Weekly Snapshot July 20, 2020

Market Review: Week Ending 7/17/2020

While the coronavirus rages on (11 new records have been set for new daily cases in July and 75k was hit last week1) investors remain focused on the impact of easy money and the potential for a vaccine, driving the S&P 500 up 1.2% last week to 3224.1 This occurred despite the pullbacks of many popular Covid-19 Technology stocks (Netflix (-10.2%), Zoom Technologies (-10.6%) and Amazon (-7.4) as the tech-heavy NASDAQ Index fell 1.1% last week.1 Moderna jumped 17% after the company released data showing its potential coronavirus vaccine producing a robust immune response in all 45 patients in its human trial.1 This boosted the “reopening” trade that favored Materials (+5.7%) and Industrials (+4.6%), and led to some profit-taking in the narrow group of Technology leaders.1 Reopening stocks surged despite news of increasing rollbacks of plans for reopening by many states, including the latest in California. Healthcare stocks (+5.1%) also rose on the back of the Moderna news, showing the importance investors are placing on hopes for a vaccine.1 Investors will soon worry about the potential for an “income cliff” should the funding for the Covid-related federal unemployment benefits ($600 weekly) be allowed to expire on July 31st.1 Into August, plans for back-to-school in an increasingly dangerous healthcare environment provide another hurdle for stocks that seemingly discount an accelerating economic climate in the back half of the year. The upcoming week will be the heaviest for Q2 corporate earnings reports, where expectations coming in are low, with the S&P 500 companies expected to show a 44% y/y decline in Q2.1 Through the close Friday, year to date results for the major indices are as follows: S&P 500 0.9%, Russell 2000 -11.0%, MSCI EAFE –7.7% and Bloomberg Barclays Aggregate Bond 7.0%.2

What We’re Watching in the Week Ahead


  • Netflix – Despite posting 10m new subscribers in Q2 compared to 7.5m expected, NFLX fell 10.2% last week after guidance for new subscribers in the second half of 2020 fell short of analyst estimates.1 Still, 25m new subscribers have signed on during Covid-19, nearly as many as 2019 and sales rose 25% with positive free cash flow for the second consecutive quarter in Q2.1 NFLX shares had risen 63% YTD ahead of the Q2 release and trades at 57x 2021 earnings estimates.1 It remains a core “stay-at-home” holding for many investors but with the high valuation and growing competition, we believe it is a high-expectation stock where the risk/return outcome is unfavorable.

  • Bank Earnings – With the exception of Wells Fargo, investors bid the large, capital market banks higher last week despite warnings from their CEO’s of trouble ahead and massive increases to loan loss reserves.1 Led by their investment banking and trading operations, capital market banks delivered better-than-feared earnings despite the loan-loss reserves, sending the shares of JPM, GS, C, and BAC higher.1 Banks are now heavily reserved for an economic climate more dire than the one currently faced. They are a low-expectation, unloved group where the risk/return outlook for longer-term investors is favorable, especially if the economy improves.

This is a heavy week of corporate earnings reports for Q2. The list to report includes Microsoft, Verizon, Intel, American Express, Texas Instruments, Tesla, Union Pacific, Honeywell, and many others. Guidance for the back half of 2020 is more important to investors than the results of a quarter where most of the economy was locked down. The outlook for dividends will also be watched. While dividends are not expected to fall as dramatically as during the financial crisis when dividends fell 21% y/y, dividends are expected to be cut by the companies most impacted by the shutdown.

The impact of the recent rollbacks in reopening plans will be watched in economic releases this week, which include reports on June’s Existing Home Sales, Leading Economic Indicators and New Home Sales. Economic reports following the initial phase of the reopenings were largely better-than expected, leading to optimism over the potential for a V-shaped recovery. That optimism has recently waned following rollbacks to reopening plans.

As always, we appreciate your confidence in our team.

Fundamentum Investment Committee
Chad Roope, CFA® Portfolio Manager
Paul Danes, CFA® – Investment Committee
Trevor Forbes – Investment Committee
Matt Dunn, CFA® – OSJ Supervisor


1-Morningstar Direct 7/20/20
2-Factset 7/20/20

Investment advice offered through Fundamentum LLC a registered investment advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the investment objective of any investment strategy will be attained. Investing involves risk including loss of principal. Past performance is no guarantee of future performance. All indices are unmanaged and may not be invested into directly.