Morning News: July 2, 2020
Posted by Eddy Elfenbein on July 2nd, 2020 at 7:00 am

China-Sanctions Bill on Hong Kong Law Passed by U.S. House

The Fed Sets Out Many Reasons to Worry About the Economy

The ‘Rocket Ship’ Economic Recovery Is Crashing

Covid-19 Isn’t Killing Cash. People Are Hoarding More of It

Clouds May Be Parting For Dividend Investors

Traders Thought Apple Had ‘The Holy Grail’ Of Oil Data, But The Quest Continues

U.S. Farmers Scramble For Help As COVID-19 Scuttles Immigrant Workforce

S&P 500 Jumps 0.5% After Pfizer Coronavirus Vaccine News

Car Sales Plunge 33 Percent in the 2nd Quarter Despite Deals

How the Facebook Boycott Could Just Make Facebook Stronger

Gun Demand Is Off the Charts in America

‘Sitting on Millions of Dollars’ and Dying to Blow It: Not This July 4

Ben Carlson: The Best and Worst Quarters in Stock Market History

Joshua Brown: The Gold Breakout

Jeff Carter: Businesses Make A Huge Mistake Choosing Political Sides

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ADP: +2.369 Million
Posted by Eddy Elfenbein on July 1st, 2020 at 11:06 am

The first half of 2020 is officially on the books. The S&P 500 fell 20% during the first quarter and it rallied 20% during the second quarter. Perhaps that’s fitting for the year 2020.

This morning, ADP said that private payrolls increased by 2.369 million in June. The expectation was for a gain of three million. The number for May was revised from a loss of 2.76 million to a gain of 3.065 million. The lockdown seems to have screwed with so much economic data.

The ISM Manufacturing Index rose to 52.6 for June. That’s up from 43.1 in May. Bear in mind that the ISM is always in relative terms. It’s only concerned with things improving or worsening, not in the overall standing. Wall Street had been expecting 49.0.

The S&P 500 is currently up about 0.5% today.

First-Half Summary
Posted by Eddy Elfenbein on July 1st, 2020 at 10:50 am

Here’s a look at how each Buy List stock did during the first half of the year. We trailed the overall market but only by a small amount.

The Buy List was down 4.39% for the first six months of the year while the S&P 500 was down 4.04%. That doesn’t include dividends. I always include dividends in the track record data. I haven’t had time yet to go through the numbers. The Buy List yields less than the S&P 500 but not by much.

Morning News: July 1, 2020
Posted by Eddy Elfenbein on July 1st, 2020 at 7:03 am

Central Europe’s Factory Decline Eases in June

New North American Trade Deal Launches Under Growing Threat of Disputes

Stocks’ Huge Rally Is Pushing Investors Back Into Hedge Funds

China Announces New Retaliation Against U.S. News Outlets

China’s Huawei and ZTE Officially Designated ‘National Security Threats’ by the FCC

As the Fed’s Powell Sounds Alarms, Mortgage Rates Tank Below 3%

Largest U.S. Pizza Hut Franchisee Files for Bankruptcy

Did a Chinese Hack Kill Canada’s Greatest Tech Company?

Adidas Executive Resigns as Turmoil at Company Continues

Facebook Bans Network With ‘Boogaloo’ Ties

Nick Maggiulli: Why Is Gold Valuable?

Ben Carlson: I’m Worried

Cullen Roche: 40 Things I’ve Learned in 40 Years

Joshua Brown: Every Cent, Plus Interest

Michael Batnick: Why Would Anyone Invest Right Now? & Animal Spirits: Existential Hurricane

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S&P 500 on Pace for Best Quarter Since 1998
Posted by Eddy Elfenbein on June 30th, 2020 at 10:35 am

The first half of 2020 comes to a close today. The S&P 500 is on pace for its best quarter since 1998. Volatility could be creeping back into the market.

Yesterday was the S&P 500’s fourth day in a row of closing up or down by more than 1%. The stock market is calmer this morning but there are still concerns over the rising number of coronavirus cases. The EU has banned Americans who are traveling abroad for non-essential reasons.

This morning’s consumer confidence report showed an increase to 98.1. That’s up from 85.9 in May. Economists had been expecting an increase to 91. Consumer confidence is now at a three-month high but it’s still below pre-crisis levels.

Fed Chairman Jerome Powell will testify later today in front of the House Financial Services Committee. He’ll be discussing the CARES Act.

(The chart above is the Wilshire 5000, not the S&P 500, but it’s pretty much the same. FRED is only allowed to post that last 10 years of the S&P 500.)

Morning News: June 30, 2020
Posted by Eddy Elfenbein on June 30th, 2020 at 7:00 am

Business Embraces Hong Kong’s Security Law. The Money Helps.

