Into the Deep

U.S. markets end mixed as tech stocks recover, but the weakest U.S. quarterly GDP report in history muted enthusiasm.

Read in Browser   The Market Sum | Insight after the bell By Caleb Silver, Editor in Chief Thursday's Headlines 1. US markets mixed as tech stocks recover 2. FB, AAPL, AMZN, and GOOGL report results 3. US Q2 GDP plunges 32.9% 4. US weekly jobless claims top 1.4 million 5. Global earnings are better than expected Markets Closed Dow 26,313.65 −225.92 (-0.85%) S&P 3,246.22 −12.22 (-0.38%) Nasdaq 10,587.81 +44.87 (+0.43%) VIX 24.76 +0.66 (+2.74%) Bitcoin $11,104.98 −$129.99 (-1.16%) US 10-Yr Yield 0.541 −0.0380 (-6.56%)     Photo courtesy Tara Moore   Markets Today U.S. markets ended the day mixed as tech stocks managed to rally ahead of a wave of earnings from the biggest companies in the sector (see below). The steepest drop in U.S. quarterly GDP in history reminded investors of just how broken the U.S. economy is now. Weekly U.S. jobless claims, which came in at 1.4 million, reminded us of how bad it continues to be.    Germany, which enforced stricter lockdown measures, seems to have figured out its unemployment problem. Like other countries in the EU, it directed its stimulus measures towards companies to keep workers on the payroll as it weathered the pandemic. That seems to have worked, and the chart below is the kind of chart we'd like to see for economies around the world.     Chart courtesy GRUCHENG Index   Headlines: Apple smashed earnings and sales expectations this quarter. iPhone revenue substantially surpassed expectations whereas services revenue merely matched it. In addition, Apple announced a 4:1 stock split. Amazon reported an extraordinary earnings beat, roughly doubling its EPS year over year, when analysts had expected it to drop by 75%. This is after Amazon invested $4 billion in COVID-19 infection management last quarter around the time when multiple whistle-blowers were fired after speaking up about insufficient protection from the disease.  Alphabet reported its first ever quarterly year-over-year decline. Despite that company first, both revenue and EPS declined by less than expected even as advertisers tightened their belts due to the pandemic's disruption of the economy.  Despite an antitrust investigation and a growing boycott from advertisers, Facebook managed to beat analysts' expectations across the board this quarter. Its earnings, revenue, and monthly active user numbers all surpassed expectations, despite growing more slowly than in previous quarters. Facebook's stock is up sharply in aftermarket trading. Johnson & Johnson (JNJ) announced that its novel coronavirus vaccine protected monkeys from the disease with a single dose. Based on the strength of the data, a Phase 1/2a human clinical trial in healthy volunteers has now commenced in the U.S. and Belgium. Phase 3 is expected to start in September. "The findings give us confidence as we progress our vaccine development and upscale manufacturing in parallel," said the company. Stock is 2% higher on the news. California Pizza Kitchen filed for Chapter 11 bankruptcy in Houston on Wednesday, becoming the latest restaurant chain to try to cut debt as sales have evaporated. The company, which operates more than 200 restaurants in the U.S. and abroad, has reached an agreement with a majority of its senior creditors on a restructuring plan. It's looking to reduce its debt by $230 million, more than half of the total, and raise additional funding from existing lenders to buttress its balance sheet, according to court filings. Juul Labs  has filed an application with the Food and Drug Administration to continue selling its e-cigarettes in the U.S., the company announced Thursday. Juul said it is seeking authorization for its device as well as its Virginia tobacco and menthol-flavored pods with 3% and 5% nicotine concentrations. Mango, mint, and other flavors that the company stopped offering last year after facing regulatory scrutiny for allegedly targeting minors weren't included. AstraZeneca said late stage trials of its COVID-19 vaccine developed with Oxford University are currently underway in the U.K., Brazil, and South Africa, and are due to start in the U.S soon. The company beat earnings and revenue forecasts for Q2, and has mobilized research efforts to find new ways to help target the virus and reduce the hyperactive immune response and organ damage it causes. Huawei emerged as the world's biggest smartphone maker in Q2, toppling Samsung from the No. 1 spot, despite U.S. hostility. It shipped 55.8 million devices, down 5% year on year, according to Canalys. Samsung shipped 53.7 million, a 30% fall against Q2 2019. Huawei's success is attributed to its growing dominance (72% market share) in the recovering Chinese market.     