S&P 500 to Hit 3400 By End-2020 and 3600 Next Year; Earnings to Rebound in 2021: Mizuho

The COVID-19 related collapse in earnings will be reversed slowly as the economy re-opens and the recovery matures into expansion in 2021, causing a full recovery in the market to the February highs by the end of this year, according to Mizuho Securities’ chief economist Steve Ricchiuto.

Since nearly all the country’s economic activity has been suspended since late March amid rising concerns about the spread of the coronavirus disease, federal governments and central banks around the world has spent trillions of dollars trying to help restart the economy and provide some relief to the financial markets.

That stimulus has given the initial impetus to stock as liquidity increased in the debt markets and volatility subdued in several markets. However, the long-term impact of these massive stimuli on the economy and the financial markets is unknown. The S&P 500 has recovered more than 40% from March’s trough, closing 1% up at 3185.04 on Friday.

Based on the average change in earnings growth due to companies reporting positive earnings surprises, it is likely the index will still report a year-over-decline in earnings of more than 40% for Q2, according to FACTSET.

“Bottoms-up estimates suggest operating earnings will be down between 41% and 42% in the second quarter after having declined just 1% in the first quarter of the year. The COVID-19 related collapse in earnings is expected to be reversed slowly as the economy re-opens and the recovery matures into expansion in 2021,” said Steve Ricchiuto, Chief Economist at Mizuho Securities.

“Operating earnings are not expected to be back in the black, +1.5%, until the first quarter of next year. Earnings growth in the third quarter is expected to be down almost 23%, followed by a 10% year-over-year decline in the final three months of 2020. For the full year 2021, earnings are expected to bounce by 28.9% after a 22% decline in 2020.”

Earnings are forecast to total $127.28 billion in 2020, down from $157.68 billion seen last year, and are anticipated to recover to $162.39 billion next year. Mizuho forecasts the multiple to decline from 24.8x to 22.1x in 2021 as investors slowly realize the increased level of debt created by the COVID-19 lockdown, leading to a shallow 2%-2.5% expansion.

Several equity analysts advise keeping a close eye on companies whose stock prices have fallen substantially along with others in the wake of the coronavirus pandemic, yet whose underlying fundamentals remain strong and are expected to strengthen.

“These bottoms-up earnings estimates and our assessment of the nature of the recovery has caused us to revise upwards our year-end target for the broad market index from 3200 to 3400. Essentially, we now expect a full recovery in the market to the February highs, not just to 2019 year-end close. In 2021, we are calling for a 6% rise in the S&P 500 to 3600 based on our shallow expansion call. Our relatively cautious expansion forecast is based on the fact that although a credit dislocation did not push the economy into recession, the need to repair balance sheets will likely sidetrack investment spending,” Mizuho’s Ricchiuto said.

“A fiscal policy push into industrial policies and/or infrastructure spending could cause us to reconsider this macro forecast but, with the U.S. election and congressional summer recess rapidly approaching, the window is rapidly closing for a phase IV stimulus bill to be negotiated and passed. The uncertainty created by the rise in COVID-19 cases being reported is likely to keep the market trading within a 3000 – 3200 range for the next several weeks,” he added.

Central and Eastern Europe: Covid-19 Shock Triggers Deep Recession

Scope Ratings says that, with the euro area economy set to contract by about -6.5% in 2020 under a baseline scenario (and -11.5% in a severe scenario), EU-member CEE countries will also slide into deep recession this year. In the rest of the emerging Europe region, Russia faces the additional impact from lower-for-longer oil prices.

Turkey is vulnerable to the present global financial market turmoil. This relates to high volatility in FX and bond markets, which is likely to remain so over the duration of Covid-19 lockdowns, reflecting crisis impacts on global risk aversion. CDS and bond yield spreads in CEE widened markedly in mid-March before narrowing again in some cases more recently.

Varying magnitudes of economic contraction and sovereign ratings implications

The magnitude of this year’s contraction will vary from country to country, but the economic impact of the pandemic alongside higher spending needs will sharply widen budget deficits and push levels of public debt back towards 2014 levels for most CEE governments.

How severe the impact turns out to depend on how quickly and durably lockdowns in CEE economies as well as in western Europe can be relaxed, how effective the monetary and fiscal response to the crisis proves, and how fast an economic recovery takes hold later on in Q2 and through the second half of the year.

“The current situation is exceptional for CEE countries on four fronts,” says Giacomo Barisone, head of sovereign ratings at Scope. “The countries face: i) an unprecedented supply and demand shock to services sectors; ii) the adverse impact of global supply-chain disruptions and temporary suspensions of critical regional car industries; iii) renewed volatility in capital and currency markets; and iv) a collapse in oil prices, meaningful especially for Russia,” Barisone says.

