Back to reality. Stocks sold off yesterday as investors could not avoid noticing weak economic numbers and disrupted earnings growth. Unemployment continues to surge but the pace appears to be slowing.
N O T E W O R T H Y
Misplaced optimism? With the month of April in the books we can now look back and wonder if it was real or if it was just a dream. Or maybe… it was somewhere in the middle. Let's start with the good stuff, shall we? The S&P500 and the Dow Jones Industrials both had their best months since 1987 climbing by +12.7% and +11.1% respectively. The jumps were not limited to the large caps as the Russell 2000 leaped by +13.66%, logging its best month since 2000. So we’re good right? There are many really smart people who would tell you that the market IS the economy. In other words, pay no mind to any news or numbers as the market reflects all of those things. If only it were that simple. But if you were one of those people last month you might have a distorted view of reality. Last month, we saw the US labor market decimated with 3.839 million Americans applying for unemployment last week bringing the 6 week total to around 30 million job losses. That is something like 1 in 5 workers out of a job in just 6 weeks. In April, we saw crude oil hit its lowest price on record with futures contracts going into negative territory for the first time since the contracts were traded as storage facilities near their maximum capacity due to weak demand and oversupply. Energy companies, once the pride of income portfolios are struggling to maintain their dividends with some cutting them (Shell) and others keeping them flat after growing them for the first time in over a decade (Exxon Mobil). In April we learned that US economic growth fell by -4.8% in the first quarter, which only included one month of the nationwide shutdown. Consumer spending, reported last month pointed to the largest drop since the number was recorded (1959), slumping by -7.5%. April witnessed the US Government inject trillions of dollars into the economy to shore it up and the Federal Reserve buying a record amount of all types and qualities of bonds to stabilize the credit markets. Corporate earnings announcements, which ramped up in April, painted a mixed picture as they are backward looking. However we did get some guidance as some companies slashed the future projections while others withdrew them completely. Some companies are benefiting from the virus as their revenues surged, but increased costs resulted in muted earnings. Ok, Ok so none of us should be surprised by all of the negative news and numbers but they do reflect what is actually happening while most of the world battles the pandemic. As the calendar page turns, we can take heart in the massive effort of the healthcare industry in its life-saving efforts and its race for a cure. Encouraging results from Gilead’s human trials are just the first of the many others seeking treatments and vaccines. If it is true that the stock market factors in all of these things, it has determined that things will get better sooner than later. One thing about the market though… it is prone to change its mind… often. There is an old Wall Street adage that goes “Sell in May and go away.” Interestingly, if you look back in history at the period of May through October it has underperformed the November through April period, though the gap has narrowed considerably in recent years. Of course in the markets, past performance is no indicator of future results. This is no ordinary year. This will be one that will surely yield some new Wall Street proverbs to be uttered for years to come.
THE MARKETS
Stocks sold off yesterday as traders digested bad economic data and mixed earnings. The S&P500 pulled back by -0.92%, the Dow Jones Industrial Average dropped by -1.17%, the Russell 2000 sold off by -3.68%, and the NASDAQ Composite Index slipped by -0.28%. Bonds advanced and the 10 year treasury yields added +1 basis point to yield 0.63%. Crude oil spent another session climbing and added +25.10%.
NXT UP
- Markit Manufacturing PMI (April) is expected to have slipped to 36.7 from the prior estimate of 36.9.
- Construction Spending (March) is expected to have slipped by -3.50% compared to last month’s -1.3% drop.
- ISM Manufacturing (April) may have dropped to 36.0 from March’s 49.1 level.
- This morning Weyerhaeuser, Honeywell, Clorox, Chevron, Colgate-Palmolive, Avis, Charter, Newell Brands, and Exxon Mobile beat Wall Street estimates.
- Next week we will get another big round of earnings announcements along with economic numbers. Traders will focus on Friday’s monthly employment situation to assess the damage in April. Check back on Monday for calendars and details.
- WHILE YOU SLEPT reports that the President is considering banning public pensions investing in Chinese companies surfaced, causing equity futures to sell off. Weaker post-close earnings also weighed down futures and they are pointing to a lower open.