Morning Wrap: S&P 500 logs best July since 1939, iron ore extends gains, ASX to rise

The S&P 500 had its best July since 1939, Amazon shares surge on better-than-expected earnings, Apple iPhone sales remain steady, iron ore futures extend gains and RBA to hike interest rates on Tuesday.

Let’s dive in.

MARKETS

The S&P 500 rose 9.1% in July, its best July since 1939. The good news is that previous monthly gains of more than 9% opened the door to more strength, with the S&P 500 up a median 12.3% 6 months later and 17.6% a year later, according to Carson Group.

• 9 out of 11 US sectors higher

• Energy and Discretionary both rallied more than 4%

• Defensive sectors underperformed

• 62% of US stocks advanced

• 57% of US stocks trade below their 200-day moving average (60% last Friday, 69% a week ago) 

STOCKS

• Amazon (+10.4%) reported better-than-expected quarterly earnings growth of 7% to US$121.2bn vs. US$119.1bn expected. The eCommerce giant still lost -US$2bn in the quarter thanks to a -US$3.9bn loss on its Rivian investment 

  • “Despite continued inflationary pressures in fuel, energy, and transportation costs, we’re making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network,” said CEO Andy Jassay

  • Amazon shares rallied 27% in July in its biggest monthly gain since October 2009

• Chevron (+8.9%) posted record quarterly profits as high oil prices boosted earnings

  • Separate comment from Shell CEO, “Where we are today, there is more upside than downside when it comes to the oil price. Demand hasn’t fully recovered yet.” 

• Exxon Mobil (+4.6%) shares rallied on a likewise surge in profits thanks to high commodity prices. Though, its US$115.7bn revenue was below the US$132.7bn expected

• Apple (+3.3%) posted earnings that came slightly ahead of Wall Street expectations. iPhone revenues rose 3% year-on-year to US$40.7bn, suggesting demand for the new iPhone 13 models remains strong

  • "On iPhone, there was no obvious evidence of macroeconomic impact during the June quarter. Besides FX obviously. Mac and iPad were so gated by supply that we didn't have enough product to test the demand. And Wearables home and accessories … did see some impact there,” Apple said in a statement

• Roku (-23.1%) shares tumbled after it missed earnings expectations, posting US$764m revenue vs. US$805 expected. The streaming device company downgraded its third quarter revenue guidance, blaming poor macroeconomic conditions

EARNINGS

66% of S&P 500 companies have beaten revenue estimates for second quarter earnings, which is the lowest percentage since the second quarter of 2020, which stood at 65%, according to FactSet.

Share price reactions to earnings misses for S&P 500 companies are now the lightest on records dating back to 2010, according to Bloomberg. Perhaps signalling that sentiment got too bearish ahead of reporting season. 

US corporate earnings we’re watching next week:

• Monday: Activision Blizzard, Pinterest

• Tuesday: Caterpillar, Advanced Micro Devices, Airbnb, PayPal, Starbucks, Uber

• Wednesday: Moderna

• Thursday: Alibaba, Block, Beyond Meat, Virgin Galactic 

• Friday: Allianz

ECONOMY

• Eurozone GDP rose 0.7% quarter-on-quarter, well-above expectations of 0.2%

  • GDP was up 4.0% on a year-on-year basis

  • Better-than-expected growth was primarily driven by a strong rebound in service sector activity such as hospitality and tourism

  • “From here on, we expect GDP to continue a downward trend as the services reopening rebound moderates, global demand softens and purchasing power squeezes persist,’ said ING

• Canada GDP was flat month-on-month in June, ahead of expectations of -0.2% growth

  • Growth was weighed by a construction workers’ strike and chip shortages

• US personal spending rose 1.1% month-on-month in June

  • The purchase of goods and services, once adjusted for inflation, rose only 0.1%

COMMODITIES

• Iron ore futures rallied 7.4% to US$115.5 a tonne as China plans to issue as much as 1tn yuan (US$150bn) of low interest loans for stalled property projects

  • “The impact of accelerating pro-growth policy measures will drive a solid 3Q economic recovery, suggesting that the operating environment for industrial corporates will likely improve steadily,” said JP Morgan analysts last week

• Oil prices briefly rallied thanks to positive demand outlook comments from Exxon and Chevron. Still, profit-taking kicked in strongly, with WTI fading from a session high of US$101.9

• Gold is finding its groove again, rallying close to a 1-month high as bond yields peak and the US dollar weakens

The RBA is expected to raise interest rates by another 50 bps on Tuesday to 1.85%. The S&P/ASX 200 has had rather mixed reactions to the last three rate hikes:

• 3 May -0.42%

• 7 June -1.53%

• 5 July +0.25%

The May and June hikes were larger than expected, while the July hike was in-line with expectations.

#1 Copper

Copper is on a six day winning streak as risk appetite begins to improve, China kicks off stimulus measures and a 'recession' in the US seems unlikely.

"The recent debate about whether the US is already in a recession is a distraction. Rip roaring payroll, strong Gross Domestic Income (GDI) and strong final sales all suggest 'recession' is still a forecast, not a reality," said Bank of America.

Source: TradingView

#2 Tech

The Nasdaq is in breakout mode. The next point of interest is its 200-day moving average, which is around 4% away.

Source: TradingView | Annotations: MarketIndex

Still, several local tech names got dumped last Friday, notably:

• BNPL stocks

  • Openpay (ASX: OPY) -29%

  • Zip (ASX: ZIP) -25.3%

  • Laybuy (ASX: LBY) -23.3%

  • Sezzle (ASX: SZL) -19.6%

There were also some small-mid cap names that sold off sharply on earnings, including:

• Dubber (ASX: DUB) -25.3%

• PointsBet (ASX: PBH) -10.9%

• Pointerra (ASX: 3DP) -9.4%

• Family Zone (ASX: FZO) -8.1%

All four of the small-mid cap names are unprofitable.

ASX corporate actions occurring today:

• Ex-dividend: None

• Dividends paid: CKF

• Listing: None

• Issued shares: AGY, ANZ, BEX, BIO, CLE, DCX, DTZ, ERD, EXP, GSR, MDR, MEU, MGF, MRM, MX1, NBI, PCG, PRU, QGL, RUL, SIX, SYA, T3D, TPD, TYR, VML

Other things of interest (AEST): 

• China Manufacturing PMI (July) at 11:45 am

• Eurozone Unemployment Rate (June) at 7:00 pm