The S&P 500 has moved above its shorter-term trend line, and this is a good thing as it could lead to new highs by the end of the year. The HCM-BuyLine® is positive and has been since we re-entered the market the first week of April. Lots of people are out and about. Restaurants are not full, but there are a lot of people going out to eat.
S&P 500 2Q 2020 EARNINGS UPDATE:
• 130 companies are reporting this week.
• Of the 338 companies that have reported so far (68% of the S&P 500), 79% are beating earnings estimates by a median of 21%.
• On the top line, 68% are beating by an average of 8%.
This is strong compared to one of the worst economic events in history. People might not be going to the movies or retail stores, but they are spending money and buying services and goods.
FACTORY ORDERS ARE RECOVERING:
Factory orders rose 6.2% in June, up for the second straight month, and above the consensus of 4.9%. The combined gain in May and June was a record, confirming a recovery from the pandemic slump in the prior two months. Even so, factory orders are still 11.9% short of their level in February, underscoring just how deep the contraction was.
Nondurable goods orders surged 5.0%, the most since March 1996, led by petroleum. Durable goods orders were revised up to 7.6% from 7.3% initially, led by vehicles. Nondefense capital goods orders ex-aircraft, or core business orders, rose 3.4%, the most in nearly two years, indicating some revival in capex demand. But on a year-over-year trend basis, factory orders were still off 16.5%, near its steepest decline since October 2009, as momentum remains weak.
Factory inventories rose 0.6%, the most since January 2019, led by nondurables. Shipments rose a much larger 9.8%. As a result, the inventory to sales ratio fell to 1.51 from 1.65 in the prior month but is still near the highest level since February 1996.
Vehicle sales continue to recover. Light vehicle sales increased 11.1% in July, its third straight gain, to a 14.5-million-unit annual rate. While this is still 13.4% below pre-recession, the consecutive gains since April show that Federal and fiscal policies are keeping credit conditions loose and are propping up demand. The increase last month was led by a 24.4% surge in domestic autos.
On a year-over-year basis, light vehicle sales were still off 14.4%, including a double-digit drop in autos. However, the negative momentum has eased significantly since April, a sign that the recovery is moving in the right direction.
Despite headlines of rampant spread, COVID-19 is slowing in the U.S. Total USA COVID-19 cases collapsed to 42,017, down 13,000 from 1 day ago and down 12,810 from 7 days ago. In fact, it is the fewest number of new cases since June 29th. The decline in COVID-19 cases is building downside momentum, shifting from a stubborn plateau a few weeks ago, to now seeing an accelerating fall.
Hospitalizations are dropping fast and hard in Texas, Arizona, and Florida, which looks very similar to New York six weeks ago. They have had their peak and the drop should pick up momentum to the downside.
HCM INTERVIEW WITH NYSE
On Tuesday, July 28th, Vance Howard was interviewed by the NYSE to discuss our HCM Defender 100 ETF. To view this interview, please click on one of the following links below.