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Stock futures flat after the market notches its best quarter in decades



A man wearing a protective mask sits on top of the Charging Bull sculpture near Wall St. amid the coronavirus pandemic on April 19, 2020 in New York City, United States.

Alexi Rosenfeld | Getty Images

Stock futures were flat in overnight trading on Tuesday as the market is set to kick off a new quarter after a remarkable comeback.

Futures on the Dow Jones Industrial Average fell about 25 points. The S&P 500 futures and the Nasdaq 100 futures were little changed. Trading volumes were thin. 

The market just notched its best quarter in decades as it snapped back from the historic sell-off triggered by the coronavirus. The Dow gained 17.8% in the second quarter, posting its best quarter since 1987, while the S&P 500 finished the period with a near 20% gain, its best since 1998. The tech-heavy Nasdaq soared 30.6% for the quarter, the most since 1999.

In after-hours trading Tuesday, FedEx jumped nearly 9% after posting quarterly earnings and revenue that topped analysts’ forecast. The shipping company experienced a surge in deliveries amid the coronavirus lockdown.

While the market bounced sharply from its March lows, the recent spikes in coronavirus cases in some states kept investors on edge. White House health advisor Dr. Anthony Fauci warned Tuesday that if the outbreak continues at its current pace, daily new cases could surpass 100,000 new infections per day.

So far, more than 12 states have now paused or rolled back their reopenings as cases in the U.S. jumped 40% over the past week to an average of about 39,750 on Monday, according to a CNBC analysis of data compiled by Johns Hopkins University. 

“We continue to expect it to be an uneven process, albeit with a positive trajectory,” Keith Lerner, chief market strategist at SunTrust Advisory Services, said in a note. “The good news is through this digestion period, markets are working off some of the excesses that had built up, and elevated expectations are being reset.”

Investors will monitor the pace of recovery in the U.S. labor market. ADP will release its private payroll count for June on Wednesday at 8:15 a.m. ET. Economists polled by Dow Jones expect an increase of 2.50 million after a 2.76 million decline in May.

On the corporate front, Macy’s is set to report its quarterly earnings before the bell on Wednesday.

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Germany’s Merkel faces test that will shape EU after coronavirus



History rarely provides major countries and their leaders the enormity of the second chance that Germany and Chancellor Angela Merkel now enjoy as they begin their six-month European Union presidency.

For Germany, the drama is one of epic dimensions. Can the country that has been at the source of so much European devastation through two world wars, resulting in lost territory and Cold War division, steady the EU through this historic test of a public health crisis, economic recession and rising U.S.-Chinese tensions?

For Angela Merkel, who held the rotating EU presidency once before in 2007, it’s a last shot at historic legacy. Can Germany’s first and only woman chancellor, who has recharged her waning standing during the coronavirus, demonstrate the leadership required to unify and shape Europe that her critics say eluded her during almost 15 years in power.

These aren’t academic questions.

“How Europe fares in this crisis compared to other regions of the world will determine both the future of European prosperity and Europe’s role in the world,” Chancellor Merkel told the Bundestag, Germany’s parliament, as she assumed the EU presidency.

In her first trip outside Germany since the coronavirus lockdown this week, she made clear the stakes stretched far beyond Covid-19. “Nobody makes it through this crisis alone,” she said. “We are all vulnerable.”

Those who know Merkel best say that what drives the uncharacteristic urgency and decisiveness of Merkel’s messages is a fear that the EU could become irrelevant or even unravel from the force of Covid-19 and its economic, social and political aftereffects. She understands the challenges for the EU are of a more existential nature than those facing China, the United States or any other single country, coming even as the United Kingdom exits the Union.

China and the U.S. will emerge from the ravages of 2020 with their borders and political systems intact, yet the 27 EU members confront more fundamental questions as their citizens weigh the value EU membership has brought them in the crisis.

“We can’t allow ourselves to be naïve,” Merkel told the European Parliament this week. “In many of the member states the opponents to Europe are waiting only to misuse this crisis for their own purposes.”

Chancellor Merkel’s efforts will come to a head next Saturday, July 17, at a special EU leaders’ summit to discuss the coronavirus recovery plan and a long-term EU budget. Never has Germany supported, as Chancellor Merkel is doing now, the pooling of national debt to help harder hit parts of Europe.

It will be a test of her leadership, beside French leader Emmanuel Macron and other EU leaders, whether she can convert a group of skeptics known as “the frugal four” – Austria, Denmark, the Netherlands and Sweden — who have resisted the scale and makeup of the $850 billion recovery plan.

Yet even as that story unfolds, Germany at the same time is at the center of an unfolding global drama. At its heart is the danger of a strategic, transatlantic decoupling – highlighted in this space two weeks ago – that would alter 75 years of history.