chart courtesy TradingEconomics.com   GDP Plunge Economists expected it to be the worst quarterly GDP drop in U.S. history, and it was. The 32.9% plunge (annualized) in second quarter GDP was the worst since we began keeping records, and although most economists forecast a 35% drop, it was still a stark reminder of the damage that has been inflicted on the U.S. economy.   Beyond the headline number, were a series of other metrics that go into the GDP report, and they were terrible as well. Here is the breakdown: Q2 GDP preliminary (annualized): -32.9% (down 5% from Q1) Personal consumption: -34.6% Gross private investment: -49% Exports: -64.1% Imports: - 53.4% Government spending: +2.7% It's not a surprise that government spending showed the only increase. As we know, the government has poured trillions of dollars into the CARES Act and other stimulus and relief efforts. Government spending will only increase in 2020, but if we don't see meaningful increases in the other categories, this recession will last for months, if not years.     Weekly Jobless Claims are Stubbornly High Terrible economic indicators like the ones we just went through have translated into high and rising unemployment at a time we thought we'd be well into a robust recovery in the U.S. We all know why we are not, but another week of over 1.4 million weekly jobless claims shows how far we are from even beginning the climb out of this recession.   According to the Labor Dept., there were over 30 million Americans receiving unemployment benefits. By comparison, there were 1.7 million Americans for the same period a year ago. We'll get the July unemployment report a week from tomorrow, and we should expect the unemployment rate to climb again, putting the recovery even further out of sight.     Chart courtesy Schwab   Global Earnings Mixed Bag We've been focusing a lot on U.S. corporate earnings, which have been historically weak. But if we look around the world, the picture is slightly better. That makes sense given the progress of the economic recoveries taking place in Asia and Europe.    According to data from Schwab, nearly half of the global companies reporting results have revised their earnings upwards, while half have signaled further declines. That's actually decent news, and it explains why so many investment strategists say stock markets outside the U.S., notably in China, Japan, and parts of Europe, are likely to outperform the U.S. over the next several months. More News: Apple Earnings: What Happened Facebook Earnings: What Happened Alphabet Earnings: What Happened SPONSORED BY INVESCO The Complete Guide to ETFs ETFs are becoming increasingly popular and soaring to new heights among investors. Invesco's insights can help you determine if these investment vehicles are right for you. LEARN MORE  > (chart courtesy YCHARTS)     Shares of oil company Apache rose today after it announced that it had made another major oil discovery offshore of Suriname in collaboration with fellow oil company, Total. Chipmaker Qualcomm continued to rise after striking its patent deal with Huawei. UPS reported strong earnings as the quarantine significantly increased demand for residential shipping.     Shares of A.O. Smith, a maker of water heaters and boilers, fell today after reporting a 13% sales decline in Q2. Financial services firm Apollo Global Management's stock declined after announcing an earnings decline. Word of the Day Stock Split A stock split is a corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares. Although the number of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts, because the split does not add any real value. The most common split ratios are 2-for-1 or 3-for-1, which means that the stockholder will have two or three shares, respectively, for every share held earlier.     Photo: TorontoStar   Today in History July 30. 1914: Just weeks after the assassination of Archduke Ferdinand in Sarajevo, stock exchanges in Berlin, Rome, and Vienna shut down as Austria declares war on Serbia. Investors panic in New York: General Motors plunges 34%, and Bethlehem Steel drops 14% (even though it makes the metal that will go into munitions if world war breaks out). The Dow Jones Industrial Average tumbles 6.9% to 71.42, on immense volume of 1,307,000 shares.   John Steele Gordon, "When Markets Melt," Strong Investor, Spring 2001 Want more Investopedia market news? Sign Up for 'The Express' Get more market insights and financial headlines before the opening bell. Make your mornings more enjoyable, for free. Check it out » How can we improve the Market Sum? Tell us at marketsum@investopedia.com CONNECT WITH INVESTOPEDIA Email sent to:  mondemand.forex@blogger.com To update your newsletter preferences or unsubscribe, click here.   114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC. All Rights Reserved | Privacy Policy