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Market Recap: Thursday, August 5

Stocks rose Thursday as investors digested more quarterly earnings results and new data on the labor market's recovery. Dory Wiley, Commerce Street Capital President and CEO and Sonali Pier, Pimco managing director and portfolio manager, joined Yahoo Finance Live to break down the details.

Video Transcript

ADAM SHAPIRO: OK, two minutes to the closing bell. Helping us get there are Sonali Pier, Pimco Managing Director and Portfolio Manager, as well as Dory Wiley, Commerce Street Capital President and CEO. Dory, I want to throw this question to you before we do a quick recap of what's happening. A lot of people paying attention to electric vehicles today, but you're advising some of your clients there is big opportunity in big energy, especially with oil just below $70 a share. Is that sustainable?

DORY WILEY: Yes, I think it is. First of all, if you look at supply and demand of oil in most any forecast, oil is forecast to probably rise from here in the future. Even if it doesn't, this is a really strong price for the majors and oil companies to make money. And oil as a sector is trading at maybe 60% of its historical percentage of market cap of S&P. So I think it's a great time to buy. You can get Chevron at a 522 yield and a PE of 14, which is a nice discount to the S&P.

ADAM SHAPIRO: All right. And then I meant to say a barrel of crude is trading at $69 WTI, but you know where my head is, especially as we're going to be getting some earnings reports from Carvana and Expedia. And Sonali, we are going to be talking to you because we want to get your take on what's happening with inflation.

But let's take a look at these markets right now. Because as we head to the closing bell, you can see that the Dow is accelerating to the upside, up 248 points. The S&P 500 up about 24 points, and the NASDAQ up about 110 points. In fact, when you look at some of the leaders in the Dow today, you can see that Salesforce, it is up almost 3%. Amgen is up 2 and 1/2%. Walt Disney, Walt Disney was suffering a little bit just the other couple of days. But Walt Disney recovering from that. They are trading higher right now, up about 2 and 1/4%.

We're going to go to the closing bell, with our eye as well on what the sectors are telling us. And it's been a pretty good day, although we have seen some sectors being flat to down. Materials flat, as is health care. Here's the closing bell.

[BELL RINGING]

- And that does it for the trading day today. Again, taking a look at where things closed, gains across the board. The Dow up 271 points. Some buying action into the close today. The S&P up 6/10 of a percent. The NASDAQ up just around 8/10 of a percent. You can see the NASDAQ and the Dow being the outperformers there.

In terms of some of the movers that we're closely watching, we were just talking about energy, that sector rebounding today. Also, some of the travel stocks, some of the names have been beaten down pretty badly over the last several trading sessions, like airlines, some of the hotel chains, are back in the green today. Financials and utilities also posting some gains.

We want to bring back in Sonali Pier and Dory Wiley for a little bit more on the action that we're seeing and what we could expect to see going forward. Sonali, what's your big takeaway just in terms of the rebound that we've seen. We were just talking about energy, but travel stocks seem to be in favor once again.

SONALI PIER: Yeah, certainly. I think what we're expecting is in the US, pretty strong GDP growth of close to 7%. We're seeing strength in corporate earnings and balance sheets, and there's definitely consumer demand to get traveling again. And we believe that the COVID rebound is not yet done.

ADAM SHAPIRO: So Sonali, when you say the COVID rebound is not yet done, I just want to follow up on something, because we're looking at interest rates. I mean, I know it's just the 10-year, but the yield is still 1.2. It's bupkis, as they would say in my grandmother's old neighborhood. When do they start going up legitimately? Because people who are relying on fixed income generation from bonds, they're not getting it.

SONALI PIER: Yeah, that's certainly a concern. We're seeing a search for yield out there, broadly speaking, and it's leading many into credit markets. With respect to inflation, that's something that we would need to be able to be sustainably higher from an interest rate perspective. Our view is that inflation is transitory and unlikely to be permanent here. Certainly, we are watching rents and the like as indicators for how inflation is likely to-- how sustainable it is.

Our view is that we're starting to see some of the demand for goods turn into demand for services. We're starting to see some of those supply constraints abate, and expect to further over the rest of the year, which will help contribute to the transitory nature of inflation.

- Dory, inflation is one of the concerns out there, Delta variant another. Just a list of the uncertainties over the next several months. Are you confident that the market can maintain this upward momentum that we've seen over the last several months, with so much unknown out there?

DORY WILEY: Well, it's going to be difficult. This is the first time that we've gone, what, nine months without a 5% correction? That doesn't happen very often. And what happens is, if we don't get a 5% correction or more, then a little false confidence gets built into the market.

