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Looking Back, Looking Forward – August 23, 2020

Investors continued to pile on to large-cap technology stocks and helped the S&P 500 set a new all-time high. Minutes from the July Fed meeting revealed the central bank’s concerns on continued economic recovery. Economic data portrayed a mixed picture.

Large-cap information technology stocks rose on the belief that such companies would come out stronger from the pandemic. Apple (AAPL) became the first publicly traded U. S. company to reach the $2 trillion market capitalization milestone. The gain in Apple shares, the most heavily weighted component of the NASDAQ and S&P 500 indexes, handily boosted the benchmarks.

The minutes of the interest rate-setting Federal Reserve Open Market Committee’s July meeting unveiled the central bank’s concern on the pandemic weighing over economic activity, employment, and inflation in the near term and posing considerable risks to the economic outlook in the medium term.

In economic data, measures of manufacturing and service activities as well as measures of the housing industry surprised to the upside. Employment-related data, however, did not live up to expectations with weekly jobless claims rising back above 1 million.

For the week ending August 21, the S&P 500 (SPY) rose 0.8%.

Six of the 11 sectors gained.

Sector returns for the week ending August 21, 2020

Leaders and laggards for the week ending August 21, 2020.

Information technology (XLK), consumer discretionary (XLY), and communication services (XLC) led the S&P 500.

Energy (XLE), financials (XLF), and utilities (XLU) lagged the benchmark.

The breadth of the advance was poor with advancing stocks in the S&P 500 lagging decliners by a wide 1-to-2 ratio.

Only three of the S&P 500 members advanced double-digits.

The S&P 500’s top 10 winners included retailers, information technology companies, and homebuilders.

1. Retailers – L Brands (LB) and Target (TGT) up 13% each

L Brands (LB) surprised investors reporting a profitable quarter as its Bath & Body Works and Victoria’s Secret lines benefited from the strong sanitizer sales and online apparel sales, respectively.

Target’s (TGT) second-quarter sales grew an enviable 24% helping EPS to rise 84% from the year-ago tally. Its comparable sales for brick-and-mortar stores rose 11% in the second quarter while online sales nearly tripled from a year earlier.

2. Information Technology – NVIDIA (NVDA) up 10%, Synopsys (SNPS) up 9%, and Apple (AAPL) up 8%

NVIDIA (NVDA), shares rose on excitement before and after the chipmaker reported second-quarter results. The semiconductor chipmaker’s sales and EPS rose 50% and 76%, respectively from the year-ago tally with both measures exceeding analysts’ forecast. NVIDIA upped the sales and EPS guidance for the current quarter.

Semiconductor design software company Synopsys (SNPS) emulated NVIDIA, reporting a ‘beat-and-raise’ quarter.

Apple (AAPL) shares extended their surge. Being the first U. S. company to reach the $2 trillion market-cap milestone, the upcoming 4-for-1 stock split, and opportunities from the 5G-driven iPhone refresh cycle added to the buzz.

3. Homebuilders – D. R. Horton (DHI) up 8% and Lennar (LEN) up 7%

Shares of homebuilders D. R. Horton (DHI) and Lennar (LEN) rallied on strong housing industry data. Home-builder confidence rose to a new record high in August and sales of existing homes rose 8.7% year-over-year in July.

Other S&P 500 top 10 winners included:

  • Semiconductor microcontroller maker Microchip Technology (MCHP) up 8%
  • Software companies salesforce.com (CRM) up 7% and Autodesk (ADSK) up 6%

Looking ahead to the week of August 24

* Software companies salesforce.com (CRM), Intuit (INTU), and Autodesk (ADSK) feature prominently among the 16 S&P 500 members scheduled to report earnings next week. Medical equipment heavyweight Medtronic (MDT) and discount retailers Dollar General (DG) & Dollar Tree (DLTR) report as well.

* The Federal Reserve’s annual Jackson Hole symposium starts on Thursday. Keeping with the times, this is an online event this year. Economists are hoping Fed Chairman Powell goes beyond affirming his extraordinary support for the pandemic-stricken economy, provides a sense of how long zero percent interest rates will be in place. They hope to glean more of the Fed’s thoughts on yield curve management and inflation targeting.

* Investors and energy commodity traders are watching the evolution of two tropical storms Laura and Marco that are heading into the Gulf of Mexico and could make landfall some time mid-week. On the political front, the Republican convention will be held next week.
 


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