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Weekly Research Report – 15 July 2019

Clay Carter

U.S. stocks closed out a strong week with the S&P 500, Dow and Nasdaq all at record highs, as Fed Chairman Powell's signal of likely lower rates later this month outweighed growing worries about the state of the global economy. Other geographies were mixed with European and Asian markets lower on the week. The Australian dollar was a headwind subtracting some .58% from U.S. equity returns, less for other markets.

Weekly returns to 12 July 2019
(AUD 5-day return far right- hand column)

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Source: Bloomberg


 
Rates/Commodities

  • 10-Year Treasury yield: +7bp to 2.12%
  • Gold: +1.2% to US$1,417.7/oz
  • WTI crude oil: +5.0% to US$60.37/bbl
  • AUD/USD: +0.5% to 70.16


 
The week ahead

U.S

The economic calendar includes important reports on housing, retail sales, industrial production, and Michigan sentiment. We also have the closely watched leading indicators as well as the Philly Fed and Empire state reports.

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Source: briefing.com
 

Miscellaneous economic statistics

The Job Openings and Labor Turnover Survey (JOLTS) report released last week showed continuing labour market strength. The survey is done by the United States Bureau of Labor Statistics to help measure job vacancies. It collects data from employers including retailers, manufacturers and different offices each month. While the following chart is a bit busy, it shows the U.S. jobs markets is strong across the board in literally ALL industries.

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Source: U.S Bureau of Labor Statistics 

Which results in a very confident U.S. consumer. Bloomberg’s consumer comfort index continues to rise, approaching levels last seen in 2000.

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Stocks in focus

Amazon (NASDAQ: AMZN)

Amazon now back over US$2000. Just missed closing above US$1Trillion Market Cap.
Since 24 December 2018 AMZN has gained over +50% in USD.

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(Chart as of 10/07/2019)

Prime Day, Amazon's made-up annual shopping event, is here. The two-day sale brings in billions of dollars for the company and has become one of its top-grossing events of the year. It begins (in the U.S.) at 3 a.m. Eastern time Monday and is going on right now in Australia. Amazon created the shopping event five years ago as a way to drum up summer sales and boost membership for its $119-a-year Prime program. The company offers round-the-clock deals on everyday items, as well as exclusive concerts and gaming events for its members. This year's event goes for 48 hours offering discounts on electronics, apparel and home goods.

Last year AMZN sold more than 100 million products to its 100 million Prime members during the sale. The company does not disclose Prime Day sales figures, but this year's event is expected to bring in $5.8 billion, according to analyst's estimates. That compares with an estimated $3.9 billion last year.

Amazon is held in Macrovue’s Disruptive Technologies thematic share portfolio.

 

Walt Disney Co. (NYSE: DIS)

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Disney stock is hitting new highs as investors anticipate the company’s revenue drivers including strong growth this year at both the Parks and Studio segments. The new Star Wars attraction will be an outsized growth driver for the intermediate term (this new expansion opens 31 May 2019 at Disneyland and 29 August 2019 at Disney World).

When “Cars Land” opened in 2012, it revitalised California Adventure at Disneyland. The park saw a huge increase in attendance and a 19% jump immediately in purchases of “park hopper” tickets (a big margin driver). Star Wars: Galaxy’s Edge will be the biggest expansion in the company’s history (over 14 acres) with two main rides and many other attractions. Disney’s Studio business remains its “jewel in the crown” with ongoing hits from Marvel Studios (Avengers and Spider Man franchises), Pixar (Toy Story 4) and of course the upcoming “Lion King.”

Walt Disney is held in Macrovue’s Entertainment thematic share portfolio.


 
The week ahead in global markets

In a word - it’s all about earnings as the U.S. earnings season kicks off. Fifty-six S&P 500 companies are expected to report this coming week, followed by 122 the following week and 121 the week after that.

After companies posted year-over-year earnings-per-share growth of 0.8% in the first quarter, the consensus estimate is for a 2.7% Y/Y decline this quarter. However, S&P 500 companies tend to beat earnings estimates by some 3.7 percentage points higher than forecasts, on average, over the past five years, according to FactSet. Therefore, the reported earnings-growth rate in the second quarter may again be over 1%.

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Are earnings important? Definitely! They are the main determinant of share price performance over the medium term.

What should investors focus on?

  1. Did earnings meet or beat market expectations? (Derived from previous company guidance and Wall St. analysts’ expectations)

  2. If there was a shortfall, was it a one- time event or something that will affect the company’s performance over subsequent quarters?

  3. Did the company offer positive or better than expected guidance for subsequent periods?

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