New Kicks: Market Buoyed On Nike Earnings

Investors seem to be lacing up their jogging shoes this morning, running toward equities as a bumper earnings report from Nike (NYSE:NKE) apparently is helping give the market a runner’s high.

After the close yesterday, Nike hit the cover off the ball with earnings that far surpassed expectations and revenue that also topped forecasts. The athletic apparel and footwear maker saw revenue in China rise 6%, and its online sales shot up by a whopping 82%. It’s shares were up more than 12% in pre-market trading.

Still, sales in North America, which is Nike’s largest market were down 2%, and the company continues to limit the number of customers who can shop in its stores at one time. Like with many other retailers, investors may be wondering what a potential surge in coronavirus cases in the fall might mean for overall sales.

In other company news, Tesla (NASDAQ:TSLA) shares were roughly 6% lower after the company’s “Battery Day” event. Investors were expecting announcements on a long-life battery and a specific cost reduction target that would take the price of an electric vehicle lower than one powered by gasoline, according to Reuters. But those announcements weren’t forthcoming.

CEO Elon Musk did say battery costs would come down by half over the next several years and said the company could produce a $25,000 car on par or slightly better than a comparable gasoline car in three years. That’s a long time in electric-vehicle terms, and investors seemed disappointed.

Still, analysts were generally positive, at least from a share price standpoint. Deutsche Bank (DE:DBKGn) upgraded Tesla to buy from hold with a price target of $500, while Baird raised its target to $360 and Goldman Sachs (NYSE:GS) raised its target to $400. On the other hand, Canaccord lowered its price target to $377. In pre-market trading, Tesla’s shares were trading a little over $400.

In Federal Reserve news, Chairman Jerome Powell is scheduled to continue addressing congress today. It could be interesting to see whether he says anything that might alter or help solidify the market’s view that the Fed will keep rates low for a long time and will use other tools to help continue supporting the economy.

Tuesday Tug Of War

Nike’s gains this morning come after its shares rose more than 3% yesterday amid a broad market rally. We’ll have to see if the market can hang onto that momentum through today’s close.

Tech-related names helped boost the market, with Amazon (NASDAQ:AMZN) rising more than 5% on an analyst upgrade and all the other FAANG names – Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOGL) – also gaining along with tech titan Microsoft (NASDAQ:MSFT).

The fortunes of the broader market have been tied to those of Big Tech for some time now. Investors have moved into those names as the pandemic has accelerated the shift toward working, playing, and learning from home even as other types of companies, such as travel and dine-in restaurants, have suffered.

While Big Tech has helped elevate the market, it has also created some choppiness as investors have begun to wonder about potential overvaluation.

And even though tech-related companies are doing relatively well, they’re not the whole stock market, which in turn isn’t the economy. Wall Street is benefitting from ultra-low interest rates and a Federal Reserve that seems likely to keep rates low even as it uses other tools to stimulate the market and economy. But Main Street is still reeling from high unemployment and uncertainty about fresh stimulus from Congress.

With that backdrop, it seems that the market could still use a healthy dose of diversification. Perhaps one way we’ll know when things are truly returning to normal is when Big Tech doesn’t have as outsized influence on the daily ups and downs of the market because other sectors are shouldering some of the influence.

Gold Bucking The Trend

After hitting an all-time high near $2,100 per ounce last month, gold reversed course, and this morning hit a seven-week low below $1,900. Why the falloff? There seem to be a couple forces at work. First, much of the froth in the gold market had to do with inflation expectations. When the fiscal and monetary stimulus pumps started grinding this spring, some saw that as the front end of an inflation wave. That thinking seemed to kick into high gear when the Fed announced its plan to let inflation run hotter than its stated 2% target. But since its own projections—as reported after last week’s Fed meeting—run well short of its target as far as the eye can see, the inflation wave has yet to materialize, and perhaps won’t any time soon.

Another thing that seems to be cooling the gold market is a return to strength in the U.S. dollar. After falling to multi-year lows below 92, the U.S. Dollar Index has quietly inched higher, and is back above 94 this morning. Gold and the dollar tend to move inversely to one another, as demand for one typically implies a lack of demand for the other. Helping the dollar advance is a resurgence of weak expectations out of Europe—and particularly the UK—where coronavirus concerns seem to be returning with renewed vigor. Prime Minister Boris Johnson announced new lockdown measures ahead of what he called a “long, hard winter.” The pound, which was trading about $1.35 a month ago, fell to the $1.27 handle this morning—a pretty sizable move in the typically stable currency market.

Choppiness Could Continue

Of course, it’s not just Main Street that is concerned about whether Congress will be able to pass another round of stimulus. Investors are also hoping that a stimulus bill can be achieved as it would likely give companies another shot in the arm from consumer spending. Those hopes have been dented though amid expectations that focus will shift from stimulus talks to the process of nominating and confirming a new Supreme Court Justice.

There are also continued worries about a potential spike in coronavirus cases as the weather cools off, and uncertainties surrounding the election in November, all of which could help keep the market relatively choppy for some time

Comments from Fed Chairman Jerome Powell on Tuesday seemed to echo the mixed state of affairs for the economy and market. He said economic activity has picked up but the path forward remains uncertain and the Fed will do what is needed to support the economy.

Housing Market Firms: Tuesday saw some good news from the housing market. Existing home sales for August came in at a seasonally adjusted annual rate of 6 million units, right in line with a Briefing.com consensus estimate and representing the third straight month of growth. “The key takeaway from the report is that it reflects robust demand for existing homes,” Briefing.com said. “That is constraining supply even further, which is going to be a pressure point that feeds higher prices and bolsters the prospects for new home sales.” That could bode well for home builders. Yesterday, after the market closed, KB Home (NYSE:KBH) reported earnings that were much better than expected and revenue that also beat forecasts. “Housing market conditions strengthened during the third quarter, fueled by the combination of historically low mortgage interest rates, a limited supply of resale inventory and consumers’ desire to own a single-family home,” CEO Jeffrey Mezger said in a press release accompanying the earnings.

Tech Ascends; Energy, Financials Falter: Amid the trends that the pandemic has accelerated, the shift into technology is a remarkable one. In the mid-2000s, the Energy and Financials sectors made up the bulk of the weight of the S&P 500 Index, accounting for a combined weighting of more than 32% at their peak just before the financial crisis, according to Bespoke Investment Group. But since then, technology companies have picked up share, with the Information Technology sector now accounting for more than 27% of the index and the combined weighting of Energy and Financials having shrunk to around 12%, the research firm said in a recent note. Technology companies only had a higher weighting during the late 1990s/early 2000s, the group said. “And there is basically no historical precedent (since at least 1990) for the low weighting of Energy and Financials,” the group said.

Earnings Expectations Improve: Hopes seem to be improving for the next earnings season, which begins in earnest with the big banks in about a month’s time. Still, don’t expect results to be anywhere close to a banner quarter. It’s basically a case of “less bad” versus actually being “good.” According to Zacks Investment Research, on Sept. 18 total SPX earnings for the third quarter were expected to decline 23.4% from the same period last year. That compares with a 26.5% decline expected on July 2. “The overall earnings picture has been steadily improving over the last three months as big parts of the U.S. economy have started coming out of the pandemic-driven lockdown,” Zacks said.