Medicare Agent News: What's Behind The Pullback?

Tuesday, April 20, 2021

What's Behind The Pullback?

By Nicholas Jasinski | Tuesday, April 20

Pullback. U.S. stocks continued to slide today, as global Covid-19 cases hit record highs and first-quarter earnings season has become a sell-the-news event. Many on Wall Street had been calling for a pullback after four straight weeks of gains for major U.S. stock indexes, and this week has delivered exactly that.

The S&P 500 fell 0.7% today, Dow Jones Industrial Average closed down 0.8%, and the Nasdaq Composite lost 0.9%. The small-cap Russell 2000 dropped about 2% on an overall poor day for stocks and sectors frequently viewed the greatest post-pandemic, economic-reopening beneficiaries.

Global Covid-19 cases have increased by more than 5.4 million over the past week, according to data from Johns Hopkins University. That’s a record for a seven-day period since the start of the pandemic, and more than double the weekly rate of confirmed infections as recently as in mid-February.

India has become the global hot spot, but cases are elevated in Germany, Turkey, Japan, Argentina, and several other countries as well. News reports suggested that new restrictions or delayed reopenings could be coming soon in several countries.

Taken all together, it’s a reminder that despite the rapid vaccine rollout in the U.S., the world remains far from an end to the Covid-19 pandemic.

It was another busy day of earnings reports today, with Netflix, Procter & Gamble, Johnson & Johnson, and Lockheed Martin among the major companies releasing their numbers.

Although still early in first-quarter earnings season, the trend so far has been toward large beats. Through the end of last week, S&P 500 companies had topped Wall Street earnings estimates by 36% on a size-weighted basis, according to Credit Suisse’s Jonathan Golub. Roughly four out of five companies have beaten analysts’ forecasts.

But with robust economic data in the first quarter and expectations of a strong earnings season no secret on Wall Street, stocks had rallied in the lead-up to earnings season. The S&P 500 had closed at at least two standard deviations above its 50-day moving average for nearly two weeks straight coming into this week, according to Bespoke Investment Group, which it classifies as “extreme” overbought territory. A streak that long has happened only a handful of times in the past two decades.

And the S&P 500 was also at some 16% above its 200-day moving average on Friday, at the 97th percentile of its post-war history.

So there were both some short-term and longer-term technical reasons for a pullback this week. Negative Covid news abroad and good earnings news already being priced in just provided the trigger for investors to take profits.

“Investors struggled to find a catalyst that could justify further gains, particularly amidst a global rise in Covid cases that is one of the fastest since the pandemic began,” wroteJim Reid, a strategist at Deutsche Bank.

That said, the Dow and S&P 500 are still up double digits year to date and at their top-five highest closes in history. “So let’s not get too carried away," Reid wrote.

Barron's Ben Levisohn has more on the market's pullback this week.