Before The Bell
Investors were taken on another roller-coaster ride last week, but the daily peaks and valleys were not as extreme as we saw when market volatility peaked in mid-March. After a sharp rally during the earlier part of April and a stretch of trading stability to follow, the U.S. equity market sold off in the first half of last week on elevated concerns about the oil and gas markets (future contracts for crude tumbled on nonexistent demand due to the negative impact of the coronavirus on global economies), weak quarterly data from Corporate America, and some nervousness as Congress had not yet passed legislation to refund the popular Payment Protection Program (PPP) to help small businesses. However, after the early week selloff, the major equity averages were able to retrace a good portion of those losses over the final three trading days of last week on some positive developments, including an agreement to fund the PPP, news that some states were staring to reopen parts of their economies, and signs showing a slowing of the COVID-19 virus spread in some domestic hotspots, including New York City. In the end, the Dow Jones Industrial Average, the S&P 500 Index, and the NASDAQ were down 1.9%, 1.3%, and 0.2%, respectively, for the five-day stretch.
On Friday, the aforementioned averages turned in a productive session, with the main catalysts being a rebound in technology stocks and some bottom feeding in the beaten-down oil sector. The PPP news also gave a boost to the small-cap stocks, with the broader Russell 2000 Index outpacing solid gains from the other three indexes. Bargain hunting investors, including those looking at some reduced prices for some blue-chip names after an earlier week selloff, were able to look past mostly disappointing earnings news, including weak results and dour near-term guidance from Dow-30 components Intel (INTC), American Express (AXP), and Verizon Communications (VZ). All three stocks, after starting in the red, rallied into positive territory by the closing bell.
Speaking of earnings season, it will be another very heavy five-day stretch of quarterly reports for investors to digest, including data from a slew of Dow-30 companies. We think investors should keep a close eye on the technology sector, as trading volume should be heavy for this high-growth segment throughout the five-day stretch. Sentiment for technology stocks will likely be driven by the latest quarterly data—and maybe more so outlooks—for industry heavyweights Apple (AAPL), Microsoft (MSFT), and American Micro Devices (AMD). The latter company’s report may also influence shares of industry peer NVIDIA (NVDA), which reports quarterly results in late May.
In addition to the heavy slate of earnings reports and cororavirus updates, investors will be paying close attention to the world’s central banks. Indeed, the Federal Reserve, Bank of Japan and European Central Bank, which together cover almost half of global financial output, will all commence monetary policy meetings this week. The monetary policy decisions of the central banks, which have been forced to take extraordinary measures to combat the unprecedented impact of freezing many of the world’s prominent economies and the related turmoil in the financial and energy markets, are likely to have a big impact on trading this week. Investors are expecting the central banks to do even more to support the global economies during the COVID-19 pandemic (i.e., additional quantitative easing), and our sense is that anything short of such measures will pressure the global markets. Given this backdrop, we expect the banking, housing, and energy stocks to be on investors’ radars once again. Investors should note that our latest take on some of the oil and related energy producing and servicing industries can be found this morning on valueline.com, with the release of Issue 12 of The Value Line Investment Survey (VLIS).
The news this week from the business beat will also include some highly anticipated reports. The latest reading on consumer confidence (due tomorrow morning at 10:00 A.M. EDT) will likely bring the consumer discretionary stocks into focus on Wall Street. The expectation is for another terrible reading and thus, we think, it may be prudent for investors to focus on the well-capitalized industry leaders, including Amazon.com (AMZN), Walmart (WMT) and Home Depot (HD). Investors can get our analysis on the retailing sectors in the recently published Issue 11 of VLIS dated April 24th. Then on Friday, the reading on manufacturing activity for the month of April is due a half hour into the week’s final trading session, and that report will likely bring more attention to the industrial and construction companies; again that reading is expected to be dismal.
Before the market’s open, the equity futures point to a continued rally on Wall Street, with Dow Jones Industrial Average looking to make it four-consecutive winning sessions. Giving a boost to stocks this morning is news that 13 states are slowly rolling back their social distancing measures and attempting to restart their economies. Investors should be aware, though, that oil prices are slumping again after four-straight sessions of gains. The worries about the struggling energy sector were a big reason for the notable selling in the U.S. equity market early last week. Stay tuned.
– William G. Ferguson
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