I think today's an interesting day. We had horrible private job numbers yesterday, but everybody's "oh, we're going to get more stimulus from the government, so everything's going to be great." And we all know that's bad at its core. But everybody wants the free money, right?

And we have non-farm payrolls, and it will be fine, and we'll look at that, and that'll be OK. And the Fed is telling us that, "well, you know, we're going to wait for full employment till we raise rates, and everything will be OK." And I'm not sure I really buy that. I mean, I think we all kind of expect inflation to be transitory. We don't see all the proof out there yet. So we don't know when that's going to end.

And it's a race, right? To try to fill these jobs, before they raise rates without this transitory problem abating itself. And at the rate it's going right now, they're not going to fill all those job numbers to get to pre-pandemic numbers for another two years.

ADAM SHAPIRO: Dory? Real quick, let me just-- I just got to ask you. You point out, for instance, new home sales down 64% because of the increased pressure for price increases. Wouldn't the Fed be concerned about this?

DORY WILEY: Yeah, we should be concerned about that. You got building permits down 32%, real retail sales down 10%, real consumer spending down 8%, weekly earnings down 5.7%. You know, there's a lot of numbers to be negative about. Now, it doesn't mean that we don't have a lot of positive numbers going on. We do. Look at all the 92% of companies have an earnings surprise.

But we also got to remember, those are managed, right? And we got 25% of the S&P companies already managing earnings down for next time. So there's a little bit of gameplay in there. And if we hit a trigger event, call it a Delta variant explosion or some kind of Bitcoin problem with auditing on tying Bitcoin numbers to the dollar or whatever. Whatever that thing is, the market could trip off, not for about 5%, but maybe 10% to 15%. I just think people need to be prepared for that.

- Sonali, do you think it's safe to say that this is peak growth for earnings?

SONALI PIER: Yeah, I think growth looks like it's peaking from a GDP perspective. Inflation looks like it may be peaking. But we're expecting more of a moderated growth picture for next year, with a little bit more global synchronization. Because today, we're seeing a lot of unevenness when it comes to the global outlook, with developed markets clearly outperforming emerging markets.

ADAM SHAPIRO: Are you paying attention to what-- are we going to Emily McCormick? Emily, I believe you've got earnings report for us right now. Emily, can you jump in here and bring us up to speed?

EMILY MCCORMICK: Absolutely, Adam. We are taking a look here at shares of Expedia moving lower in the after-hours session. That's even after the company did exceed consensus expectations on the topline. Although this was overall a mixed report, since those adjusted losses per share did come in wider than expected.

But running through these numbers here, we had revenue of $2.1 billion, better than the $1.98 billion expected. Huge increase compared to the sales of $566 million year-over-year, but also still down on a two-year stack compared to the $3.2 billion reported in the same quarter of 2019.

Now, taking a look here at gross bookings, similar story. Those really surging year-on-year, coming in at $20.8 billion, versus $2.71 billion in the same period in 2020. And that did also top consensus expectations.

Now, where things got a little bit choppier was in the bottom-line results here. We had Expedia posting adjusted losses per share of $1.13, wider than the $0.65 loss per share expected, but still narrower compared to the more than $4 per share loss that we saw in the same period in 2020.

Now, a lot of this was attributable to increased marketing expenses. Expedia really trying to capitalize on this pent-up demand here for travel. But overall, because of this mixed report, we are seeing shares moving to the downside by more than 5% in late trading, guys.

- Certainly a drop here. Emily McCormick, thanks so much. The earnings results, they keep rolling in. Jared Blikre has Novavax for us. Jared?

JARED BLIKRE: That's right, the stock taking a little bit of a hit here. Pretty big misses on both the top and bottom lines. So let's get to the numbers. For the second quarter, they had a net loss of $352 million. That works out to $4.75 per share, and that is a much wider loss than the $3.62 per share that the Street was expecting. Revenue, also amiss for the second quarter, was $298 million. Estimate was much higher, $387.8 million. And research and development expenses incurred were $571 million in the second quarter, compared to $35 million in the same period in 2020.

I should point out, this stock is up 110% year-to-date, so good results so far for Them. But they also have a few announcements that they're making concurrently. First, Novavax is seeking authorization in India, Indonesia, and the Philippines, and preliminary data is showing that their booster increases antibodies. Also, that it induces high levels of antibodies versus variants.

So we've got a couple of announcements there. And really, the headline numbers a little bit disappointing for investors.

ADAM SHAPIRO: Jared Blikre, thank you. Dory Wiley, Commerce Street Capital President and CEO, Sonali Pier, Pimco Managing Director and Portfolio Manager, thank you for joining us for the closing bell.