Palo Alto Networks and Intuit Keeping the Nasdaq in the Black

Equity index futures were mixed before the open as the Dow Jones Industrial Average and the S&P 500 index futures point to a lower open. However, the Nasdaq futures are pointing higher. The negativity appears to be prompted by rising COVID-19 cases, particularly in Europe. Oil prices (/CL) and bond yields are also falling on the news because European governments, particularly Austria, are responding to the cases with more lockdown measures.

The COVID-19 news appears to be hitting travel and leisure stocks. The cruise company Carnival CCL was down 2.82% in premarket trading. Royal Caribbean RCL and Norwegian Cruise Line NCLH were also down 1.97% and 2.88% respectively.

Cryptocurrencies are still selling off with Bitcoin down 1.72% overnight and down approximately 15% from its November high. Ethereum is down 1.19% and Dogecoin is down 1.9% in the last 24 hours. The selloff was prompted last week as China continued to crack down on cryptos and increased strength in the dollar. This morning the dollar appears to be weakening a little which could help cryptos.  

While the initial reaction is understandably negative, there doesn’t appear to be any panic selling. Additionally, CNBC just reported that the FDA approved the Moderna MRNA booster shot for all adults. The announcement prompted a 5.6% rally in the stock.

Even with the lockdown news, today was likely to feel a bit like an expiration Friday because investors will be busy wrapping up business before next week’s Thanksgiving holiday. This could mean a little more volatility than normal as options and futures traders may decide to close or roll positions over to later months.   

Finally, a new Fed chief could be nominated over the weekend. If President Joe Biden chooses someone other than the current Fed Chair Jerome Powell, the market is likely to have a reaction. If the announcement comes, watch the futures market on Sunday evening.

The Nasdaq’s strength isn’t coming from semiconductor maker Applied Materials AMAT. The company is down almost 6% in premarket trading after missing earnings estimates and pointing to continued supply chain problems in 2022. However, Palo Alto Networks PANW is up 3.8% on better-than-expected earnings and a brighter earnings outlook.

Intuit INTU is doing its best to help push the Nasdaq higher. The stock rose 12.57% in premarket trading after beating on the top and bottom line analysts’ expectations. The company also raised its full-year revenue guidance because of strong demand and its recent acquisition of Mailchimp.

After Thursday’s close, Ross Stores ROST and Williams-Sonoma WSM announced better-than-expected earnings and revenues. However, both stocks fell in after-hours trading. Ross provided weaker earnings guidance for the next quarter. While Williams-Sonoma warned it may have inventory shortfalls through mid-2022 prompting it to sell off more than 8% in after-hours trading. Foot Locker FL is expected to announce earnings today but is already trading lower 4.86% before the open.

What a difference a day makes. The consumer discretionary sector was the top-performing sector on Thursday, and it was led by the retailers. The Dow Jones U.S. Retail Index ($DJUSRT) rallied 1.14%. Several retailers announced better-than-expected earnings including Macy’s M, BJ’s Wholesale Club BJ, Kohl’s KSS, Children’s Place PLCE, and more.

One retailer that fell, falling more than 13%, was Petco WOOF. The company beat on earnings and revenue and even increased its 2021 earnings and revenue guidance. However, gross profit margins shrank 41% in the third quarter. The company said that the increase in pandemic pet adoptions has slowed, which has moved pet owners from buying higher-margin products like kennels and toys into lower-margin food products. Additionally, the supply chain and labor costs have also been issues.

Slow Roll

Many retailers are benefiting from the pandemic reopening; however, some leisure and travel groups have not had the success that was anticipated. Resorts and casino stocks struggled on Thursday including Wynn Resorts WYNN falling 4.76%, Caesars CZR decreasing 4.58%, Penn National Gaming PENN dropping 4.4%, MGM MGM falling 2.59%, and Las Vegas Sands LVS trading 1.88% lower. A 20% rise in COVID-19 cases in the United States may be the cause of the selling.

After spiking 4.71% on November 5, the Dow Jones U.S. Travel & Leisure Index ($DJUSCG) has closed lower eight of the last nine trading days, dropping more than 5%. While consumers may feel comfortable going shopping, they apparently aren’t quite ready to travel as much as many investors had hoped. 

CHART OF THE DAY: FAILURE TO LAUNCH. The Dow Jones U.S. Travel & Leisure Index ($DJUSCG) failed to maintain a break above its resistance level. This type of price action is known as a “bull trap” by technical analysts. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results. 

Rejected Takeoff: The AMEX Airline Index XAL also spiked on November 5 but has been losing altitude nearly every trading day since. However, the airlines have been acting like things have changed. Spirit Airlines SAVE has added nonstop flights from Manchester, England to Tampa, Florida. United Airlines UAL plans to add flights to Las Vegas for the 2022 CES technology conference. After approximately 10 years without service, American Airlines AAL has started sending flights to India. Allegiant ALGT reported a 51% increase in passengers from October 2020 to October 2021. Finally, Boeing BA recently announced increased orders for planes. So, perhaps it isn’t a failure to launch but a rejected takeoff. This means the group could be taxiing around to make another run.

Caution Ahead: One issue that continues to linger for travel and leisure, as well as the entire economy, is the rising COVID-19 cases. According to John Hopkins, the United States has seen rising cases, particularly in Minnesota and Michigan. The New York Times is reporting that the World Health Organization sees Europe, particularly Western Europe, as the epicenter of the pandemic once again. Last week, Europe accounted for 59% of the world’s newly reported cases.

Some countries are taking measures. The Wall Street Journal reported that Austria announced Europe’s first nationwide vaccine mandate and reimposed a lockdown. According to CNBC, Germany just announced new COVID-19 restrictions for the unvaccinated and mandating vaccinations for hospital staff. Belgium is imposing a four-day work from the home rule and increasing masking requirements. The Netherlands and Austria have introduced partial lockdowns. England is considering its “plan B” measures that require masking and/or vaccine passports in certain areas and venues.

While many countries appear to be trying to avoid total lockdowns like last year, increasing cases could result in stricter measures that could be a drag on the economy once again.

Cruising Altitude: Despite taking the lead last quarter, the energy sector has ceded market leadership in the fourth quarter. Starting October 1, the S&P Consumer Discretionary Select Sector Index ($IXY) has returned more than 17%, followed by the S&P Transportation Select Sector Index ($IXT) at 13.8%. The S&P Materials Select Sector Index ($IXB) rounds off the top three, returning just under 11%. These are the only three sectors that have outpaced the S&P 500 over the time period, which is up a little more than 9%.

Whether these groups can hang on through the remainder of the quarter is yet to be determined. Materials have pulled back about 2% this week, and consumer discretionary stocks are trying to regain their November 5 highs. This week’s strong retail earnings announcements could bode well for the consumer discretionary sector if companies can maintain their margins. 

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Image Sourced from Pixabay