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Analytics, 11 May 2020

Week 19 in Brief

Stocks continued their rise, even as some bond yields touched record lows. Yields move opposite price, and bonds usually move opposite stocks. These movements imply that “the stock market is trading the reopening, and the bond market is doubting the vibrant pace of an economic recovery upon the reopening,” said Peter Boockvar, chief investment strategist at Bleakley Advisory Group. In general, both the bond market and stock market have both responded to the Fed’s programs that put more liquidity into the financial system, with bond rates falling and stocks rising sharply.

The Dow Jones Industrial Average was up 2.5%, the S&P 500 was up 3.5% for the week to 2,929, with tech up 6.6% and consumer discretionary stocks up 4.4%. The Nasdaq Composite Index jumped 6% in a week, where it wiped out its losses for the year and turned positive.

The small-cap Russell 2000 was up 5.5%. Gains from Facebook, Amazon Alphabet, and Apple helped lift the index back into positive territory for 2020. At one point, the Nasdaq was down more than 25% year to date.

European markets closed sharply higher on Friday with shares in London leading the region. The FTSE 100 is up 1.40% while Germany’s DAX is up 1.35% and France’s CAC 40 is up 1.07%. Asian markets finished broadly higher on Friday with shares in Japan leading the region. The Nikkei 225 is up 2.56% while Hong Kong’s Hang Seng is up 1.04% and China’s Shanghai Composite is up 0.83%, CNN Business reported.

Over 20.5 million Americans lost jobs in April. In the latest unemployment data, the Labour Department reported that the unemployment rate jumped to 14.7% from 4.4%. Both the spike in job losses and the unemployment-rate surge are post-World War II records. To be sure, neither print was as bad as feared. Economists polled by Dow Jones expected a loss of 21.5 million jobs and an unemployment rate of 16%. Nevertheless, investors shrugged off the report and focused on the reopening in some parts of the nation despite a key concern: a rallying stock market and a stumbling economy. Stocks that would benefit from reopening the economy rose again Friday. Airline stocks such as Delta, American, and United all gained at least 4.8%. Disney climbed 3.4% while MGM Resorts advanced 4.4%.

The head of the world’s largest asset manager warns of grim outlook post-Covid-19. BlackRock’s Chief Executive Larry Fink forecast a dour near-term outlook for the economy as states and businesses grapple with reopening from COVID-19 lockdowns that have likely driven the U.S., and the rest of the world, into a deep recession, according to a report from Bloomberg News. Larry Fink cautions that everyone should brace for even rougher days ahead, as the U.S. attempts to emerge from the worst public-health crisis in more than a century.

Disney posted a $1.4 billion loss in the first quarter. Most of the hit came from its closed parks, but also because live sports aren’t airing on its ESPN cable channel. On the other hand, Activision and Electronic Arts reported strong results, as lockdown living steered more people to games like Call of Duty and FIFA.

California is taking Uber and Lyft to court. The state and some of its largest cities said the ride-sharing companies are violating a new law that requires drivers to be labeled employees rather than contractors. Shares in Uber and Lyft dropped briefly but recovered shortly after the lawsuit was announced.

Apple will reopen a handful of US stores next week: Apple’s US retail stores have been closed since mid-March due to the COVID-19 pandemic, but the company is going to start opening some of them back up next week. “We’re excited to begin reopening stores in the US next week, starting with some stores in Idaho, South Carolina, Alabama, and Alaska,” an Apple representative told CNBC. There are just six Apple stores between all of those states, as CNBC notes, so this is a small-scale return that will allow the company to monitor things closely and apply what it learns as more locations welcome customers back in.

On the commodities front: Oil crude market was up as much as 24% as traders reacted to information that showed gasoline demand picking up around the U.S. States have been opening up at different speeds, and California was the latest to reopen some activity Friday. The market is likely to be moving up as the virus curve is bending and the economic data is showing signs of a bounce.

The New York primary is back on. A judge ruled that scrapping the June vote would be unconstitutional and strip Bernie Sanders and Andrew Yang of state representation at this summer’s Democratic convention.

This week?

A few earnings releases are expected but the week will be dominated by a barrage of economic reports, including consumer and producer inflation, consumer sentiment, and most importantly retail sales on Friday.

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