Market Overview

Airline, Travel Stocks Could Be In Focus Today As Stronger-Than-Forecast Jobs Report Boosts Sentiment

Airline, Travel Stocks Could Be In Focus Today As Stronger-Than-Forecast Jobs Report Boosts Sentiment

As the final trading day of a holiday-shortened week got underway, Wall Street seemed focused on two labor market reports.

Those that were optimistic heading into the nonfarm payrolls report weren’t disappointed. The figure from the Bureau of Labor Statistics (BLS) came in well ahead of expectations, showing that 4.8 million jobs were added in June. A consensus had expected the report to show 3.5 million jobs added during the month. The unemployment rate fell 2.2 percentage points to 11.1%. That’s a steep decline, but still well higher than the 3.5% rate in February.

Digging deeper into the numbers, a couple things jump out that might offer clues as to the “reopening economy”—the leisure and hospitality category added a whopping 2.1 million jobs, and retail added a respectable 740,000. Airline, cruise line, and hotel stocks are among the premarket winners in the early going. 

Something new that was added to the BLS report: A sort-of explanation as to why the last few numbers have varied so widely from expectations. According to the statement, there’s been a bit of misclassification regarding workers who were temporarily absent due to virus-related closures—were they technically employed or unemployed during the reference period? That confusion should serve as a reminder that it’s not about the individual data points but rather the longer-term employment trends. Today’s employment report seems to indicate a move in the right direction. 

Meanwhile, a separate report showed that weekly jobless claims continued their downward trend. Although the 1.427 million new initial claims during the week ended June 27 were ahead of the 1.355 million expected in a consensus, they were below the prior week’s upwardly revised 1.482 million.

The jobless claims reports have taken on extra importance as they provide weekly glimpses into the labor market while the larger nonfarm payrolls reports come out just once a month. Investors and traders have been closely monitoring the weekly data as a way to keep their fingers on the pulse of the economic situation during the pandemic. But again, trends emerge out of individual data points.

In corporate news, Tesla, Inc. (NASDAQ: TSLA) said it delivered more than 90,000 vehicles, well ahead of what analysts had been expecting. Shares added 4% yesterday and another 9% in extended hours, blowing past all-time highs and establishing the company as the world’s most valuable automaker by market cap (see more below).

Vaccine Hopes, Manufacturing Data Boost Sentiment

News on the coronavirus vaccine front and stronger-than-expected manufacturing data cast a generally positive tone to the market on Wednesday, with the S&P 500 Index (SPX) finishing in the green and the Nasdaq Composite (COMP) closing at a record even though the Dow Jones Industrial Average ($DJI) ended lower.

The main excitement for the market appeared to be news of progress on a vaccine candidate from Pfizer Inc. (NYSE: PFE) and BioNTech (NASDAQ: BNTX). The companies are part of a global push to come up with a vaccine, the development of which would likely go a long way to cheering the market even if the economic reopening isn’t complete by then.

Wall Street also seemed to applaud the latest manufacturing index from the Institute for Supply Management, which showed an unexpected return to expansionary territory in June. (See more below.) 

The news added to a growing number of data points that seem to be green shoots in a domestic economic recovery. 

Worries About Reopening Linger

Though this morning’s employment report has certainly been cheered by Wall Street, the economic reopening seems to be struggling in some areas as coronavirus cases surge anew. Worries about that have dogged Wall Street and may have been behind some of the mixed sentiment on Wednesday.

In disappointing economic recovery news, Apple, Inc. (NASDAQ: AAPL) said it would re-close additional stores, and McDonald’s Corporation (NYSE: MCD) announced it’s pausing the reopening of dine-in service.  

Still, it seems that, overall, Wall Street is continuing to feel generally positive about the pace of the reopening, despite setbacks. 

A Look Ahead

Today will be the last trading day of the week, as the Independence Day holiday falls tomorrow. Next week’s economic calendar is relatively light, but investors will still probably want to tune in for weekly jobless claims numbers on Thursday and producer price index data on Friday. 

In earnings news, Bed Bath & Beyond Inc. (NASDAQ: BBBY) and Walgreens Boots Alliance, Inc. (NASDAQ: WBA) are among the relatively few companies scheduled to open their books next week. It could be interesting to see whether BBBY executives share any thoughts on the economic reopening and consumer demand.


CHART OF THE DAY: TRANSPORTS GETTING A LIFT. The Dow Jones Transportation Average ($DJT—candlestick) took a huge hit when airline stocks plunged. But gains of delivery companies are helping the index get a boost. The $DJT bounced off its 50-day exponential moving average (purple line) and looks to be heading toward its 200-day moving average (blue line). If we see a comeback in the airlines, we could see some additional thrust in $DJT. Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.  

The Market Cap Game: Yesterday, shares of Tesla (TSLA) rallied 4% (and added another 9% in the after-hours) to eclipse Toyota Notor Corporation (NYSE: TM) as the world’s most valuable automaker by market cap. Investors of a certain age have seen these cycles—and market leaders and laggards—come and go. Sometimes these stories are meant to be proof that a company’s valuation has surpassed reality, like during the dot com bubble when AOL surpassed the market cap of The Walt Disney Company (NYSE: DIS) or eBay, Inc. (NASDAQ: EBAY) outstripping the world’s top auction houses. Or like last year when, according to a report in MarketWatch, after last year’s IPO, Beyond Meat, Inc. (NASDAQ: BYND) at one point had a higher market cap than Red Robin, Jack-in-the-Box, Wendy’s, and Shake Shack combined.

Sometimes, though, these seemingly-outlandish valuations are just a glimpse of the future. A couple decades ago, Amazon (AMZN) was an upstart bookseller—that purportedly lost ten cents on every book it sold—when its market cap surpassed those of mainstays Borders, Waldenbooks, and Barnes & Noble—three companies that have since fallen by the wayside or gone in and out of bankruptcy. It turns out there was more to the AMZN story than just books. The point here is that there’s TSLA the maker of electric cars, and there’s TSLA the idea, the vision, and the potential. It’s tough to say whether its valuation is an Amazon story, a story, or something in between. 

Seesawing Toward Gains in the Second Half? Yesterday, the SPX finished out the second quarter with a 20% gain. That followed the first quarter’s loss of the same percentage magnitude. While the main theme of Q1 was coronavirus-related selling, last quarter’s narrative was the rebound. According to investment research firm CFRA, there have been four presidential-election years since 1960 when the SPX declined in Q1 and then rose in Q2. In all four of those years—1960, 1968, 1980, and 1992—the SPX posted a second-half gain that averaged 8%, CFRA said. Although the past isn’t necessarily precedent, looking into the historical record can provide some interesting insight. 

Manufacturing Enters Expansion Territory: The U.S. manufacturing sector returned to expansion in June, according to data released on Wednesday, marking an important step in the nation’s economic recovery. But with the reopening outlook uncertain it remains to be seen whether that momentum can be sustained. The Institute for Supply Management’s June manufacturing index beat expectations. It rose to 52.6 from May’s 43.1. A consensus had expected the new number to come in at 49.2. Numbers above 50 indicate expansion while figures below that mark contractions. Wednesday’s print was the first time the index had been above 50 since February. “The key takeaway from the report is that it reflects a clear bounce back from the super depressed conditions seen in April and May,” said. “It’s a natural rebound so to speak as the economy reopens, but the key is its sustainability, which is still an open question.”

Good Trading,

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


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