Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Word Of The Day Is “Choppy:” Uncertainty Reigns Amid Earnings, Delta Variant, Jobs

By TD Ameritrade (JJ Kinahan)Stock MarketsAug 04, 2021 02:35AM ET
Word Of The Day Is “Choppy:” Uncertainty Reigns Amid Earnings, Delta Variant, Jobs
By TD Ameritrade (JJ Kinahan)   |  Aug 04, 2021 02:35AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

(Tuesday Market Open) With quarterly earnings still coming in at a steady clip, along with a resurgence of COVID-related concerns (and an eye on what could be an interesting employment report to end the week), we’ve got all the makings of a choppy market. And that seems to be playing out over the first couple days of August.

Investors were looking for a Turnaround Tuesday with hope that yesterday, the market would hold on to its early gains on positive earnings reports following Monday’s declines and a failure to retain early trading momentum.

Concerns about the rate of growth for the economy and the Delta variant may have put a damper on any bullish aspirations investors harbored following a strong July. Stocks petered out on the first trading day in August as observers peeked over at the bond market and didn’t like what they saw.

The S&P 500 Index (SPX) and Dow Jones Industrial Average (DJI) closed lower and the NASDAQ Composite (COMP:GIDS) closed marginally higher. All three were trading comfortably above their 50-day moving averages.

The DJI did hit an all-time high in early trading but wasn’t able to hang on to it. Tuesday morning we were seeing some signs of hope as the market looked like it may give another try at hitting those highs—equity index futures were trading higher ahead of the close. Would the market be able to hold on to that morning bounce?

One space to watch is the semiconductors, which have been performing pretty well. If we see strength in this area, it could help fuel a rally in the NASDAQ. Let’s see if that momentum can continue.

The Cboe Volatility Index (VIX) didn’t really give up a whole lot. It flirted with 20 Monday but was off a little bit this yesterday morning. While not necessarily indicative of too much fear, it’s still something to keep an eye on during the week. The VIX had been trending up even before stocks turned south Tuesday—often an indicator that something’s amiss.

The bond yield curve flattened as long-dated Treasury yields dipped among concerns that the rate of economic growth in the U.S. is poised to slow down. It bounced a little Tuesday morning, but was still relatively flat. Meantime, the I word—inflation—continued to cause investors to fret. Taken as a whole—choppy stocks, a firm VIX, and a flight to Treasuries—and it looked like a “risk-off” mood to start the month. We’ll see if Tuesday’s bounce turns the risk sentiment.

New Month, Different Tune

One culprit for Monday's action may have been the Institute for Supply Management’s July manufacturing index, which unexpectedly slipped in July compared to June, reflecting a slower pace of expansion in the U.S. goods-producing sector. The ISM manufacturing index came in at 59.5 in July from 60.6 in June—well below consensus expectations of 61.0. Readings above the neutral level of 50.0 indicate expansion in a sector. Survey respondents cited issues keeping up on the supply side for the overall deceleration in activity.

Another disappointing surprise followed. Construction spending recovered at a slower than expected pace in June, according to monthly data from the Census Bureau on Monday. Spending increased 0.1% in June following a 0.2% decrease in May, which was below estimates of a 0.4% rise.

Earnings Continue

But there’s still reason for optimism. So far, 59% of S&P 500 companies have reported second-quarter earnings results, and 88% of these companies have beaten Wall Street’s earnings per share estimates, according to FactSet data. The expected earnings growth rate for S&P 500 companies is tracking toward 85.1%, which would be the biggest jump since Q4 2009.

This is the second busiest earnings week of the quarter. So far, earnings reports saw mixed results and we’re likely to see more of that today.

Before the open on Tuesday, Chinese e-commerce giant Alibaba (NYSE:BABA) reported earnings that beat estimates but revenue fell short of expectations. It also announced it’s boosting its stock buyback program by 50%. Shares of Under Armour Inc C (NYSE:UA) rose after the athletic-wear maker topped second-quarter sales estimates and boosted its full-year earnings outlook.

In a hopeful foreshadowing for the commercial real estate sector, Simon Property Group (NYSE:SPG) reported earnings that beat expectations. It was the second time in the past four quarters that the company’s funds from operations surpassed consensus estimates. Simon’s share price has gained almost 50% this year, compared to 17% for the SPX.

In other before-market news, PepsiCo (NASDAQ:PEP) announced that it is selling its Tropicana, Naked, and other juice brands to French private equity firm PAI Partners for about $3.3 billion. The balance-sheet weight loss is part of its plan to focus on healthier snacks and zero-calorie drinks.

Tuesday was another busy day on the earnings front with Lyft (NASDAQ:LYFT), Avis (NASDAQ:CAR), and Nikola (NASDAQ:NKLA), among many others reporting.

