Stocks posted a week of solid gains and volatility eased as markets focused on the economic positives: an April jobs report that wasn’t as bad as feared, expectations of continued fiscal and monetary policy support and signs of easing U.S.–China trade tensions. Investors saw hope for a rebound as 30 states reopened businesses, despite rising COVID-19 infection rates.
The two-year U.S. Treasury yield fell from 0.22% to 0.15%, pushed down partly by implied negative rates in federal-funds futures. By contrast, the ten-year yield climbed from 0.60% to 0.68%.
Prospects of economic recovery lifted commodities futures, notably copper and crude oil. Gold was volatile but rose; natural gas fell. The U.S. dollar gained against a basket of major currencies.
With 86% of S&P 500 companies reporting first-quarter results, 67.4% have exceeded earnings per share expectations, while 60.1% have beaten revenue expectations. As of May 8, 2020, Refinitiv estimated the S&P 500 index’s first-quarter earnings growth rate at -12.0% and its 12-month forward P/E ratio at 22.0x. Activision Blizzard, General Motors and Wayfair impressed, whereas Grubhub, Pinterest and Tyson Foods disappointed.
Total nonfarm payroll employment fell by 20.5 million in April and the unemployment rate increased to 14.7%, the highest rate and the largest month-over-month increase since the series started in January 1948. Employment fell sharply in all major industry sectors, with particularly heavy job losses in leisure and hospitality.
U.S. factory orders dropped 10.3% in March as the economy shut down to counter the coronavirus pandemic. Durable goods orders fell 14.7%, nondurable goods orders fell 5.8%.
The ISM nonmanufacturing index dropped from 52.5 in March to 41.8 in April, its lowest reading since March 2009. The ISM business activity index slowed from 48.0 in March to 26.0 in April.
The next round of coronavirus relief faces stumbling blocks as Republicans and Democrats focus on their “red lines.” Republicans insist that the next bill include coronavirus liability protections for businesses. Democrats counter that workers should not lose any of their protections. Negotiations with the White House won’t resume until late May or early June, according to Larry Kudlow, director of the White House’s National Economic Council.