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Stocks Post Gains for Second Straight Week as 1st Quarter Earnings Start to Roll In

Weekly Update – April 17, 2020

  • U.S. Stocks finished higher for the second straight week, as investor optimism rode high on plans for some states to begin the process of reopening their economies and encouraging reports of potential COVID-19 treatments. For the week, the Dow Jones Industrial Average and the S&P 500 gained 2.2% and 3%, respectively, while the Nasdaq jumped 6.1%. Despite the rally in stocks U.S. Treasury yields edged higher with the two-year yield increasing 1 bp to 0.2% and the 10-year yield increasing 4 bps to 0.65%.
  • The Federal Government announced a phased approach to reopening the U.S. economy and left much of the discretion to state governors: in phase one, restaurants, gyms, movie theaters and large sporting venues can reopen if they adhere to strict social distancing requirements; in phase two, schools, daycares, camps, etc. can reopen, and non-essential travel can resume; in phase three, vulnerable people can resume public interactions but practice distancing.
  • With 8.8% of S&P 500 companies reporting first-quarter results, 68.1% have exceeded both earnings per share and revenue expectations. As of April 17, 2020, Refinitiv estimated the S&P 500 index’s first-quarter earnings growth rate at -13.0% and its 12-month forward P/E ratio at 19.2. Johnson & Johnson and United Health impressed, whereas JPMorgan, Wells Fargo, and Bank of America disappointed.
  • Weekly initial jobless claims of 5.25 million for the week ending April 11 were within consensus range and below the 6.62 million in the prior week.
  • March retail sales were down a historical 8.7%, even worse than the expected 7% decline and down further from the 0.4% easing in February. The March 2020 level was also down 6.2% from March 2019.
  • April’s New York Fed Empire manufacturing survey of -78.2 set a record low and was way below the consensus of -33.9. The prior record low of -34.3 was set during the Great Depression. Similar news from the Philadelphia Fed, where the April manufacturing index was -56.6 – also below Great Recession readings – versus consensus of -30 and March’s -12.7.
  • NAHB’ April housing market index of 30 was lower than consensus of 52.5 following 72 in March and was driven by a broad-based decline in all regions. Further, March US housing starts fell 22.3% from February, missing estimates for a 17.5% drop.

CPWM Weekly Market Monitor (2020.04.17)

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