Stocks Mixed as Q1 GDP Contracts, Fed Keeps Rates at Lower Bound Range and Expands Main Street Lending Program
Weekly Update – May 01, 2020
U.S. Stocks finished a mixed week lower, as somber comments from Technology giants overshadowed their otherwise positive earnings results. For the week, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq eased 0.22%, 0.19%, and 0.42%, respectively. Despite stocks easing, U.S. Treasury yields increased, with the two-year and 10-year yields both rising 2 bps to 0.20% and 0.64%, respectively.
With 55% of S&P 500 companies reporting first-quarter results, 67.6% have exceeded earnings per share expectations, while about 63.1% have beaten revenue expectations. As of May 1, 2020, Refinitiv estimated the S&P 500 index’s first-quarter earnings growth rate to decrease 12.7% and its 12-month forward P/E ratio at 21.6. Facebook, Microsoft and Apple impressed, whereas American Airlines, United Airlines, and MGM Resorts disappointed.
First quarter U.S. GDP contracted 4.8%, worse than the -4.0% estimated and the first contraction since 2014. Personal consumption was the biggest factor, down 7.6%, the worst decline since 1980.
April ISM Manufacturing Index of 41.5 beat the 36.7 estimated, but down from March and the lowest since April 2009.
Weekly initial jobless claims of 3.84 million for the week ending April 25 were higher than the expected 3.5 million but lower than the revised 4.43 million the prior week.
The U.S. Federal Reserve held rates steady in the 0.00% to 0.25% range, and said the COVID-19 crisis poses considerable risks to the outlook and reiterated it will maintain rates at the current level until the economy is on track. The Fed also said it will need to do more, but noted more fiscal support would go a long way and now is not the time to let deficit concerns get in the way.
The Fed is expanding the scope for the upcoming $600 billion Main Street Lending Program. Businesses with up 15,000 employees or $5 billion in annual revenue will be eligible. Minimum loan size is now $500,000 and a new loan option will be created for firms with larger debt loads, whereby lenders will have to maintain a 15% stake in the debt sold to the Fed.