Q1 Earnings Lead to Volatile Week on Wall Street
Market Recap Week ending 5/1/2020
It was a hectic week on Wall Street that resulted in more volatility but resulted in relatively unchanged markets. The street received Q1 earnings from some of the most influential technology companies, which on the margin produced better than expected results but ultimately led to a bit of a sell-off. 18 States announced that they would re-open their economies starting on May 1st, while others decided to postpone the decision to re-open. Gilead Sciences’ Remdesvir anti-viral drug had solid results in efficacy combating symptoms of the Coronavirus and helped further boost sentiment on re-opening the global economy. The FDA has approved the emergency use of Remdesvir, and the company plans on producing millions of doses over the coming months. Global Central banks also met during the week and announced additional initiatives to help stimulate the global economies amid dismal economic data. For the week, the S&P 500 lost 0.2%, and the Dow also decreased by the same amount. The NASDAQ lost 0.3% while the Russell 2000 outperformed for the second week in a row with a gain of 2.2%. The US yield curve steepened slightly with the 2-year note yield unchanged for the week at 0.20% while the 10-year yield increased by four basis points to close at 0.64%. Gold sold off during the week and closed at $1700.80 an Oz. Oil bounced back nicely, gaining 16.1% on the week or $2.74 to close at $19.77 a barrel. There were no changes to our models last week.
Q1 earnings continue to come in, and the Technology sector was front and center this week. Facebook, Amazon, Google, and Microsoft were the headliners and, for the most part, produced fantastic results. Many of these Technology companies have had substantial moves higher off the March 23rd lows, and it seems that some now fear that valuations in the sector are too high and that expectations going forward may have been overdone as well. On Friday, Amazon announced solid results but subsequently offered guidance that is to be diminished mainly by the company's COVID-19 initiatives.
Optimism that the global economy will open sooner rather than later was bolstered after 18 states announced that they would re-open on May 1st. The confidence helped fuel an early week rally in the stock market, which was also supported further by news that trials on Gilead’s Remdesvir were producing solid results. If Remdesvir offers substantial relief from the effects of COVID-19, it will undoubtedly help in the decision-making process to re-open and broaden the scope of openings of the economy. Gilead is now in the process of ramping the production of the drug after being given emergency FDA approval.
Awful economic data continued to be reported and show the effects that the Coronavirus has had on the economy. Initial jobless claims came in at 3.839 million and totaled some 30 million over the last six weeks or roughly 18% of the US workforce. ISM manufacturing came in at 41.5 a level not seen since 2009 during the great recession. The first-quarter GDP contracted 4.8%, and personal spending in March decreased by 7.5%. Global central bankers have taken unprecedented action in the wake of the economic slowdown. The Federal Reserve announced that it would keep its target rate at 0-.25% for the foreseeable future. It also announced a newly revised Main Street lending initiative aimed at helping small to medium size businesses. Similarly, the ECB met last week and announced a freshly created emergency lending facility. In Japan, the BOJ announced that it would take limits off how many JGB’s the bank could buy and also offered to purchase other types of securities if needed, namely Commercial Paper and Investment grade bonds.
