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S&P 500 Gains as Second Quarter Earnings Roll In and Virus Worries Continue

Weekly Update – July 17, 2020

  • The S&P 500 rose 1.25% last week as banks kicked off the Q2 earnings season with several reporting results above analyst expectations, and investors grew more hopeful for a coronavirus vaccine thanks to encouraging data from a vaccine candidate study.
  • Still, worries about a continued rise in COVID-19 cases kept the gains in check.
  • The S&P 500 ended the week at 3,224.73, up from last week’s closing level of 3,185.04. This marks the index’s third consecutive weekly gain. The measure is now up 12% for the past three months but still down 0.19% for the year to date.
  • The industrial sector had the largest percentage increase of the week, up 5.9%, followed by a 5.5% rise in materials and a 5.1% boost in health care. On the downside, technology led the decliners with a 1.2% drop, followed by a 0.5% slide in communication services.
  • The activity comes as investors are weighing better-than-expected earnings results against signs the COVID-19 pandemic is far from over. As the number of coronavirus cases continues to rise, some US states are increasing restrictions by closing stores, bars, and restaurants in an effort to clamp down on the spread of the virus.
  • Alongside industrials, shares of several airline operators climbed. While airlines have been warning of potential job cuts, investors are anticipating Congress may pass another aid package as aviation unions are calling for payroll aid to be extended by six months. United Airlines (UAL) shares jumped 3.8% this week.
  • In materials, agriculture stocks rose amid bullish ratings and commentary from some analysts. Among them, shares of CF Industries (CF) climbed 8.0% as the fertilizer manufacturer received an investment-rating upgrade from Bank of America to buy from sell. The firm said it sees improving demand in India and Brazil. Shares of fellow fertilizer maker Mosaic (MOS) rose 9.0%.
  • Also boosting the sector, Alcoa (AA) reported a narrower-than-expected Q2 adjusted net loss amid higher-than-expected revenue. Shares of Alcoa climbed more than 14.5% on the week.
  • Meanwhile, the health care sector’s climb came as investors grew more optimistic about a COVID-19 vaccine. Shares of Moderna (MRNA) soared 51.5% as the company said interim results from an early-stage clinical study showed its vaccine candidate produced an immune response against the coronavirus that causes the respiratory disease.
  • The financial sector also benefited from stronger-than-expected earnings reports this week, up 2.1%, as banks including Goldman Sachs (GS) and Morgan Stanley (MS) posted Q2 earnings above analysts’ expectations. Shares of Goldman Sachs climbed 2.9% on the week while Morgan Stanley shares rose 5.2%.
  • The consumer discretionary sector, however, was weighed down by a 7.4% drop in Amazon.com (AMZN) shares while the technology sector was weighed down by decliners that included Microsoft (MSFT), down 5.1%, as investors braced for the companies’ upcoming earnings reports.
  • Next week, investors also will get data on the housing market for June with existing home sales being released Wednesday and new home sales on Friday. July readings for manufacturing and services purchasing managers indexes are also due Friday.

CPWM Weekly Market Monitor (2020.07.17)

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