Sometimes, the stock market makes a lot of sense: Morning Brief

August 20, 2020

3 minutes read

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stock market setting new record highs for the first time since before the pandemic, it’s easy to get caught up in exaggerated statements about how prices are totally disconnected from reality especially with many economic metrics stalling at dismal levels.

But that would be a mistake. Investors making decisions based on company fundamentals and prospects are being rewarded in an arguably rational way.

“‘The stock market is not the economy.’ I’ve seen some version of this argument in the 15 years I have been doing this,” Renaissance Macro’s Neil Dutta said in an email. “We’ve seen a lot of this lately since the economy remains depressed in a pandemic. But, the market isn’t exactly whistling by the graveyard.”

shared this timely chart. It plots the five-month sales performance against the five-month stock price performance of various retail subsectors.” data-reactid=”27″>To illustrate how stocks do indeed have a direct relationship with the economy, Dutta shared this timely chart. It plots the five-month sales performance against the five-month stock price performance of various retail subsectors.

“The sectors doing well in the equity market are doing well in the economic data too and vice versa,” Dutta observed.

(Renaissance Macro)

AMZN). This week we learned Walmart (WMT) and Target (TGT) smashed Q2 expectations as online sales at the retailers surged 97% and 195%, respectively. Both stocks surged after their results were released.

HD) and Lowe’s (LOW) see sales go gangbusters as people focus on renovating their homes, which is where people are spending a lot more time amid the COVID-19 pandemic.

Home Depot CFO Richard McPhail said.

To be clear, investing is riddled with risks. And more often than not, it could take years for a good investment thesis to pan out as no stock is impervious to short-term bouts of volatility.

Earnings are the most important drivers of stock prices and so when earnings go up, so do stocks. And the companies with the better earnings growth prospects will often see their stock prices outperform.

@SamRo” data-reactid=”45″>By Sam Ro, managing editor. Follow him at @SamRo

8:30 a.m. ET: Philadelphia Fed Business Outlook index, August (20.5 expected, 24.1 in July)

8:30 a.m. ET: Initial jobless claims, week ended Aug. 15 (920,000 expected, 963,000 prior week)

8:30 a.m. ET: Continuing jobless claims, week ended Aug. 8 (15 million expected, 15.486 million prior week)

10:00 a.m. ET: Leading Index, July (1.0% expected, 2.0% in June)

6:45 a.m. ET: BJs Wholesale Club Holdings (BJ) is expected to report adjusted earnings of 59 cents per share on revenue of $3.74 billion

6:45 a.m. ET: Estée Lauder (EL) is expected to report an adjusted loss of 20 cents per share on revenue of $2.44 billion

7:10 a.m. ET: Alibaba (BABA) is expected to report adjusted earnings of 13.79 yuan per share on revenue of 148.06 billion yuan

4:00 p.m. ET: Ross Stores (ROST) is expected to report an adjusted loss of 26 cents per share on revenue of $2.44 billion

Airbnb confidentially files for U.S. IPO [Reuters]

Fed will not cap U.S. Treasury yields for the time being [Yahoo Finance]

Nvidia beats estimates but data center performance leaves shares flat [Reuters]

Online thrift shop ThredUp plans IPO early next year [Bloomberg]

August 20, 2020

3 minutes read