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Weekly Research Report – 5 August 2019

Clay Carter

It was not a good week for global equities although the weakness in the Aussie dollar softened the blow for Australian based overseas investors. The Dow and S&P 500 posted their fifth straight day of losses to cap the stock market's worst week in months. Investors remained focused on President Trump's threat to extend tariffs to essentially all Chinese imports, totally ignoring July's employment report that showed a healthy jobs market with some 164,000 added to the employment rolls and the jobless rate steady at 3.7%, a 50-year-low. Technology companies (-1.7%), which get a sizeable portion of their revenue from China, were the hardest hit among the S&P's industry groups. For the week, the S&P and Nasdaq slumped to their biggest weekly declines of the year in USD.

 

Weekly returns to 2 August 2019
(AUD 5-day return far right- hand column)

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Source: Bloomberg


 
Rates/Commodities

  • 10-Year Treasury yield: -21bp to 1.847% (a 12 month low)
  • Gold: -0.30% to $1,440/oz
  • WTI crude oil: -1.7% to $55.23/bbl
  • AUD/USD: -1.65% to 67.95 (a 12 month low)


 
The week ahead

Earnings season is winding down

The U.S. earnings season is winding down with about 50 major companies — including Disney, CBS and Uber — reporting this week. “Benchmark” stocks reporting include:

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Earnings snapshot by sector: Beats and misses

John Butters (FactSet) reports that earnings are beating expectations more often and by a larger amount than the five-year average. The sales beat rate (59%) is below the five-year average but the size is above.

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And companies with higher non-U.S. sales exposure are doing much worse (ie large multinationals / industrials like Caterpillar). 

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That said Calendar Year Earnings estimates for 2019 are still solid.

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Upcoming economic data (U.S.)

The economic calendar is one of the lightest of the year. ISM non-manufacturing is probably the most important.

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Source: briefing.com
 


 
Stocks in focus

Uber (NYSE: UBER) and Lyft (NASDAQ: LYFT)

While we don’t hold either of these mobility players in any of our Vues yet, their earnings reports should be interesting. Analysts will look for Uber management to update on how the company is leveraging Eats and rideshare users through loyalty offerings. Uber Eats is, of course, the biggest differentiator for Uber and an important driver of future growth.

As for Lyft's report, analysts are forecasting Lyft added some 1.2M riders during the quarter and revenue per rider rose 13.9% Y/Y to $37.10 as it crucially better monetises rides. Compared to the IPO pricing level, Uber is down 8.9% since going public and Lyft is off 16.7%. Buying opportunity?

 


 
Charts of the week

1. Dividend yield on the S&P 500 is now above the 10 yr treasury yield

The dividend yield on the S&P 500 is now above the 10 yr treasury yield. That’s something that has not happened in years. Rarely does 10 year drop below S&P dividend yield. Historically very positive for equity demand. Here’s instances where the spread is positive. As it widens, it’s more bullish. ‬

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2. A healthy U.S. economy in spite of trade tensions

it is time for another look at the Big Four indicators watched by the U.S. National Bureau of Economic Research (NBER) in their recession dating. The ”Big Four” indicators indicate a very healthy U.S. economy in spite of trade tensions.

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3. Economic estimates: Tariffs various scenarios

Clearly scenario 3 is NOT the one we want. 1 or 2 we can handle...

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