Investor Optimism Reigns Supreme

By Nicholas Jasinski |  Tuesday, April 14

Bounce. Stocks regained their losses of yesterday and more today, to continue a blistering rally off their late-March low. The Dow Jones Industrial Average rose 559 points, or 2.4%, and the Nasdaq Composite climbed 3.9%. The S&P 500 gained 3.1%, its 38th move of at least 1%—up or down—in 2020. That surpasses last year’s total, just over a quarter of the year in. 

Today's gain was broadly shared, as more than 85% of the S&P 500’s companies ended in the green. Since falling over a third from Feb. 19 to March 23, the index has soared 27%. Time will tell whether that’s just a short-term bounce to be followed by a plunge to new lows—or a lightning-fast end to the coronavirus bear market.

There are some signs of improving trends on the pandemic-response front. Physical distancing measures have been in place for several weeks in most affected areas around the world, and they appear to be making a real difference. The United States and many European countries appear to be past the peak of daily new cases. According to data compiled by Deutsche Bank, yesterday’s worldwide increase in cases was the lowest since March 10. The U.S. is a bit further behind: Johns Hopkins figures show the lowest daily increase yesterday since March 31.

But at the same time, the economic damage, from the outbreak and the steps required to slow its spread, is growing. Indicators from jobless claims, to new business applications, to electricity output all continue to point to an economy rapidly tumbling into a deep recession. Economists from the International Monetary Fund gave a grim forecast for the global economy today, saying that the coronavirus could cause a $9 trillion drop in global economic activity over 2020 and 2021. The IMF expects a 3.0% decline in the world economy this year—down from its previous pre-coronavirus forecast in January of 3.3% growth.

Investors bidding up stocks appear to be focusing not on the deteriorating data, but on the baby steps that some frozen economies are taking toward restarting. Italy, Spain, and Austria are allowing some shops and manufacturing facilities to resume operations. And a coalition of seven state governors in the northeastern United States are discussing ways to coordinate ramping up economic activity in the U.S.’s most densely populated region. China’s March exports and imports fell less than forecast, and much less than they did in January and February. 

First-quarter earnings season is the next test for the market.  JPMorgan Chase and Wells Fargo kicked off the results parade this morning. Both saw their earnings hit by multi-billion-dollar increases to their credit reserves—money banks put aside for future loan losses—causing deep declines from their year-ago profits. The stocks initially rose, then fell, to close in the red: JPMorgan lost 2.7% and Wells Fargo fell 4%.

Other reporters today included Johnson & Johnson, which raised its dividend and handily beat Wall Street’s consensus estimate for its earnings per share. Management also significantly cut its full-year forecast, but shares jumped 4.5% nonetheless. 

Hardware and industrial goods distributor Fastenal had a better-than-feared earnings report this morning, with a penny higher-than-expected earnings and few surprises. The release was enough to boost the beaten-up stock 7%.

Headlining tomorrow’s earnings calendar are Bank of America, Citigroup, Goldman Sachs Group, and UnitedHealth Group. The Census Bureau’s retail-sales figures for March and the Federal Reserve Bank of New York’s Empire State Manufacturing Survey for April will provide additional insight into the beleaguered consumer and manufacturing economies in the U.S. And, as always, the flood of data on new coronavirus cases, hospitalizations, and fatalities from countries and regions around the world will continue to garner plenty of attention.