Market Brief: July 29, 2020

A daily summary of news, analysis and data shaping the market.
Market Brief
Wednesday, July 29, 2020
Fed Relief. Stocks ended solidly higher Wednesday after the Federal Reserve left its benchmark interest rate unchanged near zero and Fed Chairman Jerome Powell pledged to provide support to the economy until it recovered. The S&P 500 rose 1.2% to finish near 3258. The Dow Jones Industrial Average advanced 160 points, or 0.6%, to 26,540, based on preliminary numbers. The Nasdaq Composite gained 1.4% to close at 10,543. All three indexes flipped positive for the week. Investors also watched proceedings in Congress as top executives from the world’s largest tech firms were grilled by lawmakers over their business practices. General Electric shares were down 4.3% after the diversified industrial conglomerate reported a wider-than-expected second-quarter loss.
DJIA 26,539.57 160.29
S&P 500 3,258.44 40.00
NASDAQ 10,542.94 140.85
US 10-Year Note 0.57 -0.01
Dollar Index 93.34 -0.35
Crude Oil 41.29 0.25
Gold 1,962.10 17.50
Global Dow 2,978.36 6.57
Powered by Dow Jones Research, FactSet, Eurostat, SIX Financial Information.
The Fed Says It Will Keep Easy Money Flowing
The Federal Reserve reiterated Wednesday that investors can count on interest rates being at or near zero in the coming years as the central bank works to support the U.S. economy through the coronavirus pandemic.

In its statement following a two-day meeting that concluded Wednesday, the Fed’s policy-setting arm, the Federal Open Market Committee, said economic activity and employment have “picked up somewhat in recent months” following sharp declines but “remain well below their levels at the beginning of the year.”

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What to Expect From the Worst GDP Report of All Time
Since the pandemic-related trough, America’s recovery over the past few months has been robust in some sectors, most notably retail sales, but much weaker in others. The overall result is that average output in the April-June period was substantially lower in the January-March period.

This is going to show up as a massive decline in second-quarter U.S. gross domestic product when the initial cut of the data is released Thursday. The Federal Reserve Bank of Atlanta, for example, estimates that the change in GDP from Q1 to Q2 will be minus 34% at an annual rate, which would vastly outstrip anything in the historical record.

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Tech CEOs Are Testifying Today. Here Are the Takeaways From Their Opening Statements.
The opening statements from the four tech CEOs who will testify during the House hearing Wednesday about “Online Platforms and Market Power” say a lot about their style—and what they’re worried about heading into the proceedings.

Late Tuesday, the House Judiciary Committee posted the opening statements from the four executives— Alphabet CEO Sundar Pichai,’s Jeff Bezos, Apple’s Tim Cook, and Mark Zuckerberg at Facebook. All four stress that their companies create thousands or even millions of jobs, many for Americans. All talk about the power of entrepreneurship, and all talk about the intensely competitive markets they face. But there are differences in approach that illustrate the positions their companies find themselves in.

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GE’s Earnings Were Weak, but Cash Management Was Great
Industrial conglomerate General Electric reported terrible earnings as the pandemic raged through the global industrial economy in the second quarter. But investors knew earnings would be terrible, and the company made progress on debt, costs, and cash flow.

GE said it lost 15 cents a share on $17.7 billion in sales. Analysts were looking for a loss of 10 cents on $17 billion in sales. It’s an earnings shortfall, but the company did far better on cash management than expected.

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Boeing’s Results Fall Short
Aerospace and defense giant Boeing reported terrible results Wednesday morning. The stock rose initially in premarket trading but quickly erased those gains.

Boeing reported a loss of $4.79 a share on $11.8 billion in sales for the second quarter. Analysts were looking for a loss of $2.57 a share on $13 billion in sales. It’s a huge earnings miss, but the company is still dealing with the twin problems of the 737 MAX grounding and the viral pandemic. The MAX has been grounded world-wide since March 2019 following two deadly crashes inside of five months.

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GM’s Earnings Are Better Than Feared
General Motors stock is jumping after the company reported better second-quarter results than analysts had worried it might.

The company lost 56 cents per share from $16.8 billion in sales. Analysts were looking for a loss of $1.77 a share from $16.2 billion in sales. It’s a solid performance relative to expectations. Still, sales fell 55% year over year as the coronavirus pandemic hit auto sales hard. U.S. car sales, for instance, bottomed out in April, falling about 33% year over year in the second quarter.

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Spotify’s Losses Widen as Subscribers Grow
Spotify Technology posted a wide loss in the second quarter partially caused by the company’s success—Spotify’s stock gains in the quarter created a large on-paper loss in its accounting for stock compensation. The streaming music company lost $418 million, or $2.24 per share, versus analysts’ expectations for a 41-cent loss.

The stock fell by 2.4% in early trading on Wednesday, to $260.64. Spotify shares are still up 76% this year, on bullish expectations for the company’s podcasting business and hope about new deals with record labels. Spotify doesn’t release details of those deals, though it promoted its new arrangement with Universal Music Group, the world’s largest label. Spotify says the deal includes provisions about a “two-sided marketplace,” where Spotify will offer new tools for Universal’s artists as the streaming company attempts to get labels to pay for things like marketing.

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Mortgage Applications Increase From Last Year but Tick Down Week Over Week
The Mortgage Bankers Association, which measures the volume of applications for a loan to purchase a home on a weekly basis, reported levels for the week ending July 24 that were 21% greater than the same time one year ago on an unadjusted basis.

While demand remains elevated compared to last year, the volume of applications dipped week over week, falling 2% on an adjusted basis and 1% on an unadjusted basis. That’s a small drop, but it could be a sign of Covid-19’s impact on first-time buyers, says Mike Fratantoni, the trade group’s senior vice president and chief economist, noting a drop in purchase application volume among those seeking FHA, VA, and USDA home loans.

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Kodak Stock Is Soaring. Here’s What’s Behind the Renaissance.
Eastman Kodak shares are enjoying a renaissance. Shares were up an eye-popping 474% Wednesday afternoon, building on Tuesday’s nearly as eye-popping 200%-plus gain. Fresh capital and a new business are the reasons. The question for investors now is how high can shares go?

It isn’t an easy question to answer. There are no analysts covering the company and no target prices to help investors. What’s more, the company is taking a government loan to build a drug-ingredient business. Kodak has been and is in the imaging business. Valuing a huge new business is hard for any investor looking at a company.

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Airlines Are Retrenching as Virus Cases Spike
Hopes for a quick and lasting recovery in air travel are dimming by the day.

Airlines are cutting schedules for the rest of the summer and trimming capacity for the fall as coronavirus cases increase in the U.S. More layoffs are coming too. Budget carrier Spirit Airlines is preparing to furlough 20% to 30% of its staff this fall, according to a memo sent to employees this week. “It’s now clear that the demand increase we saw in June was an outlier, and the downward trend will continue,” CEO Ted Christie said in the memo.

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