U.S. Halts High-Tech Exports to Hong Kong Over Security Concerns

Suitcases of Cash Halted by Virus in EU Money-Laundering Hotspot

Coronavirus Strikes Down Global M&A As Companies Keep Their Distance

Powell, Mnuchin Enter the Lion’s Den Again to Discuss Pandemic Response

Paycheck Program Ends With $130 Billion Unspent, and Uncertainty Ahead

Wall Street Faces Danger Signs After Best Quarter Since ‘98

Uber Makes Offer to Buy Postmates Delivery Service

Shell Warns of $22 Billion Hit From Coronavirus Price Slump

Amazon’s Brand Value Tops $400 Billion, Boosted By The Coronavirus Pandemic

Torture, Terror, and Revenge in Battle Over Fabled Irish Company

Jeff Carter: RIP SAFT

Cullen Roche: Three Things I Think I Think – Wear a Mask (Please!)

Howard Lindzon: The Home Fitness Wars…And My Dumb Money Visit Discussing Social Signal, My 8 To 80 Stocks and Robinhood Unbundling Vanguard

Joshua Brown: Abilities, How Stocks Predict Presidential Elections & Facebook Lost $56 Billion In Market Cap Friday Afternoon

Be sure to follow me on Twitter.

A “Green Light” for SHW
Posted by Eddy Elfenbein on June 29th, 2020 at 9:42 am

Barron’s has a roundup of some recent economic reports. Baird Equity Research has Sherwin-Williams (SHW) as an outperform. Here’s what they had to say:

Strength in the U.S. do-it-yourself market and diverse end-market exposure from the acquired Valspar coatings assets have partly offset challenges across other portions of Sherwin-Williams’ portfolio. We continue to believe that the company remains advantaged in the current operating environment, with 2020 earnings probably biased to the upper end of its current guidance of $19 to $21 a share. Noting that Sherwin-Williams’ earnings power is $25 to $27, we believe that our raised, $650 price target is realistic. That underlies our top pick designation.

The shares haven’t done much over the past six weeks.

Morning News: June 29, 2020
Posted by Eddy Elfenbein on June 29th, 2020 at 7:09 am

Coronavirus Rekindles Global Trade Disputes

The U.S.-China Feud Gets Nasty

European Equities Fight For Gains Amid Continued U.S. Virus Concerns

Hedge Funds Are Rushing to Get Out of Bearish U.S. Stock Bets

A Cash Cliff Spells Trouble For U.S. Unemployed, and Everyone Else

Chesapeake Energy, a Shale Pioneer, Files for Bankruptcy Protection

EBay’s Critics Faced an Extreme Case of an Old Silicon Valley Habit

New Flood-Risk Data Threatens to Change Millions of American Home Prices

Starbucks Pulling Ads From Facebook and Other Social-Media Platforms

Joshua Brown: Closest To The Customer vs Suppliers

Ben Carlson: The Only Rational Deployment of Our Ignorance & How Often Do Long-Term Bonds Beat Stocks?

Michael Batnick: The Nominal Robber

Roger Nusbaum: Is Everything We Know About Retirement Planning Wrong?

Jeff Miller: Weighing the Week Ahead: Sustaining a Fragile Recovery

Howard Lindzon: Banks Join The Venture Boom…What Could Go Wrong!?

Be sure to follow me on Twitter.

Personal Income Fell 4.2% in May
Posted by Eddy Elfenbein on June 26th, 2020 at 10:48 am

The day after we get the GDP report, we usually get the reports on monthly personal income and spending. This is a very unusual time for both. This morning we learned that personal income fell 4.2% in May while personal spending rose by 8.2%.

Last month’s rebound in consumer spending followed spending drops of 6.6% in March and 12.6% in April, when the viral pandemic shuttered businesses, forced millions of layoffs and sent the economy into a recession. Since then, many businesses have reopened, drawing consumers back into shops and restaurants and restoring some lost jobs.

Friday’s Commerce Department report showed that Americans stepped up their spending in May despite a 4.2% decline in personal income, which had soared by 10.8% the previous month. Income had jumped in April on the strength of billions of dollars in support through government payments in the form of unemployment aid as well as one-time $1,200 stimulus checks. In May, those stimulus checks were no longer counted as income for most people.

Besides whatever unemployment aid states are providing to the 30 million jobless Americans, the federal government is providing $600 a week in additional benefits. The federal money has pumped nearly $20 billion a week into the economy and enabled many of the unemployed to stay afloat. But the $600 a week in aid will expire after July, and Trump administration officials have said they oppose an extension.

