Investors Looking Well Beyond Q1 Earnings

New York, N.Y. (PPD) — Earnings season got off to a well-anticipated bad start, and the stock market couldn’t have cared less. Yes, banks and financials underperformed, as JPMorgan Chase; JPM $95.50, -$2.69 or -2.7% and Wells Fargo, WFC, $30.18 -$1.25, or -4% significantly increased loan loss reserves for the fiscal year in addition to reporting sharp declines in Q1 earnings.

The JPM CFO spoke of the challenges facing the bank in preparing for an unprecedented decline in GDP of as much as -40% and a spike in unemployment that could reach 20%. Not at all discounting the severity of current conditions, it was a textbook example of managing expectations.

Investors were looking out to the horizon and even beyond, as the Coronavirus infection rate seems to be slowing, hospital discharges are running ahead of new admittances, and the concern over shortages of masks, gowns, and medical equipment is not nearly at the frenzy of a few weeks ago.

The last 3 weeks the stock market has transitioned from a reflex rally off an extremely oversold condition, to a level that is arguably a bit ahead of itself in the immediate term. While the NASDAQ Composite (^IXIC) rallied above its 200 day moving average Tuesday, the Dow Jones Industrial Average (^DJI) and S&P 500 (^SPX) remain at -10% and -5% deficits, respectively.

That’s a heavy lift for big time market averages that have already rallied between +25% and +30% in the last 3 weeks.

Oil is still struggling to find a base. While the OPEC+ production cut agreement negotiated over the weekend is certainly not a negative, it received a “sell on the news” reaction from markets. Prices declined nearly -10% Tuesday, leaving NYMEX Oil just above $20 per barrel. While the agreed to production cuts of 9.7 million barrels/day were less than what some had hoped for, the crude reality is that until economic activity around the globe is kicked into at least 2nd gear, there is an overwhelming over supply of Oil everywhere.

Early Wednesday Oil has broken below the $20 threshold, putting pressure on global stock markets in early trading.

Tuesday Market Recap

The Dow Jones Industrial Average (^DJI) added +558.99 points, or +2.4% while closing just shy of the 24K threshold at 23949.76. The DJIA has rallied +29.1% in the 3 weeks since the March 23 low of 18552. 

The Blue Chip Average was led by Apple, Inc. (AAPL) closing at $287.06, +$13.80; Home Depot Inc. (HD) at $207.17, +$8.38; Microsoft Corp. (MSFT) $173.70, +$8.19; UnitedHealth Group Inc. (UNH) $270.50, +$6.99; and Johnson and Johnson; (JNJ) $146.03, +$6.26. 

The decline from the mid February high of 29551.42 stands at -18.9%    

The NASDAQ Composite (^IXIC) gained +323.32 points, or +4% to close at 8515.74. The NASDAQ regained both its 50 and 200 day moving averages almost 5 months to the day after closing above 8500 for the first time ever. The tech heavy index was led by Amazon.com, Inc. (AMZN), Microsoft Corp; (MSFT), and Apple Inc; (AAPL) all with gains of +5% or more, while AMZN posted an all-time-high (ATH) of $2283.32 gaining +$114.45.

The NASDAQ has rallied +24.1% in 3 weeks from its March 23 low.    

The S&P 500 (^SPX) rallied +84.43, or +3.1% to close at 2846.06. Within the broad based index, the Consumer Discretionary and Information Technology sectors led the charge, each gaining +4.2%. On the flip side, Financials, +0.3% and Energy, -0.5% notably lagged. The S&P has gained +27.2% from its low  just over 3 weeks ago, and remains at a -16%  deficit to its ATH of 3386.15 in mid February.

The Early Line:

Oil is -2% lower this morning, trading in the mid $19 range as the IEA is projecting that demand for oil is likely to fall by a record amount in the second quarter.   

Most global stock markets are lower by ~2%. Trading in U.S. stock market futures are projecting early declines of -1.5% to -2%.  

While investors have been optimistically looking beyond the current conditions, we likely need more clarity on the details and timing for reopening the economy to hold the levels achieved by the recent rally.