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Good morning. All major stock markets are open once again following the long weekend, and there’s plenty of green on the screens.
Here’s where investors are putting their money as we head into earnings season.
Markets update
In Asia, the major indices are trading higher with Japan’s Nikkei leading the way. That’s despite super tech investor SoftBank Group reporting a $12.5 billion full-year loss, weighed down by its Vision Fund, which lost even more. Shares in SoftBank are trading 5% higher on Tuesday, but are down more than 30% YTD.
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On to Europe now where the major bourses all opened in positive territory. Germany’s Dax was up 1.4% at the open as coronavirus infection numbers continue to improve. Italy and Spain will begin very gradual (some would say premature) easing of lockdown restrictions this week, with certain shops and factories re-opening. France is targeting a mid-May reboot.
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The U.S. Futures are holding firm with the Dow and S&P 500 poised to open up by roughly 1%. Treasury Secretary Steven Mnuchin says 80 million American taxpayers should get their stimulus checks by Wednesday; the $349 billion Paycheck Protection Program for small businesses is proving more complicated.
All eyes today will be on JPMorgan Chase and Wells Fargo, the first of the big banks to deliver quarterly results. The big metric to watch will be the amount of bed debt on the books of these two heavyweights.
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Elsewhere, the dollar is down as is crude. Oil prices are falling as wary traders weigh whether Sunday’s historic OPEC+ deal can possibly stabilize a market battered by the global coronavirus pandemic. Meanwhile, gold continues to rally, nearing $1,800 per Troy ounce.
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It’s earnings season and investors are understandably tense at the prospect of coronavirus-ravaged balance sheets and decimated full-year outlooks. According to the Wall Street Journal, nearly 300 U.S. Companies have already pulled their financial guidance and about 175 companies have suspended stock buybacks or cut their dividend payments.
Earnings will be bad, but how bad? Today’s chart puts the full-year picture into focus.
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A year to forget
For S&P 500 companies as a whole, full-year 2020 earnings are expected to fall 1.2% year-on-year, as that shallow bar in the middle of the chart shows. Reminder: the real pain will be in Q2 and Q3, analysts predict. Drilling down into the full-year forecast, the coronavirus fallout will hit some sectors harder, led by energy, industrials and financials. The sectors expected to see bottom-line growth, meanwhile, are health care and information technology.
If these forecasts hold true, “it will mark the first time the index has reported an annual year-over-year decrease in earnings since CY 2015 (-0.6%),” writes John Butters at FactSet. He adds, more optimistically: “analysts in aggregate currently expect earnings growth to return in CY 2021 (14.5%).”
As companies report results over the coming weeks these forecasts will be refined over and over again. And that will tell us whether the stupendous two-week rally we just came off was the real thing—or simply a bear market bounce. Stay tuned.
Postscript
To open or not?—that’s the big question here in Italy. Starting today, an odd smattering of retail sectors will reopen to the public, including bookshops, garden shops and children’s clothing stores. My kids can’t go to school, but they can do distance-learning in crisp new dresses.
This may sound like good news, but it’s a largely meaningless measure for the battered economy. Italians are worried about putting food on the table; the latest best-seller or a new pot of geraniums is a luxury for far too many.
As we enter week six under lockdown, Italians are getting increasingly frustrated by the Covid-19 infection data—and these partial policy gestures are adding to the frustration. The overall numbers are improving (particularly in the levels of those hospitalized and in ICU), but there are still daily increases in new confirmed cases as the pandemic death toll topped 20,000 over the weekend. Why aren’t we seeing fewer cases by now?, my neighbors (and I) wonder.
Meanwhile, unquestionably grim numbers continue to come from the industrialized north, and so it’s clear that part of the country—the economic engine of Italy—is nowhere close to re-opening for business.
I would imagine this is what other countries could expect as they begin to plot a resumption of business. Phased and regional openings will almost certainly be part of the playbook here. The least-impacted parts of the country will continue to push for more freedoms while public health officials in the worst-hit regions will continue to warn against moving too quickly.
I guess it’s nice we’re even having this debate. But it’s going to be a messy one.
On that somewhat downer of a note, I’ll see you here tomorrow. Have a nice day.
Bernhard Warner
@BernhardWarner
[email protected]
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Today's reads
Come together. Whether it’s doubling output of respirators or donating to foodbanks, Coins2Day 500 companies are putting their massive resources behind an unprecedented effort to tackle the coronavirus pandemic and help people suffering from its consequences. Coins2Day has compiled a list of what corporate America is doing to help, ranging from Ford’s drive to make 50,000 ventilators within 100 days to a supercomputing collaboration between Microsoft and NantWorks’ ImmunityBio to understand how the virus infects human cells.
Company bonds. Corporate debt is one area where investors might venture to dip a toe back in the water after the wild market swings of recent weeks. The market for high-quality corporate debt appears to have taken a decisive turn since the Federal Reserve announced it would back-stop the segment for the first time in history, Geoffrey Smith writes in Coins2Day’s Quarterly Investment Guide. The Fed went a step further last week when it announced it would buy the debt of so-called fallen angels.
Air miles for sale? In a sign of their desperation to raise cash amid the coronavirus slump, some U.S. Airlines are considering selling miles in bulk to their credit-card partners to raise cash. United Airlines and Delta Air Lines and their respective credit card partners, JPMorgan Chase and American Express, have discussed unloading airline miles ahead of schedule and for less than the lenders would ordinarily pay, The Wall Street Journal reports.
Market candy
3,000
We close with some good news. That figure of 3,000 is where Goldman Sachs sees the S&P 500 by year-end, up more than 10% from Monday’s 2,761 close. Goldman Sachs strategists, who had previous warned that the index could sink as low as 2,000, now believe that U.S. Stocks are unlikely to hit fresh lows thanks to the “do whatever it takes” approach of policy makers.