Without the stimulus checks or an extension of unemployment aid, it’s unclear whether consumers will keep spending freely. In testimony to Congress last week, Federal Reserve Jerome Powell said he thought Congress should consider providing some form of extended unemployment benefits beyond their typical six-month period, on the assumption that joblessness will likely still be quite high by year’s end.

It’s a tough day for the market. The S&P 500 is currently down close to 2%. Today’s movement suggest concerns about the economy. The cyclicals are down the most while the defensive stocks are down the least.

CWS Market Review – June 26, 2020
Posted by Eddy Elfenbein on June 26th, 2020 at 7:08 am

“That sounds about right.” – Me in last week’s issue, missing wildly on FactSet’s earnings

Boy, did I get that one wrong! In last week’s issue, I told you that Wall Street’s consensus on FactSet’s earnings of $2.43 per share “sounds about right.” Wrong!

Instead, FactSet blew past the Street’s consensus. For its fiscal Q3, FactSet earned $2.86 per share. That was 43 cents better than estimates. On Thursday, the stock shot up 15%. Not only was I wrong, but I’m quite happy I was. FactSet is now our #2 performer this year.

I’ll tell you all about FactSet’s earnings report in just a bit. More seriously, it’s important for us to examine our mistakes and focus on what went wrong. I also have good news from Sherwin-Williams. The paint folks guided higher for their Q2 sales. We haven’t heard much news guidance-wise from anybody, so it’s good to get some positive news.

Also in this issue, I’ll discuss some of the recent economic news. The U.S. economy is gradually getting back on its feet, but there’s still a long way to go. First, though, let’s look at the great earnings news from FactSet.

FactSet Jumps 15% on Earnings Beat

On Thursday, FactSet (FDS) reported very good earnings for its fiscal third quarter, which ended on May 31. Quarterly revenues rose 2.6% to $374.1 million, while organic revenues climbed 2.6% to $375.3 million.

FactSet’s adjusted operating margin increased by 1.5% to 35.5%. That’s an important stat to watch. Adjusted diluted earnings rose by 9.2% to $2.86 per share. That beat estimates by 43 cents per share.

In May, FactSet increased its dividend by five cents to 77 cents per share. I’ll let you in on something. In the company’s press release, FactSet said that it has raised its dividend for 15 consecutive years. That’s actually incorrect; it’s longer than that. I suspect they haven’t adjusted for stock splits, but FactSet has increased its dividend every year since 1999. I contacted the company but never heard back. (Thanks to Dividend Growth Investor for the assist.)

“We had a strong third quarter and executed well in challenging circumstances,” said Phil Snow, FactSet CEO. “I am inspired by the efforts I see across the Company as FactSetters go above and beyond to support our clients and each other. The steps we have taken position us well to finish our fiscal year on target as we continue to evaluate and solve for evolving industry needs.”

Another key stat to watch for FactSet is Annual Subscription Value (or ASV). At the end of May, ASV plus professional services stood at $1.52 billion. This is important because annual ASV retention is over 95%.

At the end of the quarter, FactSet’s client count stood at 5,743. User count rose by 2,199 to 131,095, and employee count now stands at 10,065. That’s up 7.5% in the last year.

During Q3, FactSet bought back 46,689 shares for a total cost of $12.4 million. That’s an average price of $266.09. I’m generally not a fan of buybacks, but given the current FDS share price of $342, that turned out to be a shrewd investment in itself. In March, FactSet’s board added another $220 million to its existing buyback authorization. As of Thursday, there’s $288 million available to repurchase shares.

Now for guidance. FactSet expects full-year revenues to range between $1.485 billion and $1.49 billion. The high ASV numbers help a lot with revenue-forecasting. FactSet also expects full-year earnings to range between $10.40 and $10.60 per share. That’s an increase from the previous range which was $9.85 to $10.15 per share.

Basically, the company is adjusting for the strong Q3 numbers. That’s an increase of 55 cents per share to both ends of the guidance range. Very roughly, I’d say that’s 45 cents per share from the Q3 results and adding 10 cents per share to the Q4 results. That’s only a guess. The fiscal year ends on August 31.

Wall Street was very pleased with this news. On Thursday, the shares gapped up 15.1% and hit a new all-time high. FactSet is now a 27.5% winner for us this year. That’s second only to Trex (TREX). This week, I’m raising our Buy Below on FactSet to $360 per share.

Sherwin-Williams Raises Q2 Sales Guidance

On Monday, Sherwin-Williams (SHW) increased its sales guidance for Q2. Sherwin now expects sales to decrease “by a mid-single-digit percentage” compared with last year. That may not sound so great, but remember that the prior guidance was for sales to decrease “by a low- to mid-teens percentage.”

That’s welcome news, especially in this environment. Here’s an extended quote from the CEO.

