Economic Normalization Near?

Monday, May 04, 2020

The Week on Wall Street

Stock prices ended the week slightly lower, despite news of positive results from a test trial of a COVID-19 drug treatment and several states easing their economic lockdowns. 

The Dow Jones Industrial Average slipped 0.22%, while the Standard & Poor’s 500 lost 0.21%. The Nasdaq Composite Index dropped 0.34%. The MSCI EAFE Index, which tracks developed stock markets overseas, rose 4.34%.[i],[ii],[iii]

Light at the End of the Tunnel?

Investors were emboldened last week by two significant developments: a quickening in the pace of state re-openings and positive results from a clinical trial of pandemic treatment. These developments turned investor focus toward economic normalization and away from the economic destruction that has occurred.

Market optimism was also supported by earnings reports early in the week, which showed that some companies were navigating reasonably well through the crisis. But stocks retreated on Friday as traders reacted to mixed earnings from two tech titans. The two firms offered a reminder that even the strongest companies have not escaped the economic impact of the pandemic.

Worries over possible new China trade tariffs also weighed on stocks as the trading week came to a close.

Corporate Earnings

It was a busy week for corporate earnings reports. So far, the earnings season has been mixed; it has provided some clarity, though, about the impact of COVID-19 on businesses. 

With 193 of S&P 500 companies reporting, 65% have checked in with results ahead of consensus Wall Street estimates. Among the better-performing sectors to date were Technology and Consumer Staples. Financials were among the laggards.[iv],[v],[vi]

Final Thought

Despite the continued shutdown of businesses nationwide, stocks staged a powerful rebound in April, leading some to wonder if Wall Street is disconnected from Main Street. But market watchers are quick to point out that Main Street may not be as disconnected as it appears. April’s rally was led by a group of very large companies, with over 75% of stocks in the S&P 500 trading below their 200-day moving average.[vii] 

[i] The Wall Street Journal, May 1, 2020

[ii] The Wall Street Journal, May 1, 2020

[iii] The Wall Street Journal, May 1, 2020

[iv] NASDAQ, April 30, 2020

[v] NASDAQ, April 30, 2020

[vi] NASDAQ, April 30, 2020

[vii] Index Indicators, May 1, 2020

Oil Wavers, Promising Virus Treatments Disappoint

Stocks opened the new week lower on the heels of a plunge in oil prices that saw the May oil futures contract fall into negative territory. While negative prices were largely reflective of technical issues associated with trading the contracts rather than the actual price of oil, the unprecedented move unsettled investors. 

Stocks found some positive momentum as the week wore on, buoyed by corporate earnings reports that showed solid performance amid a challenging environment.

On two separate days, however, solid moves to the upside were derailed by disappointing news on promising COVID-19 treatments. One drug failed to produce positive results in its first trial, followed the next day by an FDA warning against taking chloroquine and hydroxychloroquine to treat COVID-19. Stocks managed to rally and trim the week’s losses during the market’s final hours on Friday. 

The Economic Reopening Begins

States across the nation, including Georgia, Tennessee, South Carolina, and Texas, have begun the process of slowly reopening commerce, while Montana’s governor announced the first phase of restarting its economy.[iv],[v]

Each state is taking a different approach, potentially serving as a laboratory to help guide other states in their efforts to reopen businesses. From the market’s perspective, these early steps are not only hopeful signs that the journey to normalization may have begun, but they may provide important clues to how quickly business activity can rebound and the degree to which individuals resume social engagement – two important metrics that may influence the market in the weeks ahead.

[i] The Wall Street Journal, April 24, 2020. The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.

[ii] The Wall Street Journal, April 24, 2020. The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.

[iii] The Wall Street Journal, April 24, 2020

[iv] US News & World Report, April 21, 2020

[v] US News & World Report, April 22, 2020

THE WEEK AHEAD: KEY ECONOMIC DATA

  • Monday: Factory Orders.
  • Wednesday: Automatic Data Processing (ADP) Employment Report. 
  • Thursday: Jobless Claims. 
  • Friday: Employment Situation Report. 

Source: Econoday, May 1, 2020

The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

  • Monday: Skyworks Solutions (SWKS), Tyson Foods (TSN)
  • Tuesday: Walt Disney (DIS), Electronic Arts (EA), Prudential Financial (PRU), Illinois Tool Works (ITW), Sysco (SYY)
  • Wednesday: Square (SQ), CVS Health (CVS), General Motors (GM), Shopify (SHOP), T-Mobile (TMUS) 
  • Thursday:  Bristol-Myers (BMY), Anheuser-Busch (BUD), Becton Dickinson (BDX), Danaher Corp. (DHR)

Source: Zacks, May 1, 2020

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.

5 4 20 Weekly Update Mkt Wtch

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The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

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[1] The Wall Street Journal, May 1, 2020

[1] The Wall Street Journal, May 1, 2020

[1] The Wall Street Journal, May 1, 2020

[1] NASDAQ, April 30, 2020

[1] NASDAQ, April 30, 2020

[1] NASDAQ, April 30, 2020

[1] Index Indicators, May 1, 2020

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