THE WEEK ON WALL STREET
Stock prices pushed higher last week as news of a White House plan to reopen the economy and reports of a potential COVID-19 treatment helped the market overcome weak economic data and an ugly start to the corporate earnings season. The Dow Jones Industrial Average rose 2.21%, while the Standard & Poor’s 500 advanced 3.04%. The Nasdaq Composite Index gained 6.09% for the week. The MSCI EAFE Index, which tracks developed overseas stock markets, slumped 1.75%.
REALITY HITS
Until last week, the extent of the economic damage from COVID-19 lacked a lot of hard data. With the release of retail sales (down 8.7% for March), industrial production (down 5.4% in March), and new jobless claims of 5.2 million (bringing the four-week total to 22 million), the scope of economic trouble became clearer.
Stocks wavered throughout the week as investors digested the economic data and balanced the reports against signs that the pandemic may have peaked. With news of a plan to restart the economy and promising test results of a COVID-19 treatment, market sentiment turned positive, sending stocks higher on the final day of trading and cementing the second consecutive week of gains.
CORPORATE EARNINGS
Large banks kicked off the quarterly earnings season, reporting declines in profits as they hiked loan loss reserves and saw a contraction in consumer credit card use. The large loan loss reserves represent a sobering view on just how much the banks believe small businesses and consumers may be affected by the economic downturn.
THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: Existing Home Sales.
Thursday: New Home Sales. Jobless Claims.
Friday: Durable Goods Orders. Consumer Sentiment.
THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS
Monday: IBM (IBM), Halliburton (HAL)
Tuesday: Netflix (NFLX), Procter & Gamble (PG), Coca-Cola (KO), United Airlines (UA)
Wednesday: Facebook (FB), AT&T (T), Boeing (BA), Tesla (TSLA), Visa (V)
Thursday: Amazon (AMZN), Intel (INTC), Starbucks (SBUX), 3M Company (MMM), Southwest Airlines (LUV)
Friday: Verizon (VZ), American Airlines (AAL), American Express (AXP)
FINAL THOUGHTS
With bank earnings reports, investors got an important – but limited – view of the state of the economy. This week’s earnings reports are expected to provide a much broader cross-section of the economy, with a number of consumer products, technology, industrial, transportation, and communication services companies reporting.
The true economic damage of Covid-19 and the economic shutdown is yet to be fully known. The markets are trying to price in some unknowns at this point. The Fed appears to be backstopping a lot of the pain which has allowed the markets to recover in the short term. Longer term, we must wait for the fire to be under control before we can begin to see where the real structural damage is and how long it may take to recover. We will recover, it just may not be quite as fast as some of the talking heads on TV are forecasting.
While talks of restarting the economy are optimistic I think we will find it will not be like flicking a light switch to turn it back on. I think it is going to be more like installing new lights and new switches in some areas and maybe even a little re-wiring. Eventually the lights come back... it is just going to take more work.
Have a good week!
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April 20, 2020