Will Germany continue to define itself first-and-foremost as a strategic partner and ally of the United States? Or will it tilt more toward an alignment with China and Russia due to growing economic lures, in the first case, and geographic proximity and energy interests, in the latter? Or will it, and thus Europe, instead free float among powers in the pursuit of “strategic autonomy,” a situation unlikely to result in a more peaceful and integrated Europe?

European attitudes toward the United States have shifted dramatically downward during the Covid-19 crisis. A new poll commissioned by the European Council on Foreign Relations showed that in Denmark, Portugal, France, Germany and Spain that around two-thirds of people surveyed said their view of the U.S. had grown worse.

In Germany, the mood soured further after President Trump’s announcement on June 15, without prior consultation with Berlin, that the U.S. plans to withdraw 9,500 of its 34,500 troops from Germany, even as the U.S. weighs $3.1 billion in new trade sanctions on Europe.

Chancellor Merkel’s friends privately share that she believes it is President Trump’s spite, more than anything else, that lay behind the timing and nature of his troop withdrawal announcement, following her decision not to physically attend a G-7 meeting that the president had hoped to schedule in Washington this month.   

Some German officials have cast doubt on whether even the possible election of former Vice President Joe Biden in November would alter this trajectory. “Everyone who thinks everything in the trans-Atlantic partnership will be as it once was with a Democratic president underestimates the structural changes,” German Foreign Minister Heiko Mass told the German press agency DPA this week.

Chancellor Merkel has made relations with Beijing a cornerstone of her EU presidency, and her country’s manufacturing base has come increasingly to depend on the Chinese market. German exports to China have risen more than fivefold since Merkel took over as chancellor in 2005 to more than $125 billion, making it the country’s number one market. The United States stood at number three at some $78 billion.  A full third of China’s trade with the EU is transacted with Germany.

Most Europeans blame President Trump’s punitive trade policy and the tone of his tweets for the current threat of transatlantic decoupling. They see his distaste for the EU as evidence that Washington would prefer European disunity. For some, it seems as though Merkel has no other choice than embracing China.

Yet for Germany and Merkel, the promise of this second chance at leadership can only be fulfilled if she at the same time works to limit the erosion in transatlantic relations and ultimately restore European relations with the United States.

Germany is unified today because Merkel’s predecessor Helmut Kohl understood that his European and transatlantic aspirations reinforced each other. Difficult as it may seem at the moment for Chancellor Merkel to navigate both, it is the only course that can ensure her legacy and Germany’s hopes for European resilience and unity.

Frederick Kempe is a best-selling author, prize-winning journalist and president & CEO of the Atlantic Council, one of the United States’ most influential think tanks on global affairs. He worked at The Wall Street Journal for more than 25 years as a foreign correspondent, assistant managing editor and as the longest-serving editor of the paper’s European edition. His latest book – “Berlin 1961: Kennedy, Khrushchev, and the Most Dangerous Place on Earth” – was a New York Times best-seller and has been published in more than a dozen languages. Follow him on Twitter @FredKempe and subscribe here to Inflection Points, his look each Saturday at the past week’s top stories and trends.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.

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Nasdaq stocks led by Tesla continue their blistering run while chill envelops rest of the market



Elon Musk, co-founder and chief executive officer of Tesla Motors.

Yuriko Nakao | Bloomberg | Getty Images

This stock market is like the old line about having one foot in a bucket of scalding water and the other in a bucket of ice, netting out to a neutral, if not comfortable, temperature.

There’s the blistering Nasdaq, with its unassailable technology gatekeepers and a combustible frenzy in Tesla stealing much of the market’s oxygen. Then there’s the chill enveloping smaller stocks, vestiges of the physical consumer economy and legacy financial institutions.

Together they have the inclusive S&P 500 in a tight and tidy trading range, last week refusing plenty of excuses to break down, finishing at a one-month high and even showing signs of giving the benchwarmer value stocks a chance to play with Friday’s broader rally.

The crucial question swirling around this the Nasdaq’s ascent and refusal of the Big Six stocks to take anything but a quick rest for months is whether investors are in danger of overpaying for the perceived certainty of secure cash flows, durable growth and entrenched franchises in the digital economy.

There is no denying both that the Nasdaq complex in the short-term appears technically stretched and over-loved, while large-cap tech is getting richly valued.

Over-loved tech? notes that about three-quarters of Nasdaq stocks are above their 200-day moving average, the shorthand definition of a longer-term uptrend, while only about 40% of S&P 500 names are in that position. This gap in breadth is either rare or unprecedented:

The Nasdaq 100 has pushed more than 22% above its 200-day average, according to Baycrest Partners’ Jonathan Krinsky, the most extreme spread with the index at a high since 2000.