You may want to watch the crude market closely this week. WTI crude futures (/CL) fell $2.56—and another dollar-and-change overnight—to fall back below the $70 mark, on low global demand and weaker than expected manufacturing activity in the U.S. and China. These are two of the largest economies of the world and a reduction in demand from both these countries could put a damper on the price of crude. Further concerns of the Delta variant as it continues to gain traction in the U.S. could have also put a dent in crude.

Looking ahead—and we don’t know if this will take days, weeks or months—the Senate spent the weekend in session hammering out details of the proposed $1 trillion infrastructure bill. Lawmakers are attempting to pass it through the chamber by the end of the week and send it to the House, though neither side of the aisle is declaring assurances of when the bill could be delivered after it arrives in the House.

Chart of the day: growth gauges turned lower

Crude oil and Treasury yields are considered yardsticks for economic growth. So when both go through a more than modest fall—something both have been doing on big down days—it may be time to pay attention. The 10-year Treasury yield (TNX—purple line) went as low as 1.15%, closing at 1.17% Monday, a low it hadn’t seen since February. And crude oil futures (/CL—candlestick) closed at $71.31 per barrel—a one-week low—and kept dropping overnight to fall below $70 Tuesday morning.

Data source: CME Group (NASDAQ:CME), Cboe Global Markets (NYSE:CBOE).

Crude Oil Daily Chart
Crude Oil Daily Chart

Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

A dizzying double-whammy amid Delta’s debut

The end of summer comes with an onslaught of events as millions of Americans, some reeling from the eviction moratorium last weekend, may now face an expiration in COVID-era enhanced unemployment benefits.

Although around 3.6 million Americans are facing eviction worries in the coming months, according to a July US Census Bureau’s Household Pulse Survey, nobody really knows how many of them are collecting those enhanced benefits, yet the Labor Department noted that nine million unemployed Americans were receiving them as of mid-July. It may be something to consider when weighing the stock market against market fundamentals.

In other words, how all of this might affect market sentiment and the real economy is up in the air. It’s a big unknown. But you can ask questions to prepare. Might this add negative pressure to reflation trade stocks? Might it be time to look at defensive plays such as Consumer Staples, Utilities, and Health Care? Keep an eye on the news. The answer may come slowly or it may show up on your front doorstep faster than you can blink.

Reverse Splitsville

As we pointed out in Monday's report, shares of General Electric (NYSE:GE) settled last week with a $12-handle, but started the week above $100 per share. This wasn’t the result of any monster-size rally, but rather that of a 1-for-8 reverse stock split as of July 30.

Whenever there’s a split (or reverse split) in a widely-held stock, the questions tend to start flying, but the first thing to note is that, all else equal, the company’s market cap doesn’t change in a split. In the case of GE, it’s an eight-fold reduction in the number of outstanding shares, and thus an eight-fold increase in the price per share.

If you have options positions, it’s a little more complicated, but again, the numbers will change in order to keep the underlying values in line. Existing contract months will retain the old strike prices (and the old deliverable value), but new options will be listed with the new deliverable strike price and deliverable value.

Although the goal is to keep all options contracts to the standard 100 shares, and that’s typically the case in a split, you should always check to be sure. Here’s an overview of splits and other so called “corporate actions,” and how options are affected.

The bottom line is that, all else equal, when there’s a corporate action, adjustments keep the underlying values in line math-wise. Now, what might a reverse split say about a company? That’s open for interpretation.

Buy-Now-Pay-Later (BNPL)

When Square (NYSE:SQ) announced that it planned to acquire Afterpay (OTC:AFTPF), share prices of these two companies and others in the BNPL space surged, with many moving higher than 10%. But not so with Global Payments (NYSE:GPN) which was down by over 11%.

So what’s so attractive about BNPL? In a nutshell, it’s when you buy something and pay for it in customized installments, interest free. And if you miss a payment, you’re likely to get hit with fees, although maybe not as high as those charged by credit card companies.

The fact that it’s getting attraction may be indicative of people more confident in taking on more debt, but in a way that sidesteps the typically high interest rates on credit card and other revolving debt.

With companies like SQ, PayPal (NASDAQ:PYPL), and several others offering this type of service, we could see this space become competitive in the future.

So far, BNPL makes up about 2% of the payments market, according to a Barron’s report. If the SQ acquisition makes the process as easy as ticking a box with your pinkie when you buy and sign, that 2% number could rise quickly.

Disclosure: TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

Word Of The Day Is “Choppy:” Uncertainty Reigns Amid Earnings, Delta Variant, Jobs

Related Articles

Word Of The Day Is “Choppy:” Uncertainty Reigns Amid Earnings, Delta Variant, Jobs

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email