronger.

The key support zone is 10393.50 to 10236.75.

Daily Swing Chart Technical Forecast

Based on the early price action, the direction of the September E-mini NASDAQ-100 into the close is likely to be determined by trader reaction to 10529.75.

Bearish Scenario

A sustained move under 10529.75 will indicate the presence of sellers. This could trigger a plunge into 10393.50.

If 10393.50 fails to hold as support then look for the selling to possibly extend into 10301.00 and 10236.75. The latter is a potential trigger point for an acceleration to the downside.

Bullish Scenario

A sustained move over 10529.75 will signal that counter-trend buyers are coming in to support the market in an attempt to prevent a steep sell-off.

The first upside targets are a series of levels at 10679.50, 10758.50 and 10769.00.

For a look at all of today’s economic events, check out our economic calendar.