And the S&P tech sector has returned to its peak price-to-sales ratio from the March 2000 tech-bubble market top.

Source: FactSet

For sure, today’s tech companies are more profitable than those of two decades ago. And while the five largest S&P 500 stocks are all from the Nasdaq and in the tech or Internet realms (Apple, Microsoft, Amazon, Alphabet and Facebook) now make up a 20-year high 21% of the S&P 500, they also kick in a commensurate portion of the index’s free cash flow, as this breakdown from Fred Alger Management shows.


And as wild as the Nasdaq’s surge and outperformance have been, it simply hasn’t piled up the amount of easy riches that it had in the late-’90s run. In the five and ten years through the end of 1999, the Nasdaq Composite had gained 440% and 800%, respectively. The comparable gains over the past five and ten years: up 111% and 380%.

Admittedly, arguing that the current market is not as expensive, frothy or beloved as the most overvalued, overextended and overestimated market in many decades is not exactly a ringing endorsement. And indeed we may never see a close rerun of that period. But, as argued here a few weeks ago, stocks can be stoutly valued and priced for subpar future returns without representing an unstable bubble or dangerous misallocation of capital.

Another qualitative distinction between today’s outsized Nasdaq contribution to the market’s climb and the one that culminated 20 years and four months ago: The crowding into the mega-cap elite names today is a defensive instinct, investors gravitating toward steadiness and predictability rather than blue-sky hopes of galloping growth rates and innovative disruption to come. As long as corporate-debt yields remain so low and cash-flow streams are seen as very scarce, what might upend this part of the market beyond nasty short-term corrections and shakeouts.

Missing the Wall Street hype

Back in the late ’90s, the market was implicitly over-extrapolating massive growth rates for many years in companies more cyclical than appreciated, such as Cisco Systems and Intel (along with Microsoft, Oracle, Yahoo and other graybeards of Silicon Valley).

There is an unusual situation now in which the tech darlings have been barreling higher largely on macro fears and heavy liquidity flows rather than product hype or Wall Street salesmanship. In fact, the consensus analyst price targets for Apple, Microsoft and Amazon are all below the stocks’ current quote, according to FactSet.

Does this show a helpfully cautious analytical corps serially underestimating today’s best companies — a sturdy wall of worry built by Wall Street itself? Or is it a sign the market has carried them beyond even the sell side’s typically rosy calculus of fundamental value?

Who knows, Friday’s mean-reversion action, with banks, energy and small caps retaking a sliver of the territory dominated by tech, is the start of a rebalancing of the market. The levitation in secular-growth sectors has arguably been the market’s way of deploying ample liquidity to stay supported as the country backslides on Covid containment and the economy fitfully tries to recover.

It’s tough to deny that big chunks of the Nasdaq are in the sway of overheated speculation. Tesla, to take the obvious example, has gained $108 billion in market value in two weeks. More than $34 billion worth of the stock traded on Friday alone, twice the turnover that day in Amazon – a company whose market cap is more than five times as large.

This is fevered, heedless action, feeding on itself and punishing the disciplined. And the more it goes on or spreads to other stocks, the harder it will become to make the case that this is a market unappreciated by a skeptical investing public.

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Iran will develop oil industry despite U.S. sanctions, Iranian oil minister says



Iranian President Hassan Rouhani speaks on the fall in oil prices due to the coronavirus (COVID-19) pandemic during a cabinet meeting in Tehran, Iran on April 22, 2020.

Presidency Of Iran Handout | Anadolu Agency | Getty Images

Iran is determined to develop its oil industry in spite of U.S. sanctions imposed on the country, Iranian Oil Minister Bijan Zanganeh said in a televised speech on Saturday.

“We will not surrender under any circumstances … We have to increase our capacity so that when necessary with full strength we can enter the market and revive our market share,” said Zanganeh.

The minister was speaking before the signing of a $294-million contract between the National Iranian Oil Company and Persia Oil & Gas, an Iranian firm, to develop the Yaran oilfield that is shared with neighboring Iraq’s Majnoon field.

The agreement aims to produce 39.5 million barrels of oil from the Yaran oilfield in Khuzestan province in  southwestern Iran, the Iranian Oil Ministry’s news agency SHANA said.

Hit by reimposed U.S. sanctions since Washington exited Iran’s 2015 nuclear deal in 2018, Iran’s oil exports are estimated at 100,000 to 200,000 barrels per day, down from more than 2.5 million bpd that Iran shipped in April 2018.

The Islamic Republic’s crude production has halved to around 2 million bpd.

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