We are encouraged by the sequential improvement in all three of our business segments during the second quarter. In The Americas Group, we rapidly adapted to the pandemic by implementing curbside pickup in our stores, utilizing our fleet of over 3,000 delivery vehicles, and leveraging our e-commerce platform. We have gradually and safely reopened nearly all of our sales floors over the last month. DIY growth in our stores remains strong, while our residential repaint and new residential segments have improved at a faster rate than our property management, new commercial and protective and marine segments. In the Consumer Brands Group, the unprecedented demand from most of our retail partners has remained robust, driven by consumers who are nesting during the pandemic and focused on DIY projects. In the Performance Coatings Group, demand has been variable by end market and geography. Packaging remains our strongest performer, while demand in our coil business has been choppy following the slower reopening of many commercial construction projects.

I’m relieved to hear this. Many companies have withdrawn their guidance due to the coronavirus, which is certainly understandable, so I appreciate any background we can get.

Sherwin-Williams will release its Q2 earnings on July 28. The company will update its sales and earnings guidance at that time. Sherwin-Williams is a buy up to $590 per share.

The U.S. Economy Is Gradually Waking Up

As we head towards the midpoint of the year, the U.S. economy is at an odd spot. Much of the economy is reopening. There are also reports of a surge in coronavirus cases, especially in areas that had not been hit as hard. I should caution that the data are still coming in.

You certainly get the sense that people are restless. They’ve been locked up for several weeks. Apparently, consumers are ready to shop! The last retail-sales report was remarkably strong. The government said that retail sales rose by 17.7%. That beat expectations by 10%. I think this also shows evidence of the stimulus checks.

Give people a reason to shop, and they’ll do it.

However, the employment outlook is still weak. Thursday’s jobless-claims report came in at 1.508 million. That was the fourteenth=straight week that jobless claims topped one million. While this continues the trend of lower claims, the report was still above the expectations of 1.35 million. This is the second week in a row that claims have come in higher than expectations. The number of people getting benefits fell below 20 million for the first time in two months.

The recent numbers are actually improvements on what we saw earlier this year. Just to give you an idea of how large these numbers are, before the coronavirus, the record for a single week was 695,000 in September 1982.

There’s also a concern about a surge in coronavirus cases. States like Texas and Florida have seen major spikes. Apple closed some of its stores in Houston. The seven-day average of news cases is up 30% from a week ago. There’s even talk of reversing some of the recent re-openings.

On Thursday, the government said that the U.S. economy contracted at a 5% annualized rate during the first quarter. That’s the same number as before. Bear in mind that the first quarter began nearly six months ago and ended three months ago. We’ll get the first report on Q2 GDP in another month.

We got some recent reports on the housing sector. This is important to watch for signs of a rebound. On Monday, the existing-home sales report showed a drop of 9.7% for May. The good news is that the National Association of Realtors expects a “strong rebound” in the coming months. On Tuesday, the new-home sales report showed an increase to 676,000 (that’s the annualized figure). Wall Street had been expecting 640,000. The previous three months were revised down.

Overall, the economic figures look pretty bleak, but I think we’ll see a rebound as the year goes on. I suspect that Wall Street has already figured that out and that’s why stocks have rallied over the last three months. In fact, day-trading is popular again. The Nasdaq Composite has closed higher on 20 of the last 25 sessions. Don’t be suckered in. I suspect the day-traders will again learn a valuable and expensive lesson.

Now let’s look at some news impacting our Buy List stocks.

Buy List Updates

I have a few updates on some of our Buy List stocks.

Check out the appearance by Gil Shwed, the CEO of Check Point Software (CHKP), on Jim Cramer’s Mad Money.

Due to the big increase in coronavirus cases, Disney (DIS) said it’s going to push back its plans to re-open its parks in California. This includes Disneyland and California Adventure. The original plan was for July 17. Disney said they hope to provide more guidance after July 4. The parks have been closed since March 14.

With FactSet’s earnings out of the way, that’s it for earnings reports until the Q2 earnings season starts. We already have a few earnings dates in. Stepan (SCL) is due to report on July 22. Hershey (HSY) is scheduled for July 23. I already mentioned SHW on July 28. Stryker (SYK) will report on July 30. Also, RPM International (RPM), our straggler from the May reporting cycle, will report on July 27. As we get closer to earnings season, I’ll have the earnings calendars as I have done in previous seasons.

That’s all for now. The market will be closed next Friday, July 3 in honor of Independence Day. That will make the economic calendar a little crowded. On Wednesday, ADP will release its private-payrolls report. The Fed will also release the minutes from its last FOMC meeting. Plus, the ISM Manufacturing Index is due out. On Thursday morning, the jobs report for June comes out. At the same time, the jobless-claims report comes out. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy