Transportation Stocks Will Likely Be In Focus This Week As Several Report Earnings

Wall Street seems to be starting the week off in much the same way it ended last week—with lackluster trading.

Those investors and traders who want the market to move higher may be looking for a catalyst for it to do so. With little in the way of major economic data this week they might be looking toward Washington and corporate earnings reports to provide a fresh catalyst.

This week, lawmakers are expected to start debate on another major coronavirus relief bill. After previous relief bills, many people are still unemployed and a resurgence in coronavirus cases have thrown a wet blanket on Wall Street’s hopes for a quick reopening of the economy.

Investors are also likely staying tuned in to the latest moves on the vaccine front, with expectations that information on AstraZeneca plc’s AZN vaccine candidate could be out soon. Wall Street has been on the edge of its seat hoping for a vaccine, the development of which would probably go a long way toward easing people’s minds about the virus and allow a more robust re-opening of the U.S. economy.

Earnings In Earnest 

In addition to congressional debate, this week’s earnings schedule is pretty heavy. Closely watched companies that are expected to open their books include IBM Common Stock IBM, Coca-Cola Co KO, Microsoft Corporation MSFT, Tesla Inc TSLA, Intel Corporation INTC, American Express Company AXP and Verizon Communications Inc. VZ.

Additionally, several marquee transportation companies, including United Airlines Holding Inc UAL and American Airlines Group Inc AAL, are expected to report this week. Airlines have been viewed as a bellwether for how well the economic recovery is progressing. 

The economic data calendar, on the other hand, is pretty light. Aside from weekly oil inventory and unemployment claims data, investors will probably want to tune in to numbers on existing and new homes sales. Perhaps lower on the trading impact meter are reports on mortgage applications, housing prices, leading indicators and natural gas inventories.

It looks like Monday may start off the week on a slow note, but with all these relatively little things adding up, this could actually end up being a big week. For now, things seem to be relatively calm in the equities world. The Cboe Volatility Index (VIX) is in the mid-20s. With all that’s going on, it’s amazing the measure is that low.

But there is still an edge of worry as U.S. coronavirus cases keep climbing, helping push investors into government debt to send yields lower. Oil, which is often considered a risk-on asset, was easing.

A Non-Blockbuster Friday

Trading was pretty subdued Friday as disappointing earnings and economic results led to a mixed finish among the big three U.S. indices. 

Netflix Inc’s NFLX shares fell more than 6.5% after the entertainment streaming giant missed analysts’ quarterly earnings projections and provided softer-than-expected guidance. 

Netflix’s shares had been on a tear, reaching a record high before its latest earnings report. Its pullback raises a question about whether some of the tech and tech-related stocks that have been doing well recently might have experienced some over-exuberance too. We’ll have to wait and see once the actual numbers come out.

Of course, Netflix isn’t technically in the S&P 500 Information Technology sector. But like Communication Services stock Alphabet Inc GOOGL and Consumer Discretionary name Amazon.com, Inc. AMZN, it’s still heavily involved with technology.

Sentiment was also dampened Friday when the University of Michigan’s consumer sentiment index fell more than expected. The print for July marked a bigger fall from the previous reading than a Briefing.com consensus had anticipated. (See more on the index below).

As consumers have been hurt by the coronavirus’ effect on the economy, it seems that many investors are wondering about what might end up being another round of federal government help for Main Street, which could end up helping corporate performance. Additional unemployment funds of $600 per week are scheduled to expire this month.

CHART OF THE DAY: CHUGGING ALONG. The Dow Jones Transportation Average ($DJT) is often viewed as an economic indicator because its components—including airlines, train and trucking companies, and parcel delivery service firms—act as the lifeblood flowing through the veins of the economy. With several of the components reporting this week, including CSX (CSX) and Union Pacific (UNP), it could be worth watching the index to see if there is any sympathy trading and to try to get a sense of what the overall transportation industry might be telling us about the economic recovery. Data source: S&P Dow Jones Indices Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.  

Netflix Not Necessarily Precedent: So does the NFLX miss on guidance spell trouble ahead for some of the other FAANGs? Not necessarily. Apple Inc. AAPL and AMZN do overlap with NFLX in some areas of business, but NFLX really stands out from the rest of that group because it’s so subscriber-oriented and hasn’t branched out too much from its original business model. With the other FAANGs, especially AAPL and AMZN, weakness in one area can often be outweighed by strength in another. Facebook, Inc. FB and GOOGL could be a bit more vulnerable since both depend so much on advertising. FB obviously faces issues there with many corporations withdrawing their ad business. We’ll talk more FB ahead of its earnings later this month.

Still, NFLX Raises Concerns About High-Flying Tesla: Speaking of technology stocks, let’s talk about Tesla Inc TSLA. Wait, isn’t it an auto company? Well, in a similar way that AMZN is basically a tech stock disguised as an online retailer, so TSLA is a tech stock disguised as an electric vehicle manufacturer. When Tesla reports this week—expected on Wednesday after the close—investors of course are going to want to know about the auto business. But the company can also be considered a cutting-edge battery company, and its status in that industry is impressive. Other companies are playing catch up. But as a tech stock, investors may be wondering if we’ll see a similar move to NFLX in TSLA shares after it reports. It’s not that the two company’s businesses are super similar. But it can be hard for stock prices to hold through earnings reports, as disappointing, or even as-expected, numbers can leave investors feeling deflated, especially after stocks have had big runups. Have investors gotten too ahead of themselves with TSLA like it appears they did with NFLX? 

Consumer Sentiment Letdown: Data on the economic recovery can seem like it’s taking some steps forward and some steps back. The latest consumer sentiment index from the University of Michigan on Friday fell into the latter camp. The index declined more than expected in July, falling to 73.2 from the previous reading of 78.1. A Briefing.com consensus had expected it to dropto just 77.6. And according to commentary from Richard Curtin, chief economist for the university’s surveys of consumers, we’re not out of the woods. “Unfortunately, declines are more likely in the months ahead as the coronavirus spreads and causes continued economic harm, social disruptions, and permanent scarring,” Curtin said in a release. “While financial relief is clearly needed for the most vulnerable households, that relief will not stimulate the extent of renewed consumer spending necessary to restore employment and income to pre-crisis levels anytime soon.”

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

Photo by Connor Wang on Unsplash