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Last week saw more gains for stocks as the spread of covid-19 has shown signs of slowing. The S&P 500, for instance, climbed 12%, its best weekly performance since 1974, while the DJIA climbed 13%. This came on the heels of more dismal economic data- jobless claims came in at 6.6 million in the first week of April, and the Congressional Budget Office said it expects the US unemployment rate to increase to 10% in the second quarter. Despite this news, market participants seem hopeful the initiatives the Fed has been taking on are helping buttress the economy, including its $2.3 trillion lending program aimed at small and midsize businesses, as well as cities and states. They also appear hopeful that the social distancing measures that have been put in place will curb the spread of the virus, setting the stage for an economic rebound in the second half of the year.
However, others aren’t so sure the markets have reflected the full economic impact of the pandemic and believe we’re due for a reckoning as companies begin releasing earnings this week, among them banks JPMorgan Chase, Wells Fargo, Bank of America, and larger concerns UnitedHealth Group Inc and Johnson & Johnson. Some analysts have predicted a year-over-year decrease in annual earnings of 9%- a stark contrast from the 9% projected growth before the coronavirus outbreak. Different industries are expected to be hit harder than others- hotels, cruises and restaurants are expected to be the hardest hit, while communications services like Zoom, Alphabet and Facebook will likely fare much better.
With so many companies having either revised or withdrawn their first quarter guidance last month, this earnings season will provide a glimpse as to what’s to come in the second quarter and beyond. Of particular note will be the comments made regarding future revenue and earnings forecasts and will serve as a kind of barometer for the state of other companies yet to report their own financials.
On the energy front, Saudi Arabia and Russia ended their oil price war today, having finalized a deal that amounts to the largest set of production cuts in history. In total, OPEC+ member countries agreed to 9.7 million barrels a day of production cuts in an effort to help stabilize rock bottom oil prices in a situation where the supply glut is such that producers are now running out of places to store the product. Negotiations were temporarily held hostage by Mexico, as it initially refused to agree to the production cuts proposed to it by member countries but eventually relented, agreeing to a 100,000 barrel-a-day cut, down from the original 300,000 figure. This acquiescence was partially brought about by the United States’ insistence it would make up for Mexico’s production cut shortfall. At the time of this writing (Sunday evening), WTI is up 3.9% at $23.59 while Brent crude is trading at $32.47, up 2% since the open.
The week ahead will be interesting indeed- the latest round of earnings will likely prove to be sobering news for investors as they’ll realize we’re not quite out of the woods yet, and when we are, the recovery will be longer than originally anticipated, but they may also, at least, offer some light at the end of the tunnel.