Stocks ended Friday’s trading session broadly mixed after Department of Labor data showed a sharp slowdown in U.S. employment growth. Investors also seem to show some anxiety after lawmakers couldn’t shake hands on another round of fiscal stimulus to help the economy escape the coronavirus-induced recession.
Prior moves taken by Federal Reserve and U.S. Treasury aimed at bolstering the economy have been broadly credited for the stock market’s rally from the March lows. The fact that the market on Friday ended “mixed” with the S&P 500 and the Dow Jones Industrial Average ending flat to slightly higher would seem to suggest that investors expect lawmakers to agree to a deal, or an executive order by the president. As it turns out, the latter is what happened when Trump made the move to extend some pandemic relief after talks broke down. That said, there are some questions about the legality of the order — after all, Congress controls the purse strings in this country, not the White House, so there may be some legal wrangling ahead. This isn’t over yet.
Meanwhile, on Friday the Labor Department released July data that shows nonfarm payrolls increased 1.76 million in July, much lower than the record 4.8 million in June. That, however, was still better than economists’ expectations. The Dow Jones Industrial Average rose 46.5 points, or 0.17%, to close at 27,433.48, the S&P 500 gained 2.12 points, or 0.06%, to 3,351.28 and the tech-heavy Nasdaq Composite dropped 97.09 points, or 0.87%, to close 11,010.98.
Tech stocks, which have fueled the rally since March and lead the index’s seven-session streak of gains, posted the biggest declines on Friday. Conversely, value stocks, which have significantly lagged, showed signs of life, driven by a more-than 2% rise in financial stocks. Defensive sectors including, utilities and real estate, were also among Friday’s winners. Nonetheless, each of the three major averages posted weekly gains, with the S&P 500 index now about 1.5% below its record high.
Will this rotation continue into next week? It may depend on what unfolds this week in the wake of the president’s executive order. The good news for investors, with more than 80% of the S&P 500 having already reported second-quarter earnings, the rate of beats have been solid, with earnings on average coming in more than 22% above expectations. Here are this week’s names to keep an eye on.
Tilray (TLRY) – Reports after the close, Monday, Aug 10
Wall Street expects Tilray to report a per-share loss of 27 cents on revenue of $55.02 million. This compares to the year-ago quarter when it reported a per-share loss of 36 cents on revenue of $41.11 million.
What to watch: Tilray stock is down 56% year to date and 55% over the past six months. And sentiment fro the cannabis industry took another hit after Canadian cannabis producer Cronos Group (CRON) last Thursday reported a steeper-than-expected second-quarter loss due to lower pot prices in Canada and coronavirus-related U.S. store closures. This would seem an ominous sign for Tilray, which generates about two-thirds of its revenue from cannabis sales, while one-third comes from hemp food products. Tilray’s gross margins have been under pressure, along with high operating costs as the battle over legalization persists.
Nio Limited (NIO) – Reports before the open, Tuesday, Aug. 11
Wall Street expects Nio to report a per-share loss of 26 cents on revenue of $504.39 million. This compares to the year-ago quarter when it reported a per-share loss of 44 cents on revenue of $215.56 million.
What to watch: China’s auto industry is expected to post double-digit sales gain in July, evidenced by the strong results from Japanese automakers. And based on an early projections from the CAAM, China auto sales in July could rise 15% to more than 2 million vehicles. That would make four months in a row of growth. This trend would seem to benefit Chinese electric vehicle maker Nio which is vying to become the next Tesla (TSLA). NIO stock has skyrocketed 244% year to date, including 13% and 20% gains in the respective five days and one month. No longer cash-strapped, the company has reported records in three consecutive months through June. And with early reports of a more-than 300% rise in July deliveries (which would bring its 2020 total to 17,702), it would be a mistake to part with Nio ahead of these results.
Cisco (CSCO) – Reports after the close, Wednesday, Aug. 12
Wall Street expects Cisco to earn 74 cents per share on revenue of $12.08 billion. This compares to the year-ago quarter when earnings came to 83 cents per share on revenue of $13.43 billion.
What to watch: There’s no question that Cisco has benefited from the work-from-home (WFH) trend. But investors will want to know whether the WFH shift has materially impact Cisco’s bottom line. As with the broader tech sector, Cisco continues to transition its business to more software and subscription offerings. The company’s WebEx video conference service, albeit a small part of the business, could be a growth catalyst for its other revenue segment to potentially offset delays in purchases and deployments as companies temporarily shift spending priorities. “We saw continued strong adoption of our SaaS-based offerings and now have 74% of our software that is subscription versus 65% a year ago,” CEO Chuck Robbins said in on its Q3 earnings call. The market will want to see some evidence that the trend is sustainable.
Vroom (VRM) – Reports after the close, Wednesday, Aug. 12
Wall Street expects Vroom report a per-share loss of 70 cents on revenue of $234.94 million. This will be the company’s first earnings report since going public.
What to watch: Tons of optimism have built up in online auto retailer Vroom, which will report its first quarterly results since going public in June of this year. The company saw its stock close more than 117% higher after pricing its initial public offering at $22 per share. With better-than-expected result from rival Carvana (CVNA) which sent its stock racing to all-time highs, Vroom rose more than 8% in proxy. The coronavirus pandemic has caused commuters seek to escape mass transit transportation which has resulted in a surge in used vehicle sales. Wholesale used vehicle prices rose 6% month-over-month in July and were up 12.50% year over year. Nonetheless, Vroom’s e-commerce strength, combined with the shift in consumer auto shopping habits will be put to the test Wednesday.
Baidu (BIDU) – Reports after the close, Thursday, Aug 13
Wall Street expects Baidu to earn $1.37 per share on revenue of $3.7 billion. This compares to the year-ago quarter when earnings came to $1.43 per share on revenue of $3.76 billion.
What to watch: Baidu shares have risen about 25% over the past three months, compared to the14% rise in the S&P 500 index during that span. There is concern, however, that the stock gains may soon disappear amid the escalating U.S. and China tech war. What’s more, Baidu, as with several Chinese stocks, has been under consistent scrutiny as U.S. legislation is looking to restrict Chinese companies from listing on U.S. stock exchanges without reform. And that’s on top of the coronavirus outbreak which has disrupted their business. Investors will want to level of assurance that the company can withstand the onslaught of the uncertainty.