Awaiting Earnings Season

By Nicholas Jasinski |  Thursday, July 9

Earnings Ahead. Unstoppable technology shares aside,  stocks largely lost ground today as investors processed the latest coronavirus and economic data and looked ahead to second-quarter earnings season, which ramps up next week.

The Dow Jones Industrial Average closed down 1.4%, while the S&P 500 lost 0.6% and the Russell 2000 fell 2%. Tech companies continued to outperform: the Nasdaq Composite ended the day 0.5% higher at a record high.

The U.S. reported a record of more than 62,000 new coronavirus cases yesterday. Some of that has to do with increased testing, but the positive test rate was also the highest it has been since May 6, according to data from the Covid Tracking Project. Hospitalizations and deaths both continue to rise, but at a slower rate than cases.

Speaking on a Wall Street Journal podcast published yesterday evening, White House adviser and the longtime director of the National Institute of Allergy and Infectious Diseases Dr. Anthony Fauci warned that states experiencing fast-growing coronavirus spread “should seriously look at shutting down.” The largest outbreaks are centered in several southern and south-western southwestern states, including Arizona, Florida, and Texas.

Those states and more have already rolled back some of their reopening phases, including re-closing bars and restaurants. But it's fair to say that the public and political will just isn't there to go back to the type of wide-reaching and economically disruptive lockdowns that swept across the U.S. in March, no matter what Fauci warns.

Instead, Americans in the South and Southwest are simply learning to live with the virus now, just as those in the Northeast and other regions that saw early outbreaks have been functioning for months. That means limiting certain types of high-risk activities, but adjusting to processes and precautions to enable others to proceed. It's bad news for those still hoping for a rapid "V-shaped" economic recovery, but far from the most gloomy predictions that others have offered.

This morning's latest jobless claims data underlined the depth of the hole that the economy still needs to climb out of. Initial unemployment insurance claims edged lower for the week ending July 4, to a better-than-expected 1.3 million, but still remain staggeringly high. That's almost double the weekly record high set before this year.

Continuing claims, meaning those reapplying for unemployment insurance, dropped by about 700,000 to 18.1 million. Once again, a week-over-week improvement and better than the consensus forecast, but still an incredibly high level that's hard to define as "good news."

Next up for investors is second-quarter earnings season. In contrast to the past month of market action—in which broad indexes have swung one way or the other on the latest daily economic or coronavirus headlines and tech stocks have risen no matter what—concrete financial results and some forward guidance from confident management teams will give stocks and sectors a better sense of direction.