Cyclical implications of the crisis relate to risks linked to rising unemployment, corporate defaults, borrowing rates, and FX and banking sector risks. Structural implications correspond to monetary and fiscal policy responses being deployed – which raise debt ratios longer-term and weaken the private sector and government balance sheets.

Sharp economic contractions in EU member states of CEE

In Scope’s baseline scenario, output in Poland and Hungary will contract by around 4% in 2020. In Poland, an important factor is the high share of temporary employment and self-employed, each around 17% of total employment, with these agents usually having limited cash buffers and are thus more exposed in times of economic distress. In contrast, Hungary has one of the highest exposures to global value chains among CEE countries, which constitutes a key risk in times of global economic turmoil.

Under the baseline scenario, Scope forecasts that output will contract by around 5.5% in the Czech Republic and Slovakia, given reliance on car industries, which account for 10% and 13% of their GDP, respectively, and by almost 7% in Slovenia, which has high goods trade with a severely weakened Italian economy. Romania’s economy will contract by around 4.3%, with limited room for fiscal stimulus, given the country’s already elevated budget deficits.

Bulgaria’s output will shrink by 4.6% this year. Croatia’s economy will be heavily hit – with a projected contraction of almost 7.5% in 2020 – given its dependence on travel and tourism, which contribute around a quarter of GDP (indirect activities linked to the sectors included). The small, open economies of the Baltic states will shrink by over 6% each.

Deep contractions in the rest of emerging Europe

For Russia, Scope has revised a baseline growth projection to around -5% in 2020, accounting for the recent oil price collapse, with Brent crude oil prices now trading around USD 20 a barrel at time of writing even after OPEC+’s 10m barrels a day output cut decision.

Scope anticipates a GDP contraction of 5% in 2020 in Turkey, revised down from an earlier estimate of about -1% in 2020. Turkey’s external sector weakness, including significant FX debt exposure and high external debt outstanding, increases its sensitivity to any extended period of global economic weakness and/or “risk-off” market conditions. Lastly, Georgia’s externally-exposed economy may contract over 3% in 2020.

Risks to baseline assumptions remain skewed to the downside as growth in CEE could be weaker if the economic shock from the Covid-19 crisis endures longer.

Read more in the rating agency’s Q2 2020 CEE Sovereign Update.

Giacomo Barisone is Managing Director in Public Finance at Scope Ratings GmbH.

Quadruple Witching Drives Stocks Higher, Equity Indices To Post The Second Day Of Gains, Viral Threat Continues To Spread

The U.S. Equities Move Higher

U.S. equity futures are higher in premarket trading after another volatile overnight session. Down more than 200 points at one time the Dow is now indicated to open higher by 3.20%. The NASDAQ leads early gains with an advance of 3.55% after hitting the limit-up 5% barrier earlier in the electronic session. The S&P 500 trails with a gain of 2.65% but is still moving higher for the second day. This makes the first two-day advance in many weeks and may signal a bottom has been reached.

Now that lawmakers are close to passing a sweeping spending bill to keep the U.S. economy afloat traders will be turning to the data. The first indications of economic impact came this week with the Empire State Index and jobless claims. The Empire State Index fell to -21.5%, its lowest recording ever, while jobless claims surged by 70,000. Next week, investors should be alert for another massive uptick in jobless claims that may top the 1 million mark.

Virus Threat Is About To Peak

California took bold steps to contain the spreading coronavirus. The governor ordered citizens to stay at home for two weeks effectively shutting the entire state down. Essential services will still function but business activity will come to a standstill. The number of cases is now over 253,000 globally with more than 10,000 dead. The U.S. has over 14,000 cases with 216 dead. Globally, more than 89,000 have fully recovered.

WTI is rebounding in early trading. The price for black gold is up more than 7.0% on Friday after posting its biggest one-day surge on Thursday. Thursday action has energy prices up nearly 20% at the high of the day. Although a good sign for the energy sector, prices remain low at $25.32 and are unlikely to stage a major rally until after the viral threat has passed. When the virus passes the demand for oil will spike and may cause WTI and Brent to move sharply higher.

Quadruple Witching To Drive Price Action

Today is quadruple witching, an event that may spark volatility in today’s trading. Quadruple witching is when equity options, single-stock futures, index options, and index futures expire on the same day. With the market having undergone a correction, and with high-volatility, there is likely to be a bit of unwinding for traders to do.

Stocks on the move include Tiffany, Nike, Tesla, and Walmart. Tiffany reported better than expected earnings on strong comps. LVMH, who recently agreed to buy Tiffany & Co, says it may choose to buy the stock on the open market. The stock is trading well below the agreed-upon price providing quite an opportunity for savings.

Nike got an upgrade from Bank of America. BoA analysts see the company gaining market share in the viral environment. Tesla says it will close two more plants in the fight to contain the virus. Musk says the company should have enough cash to weather the storm. Walmart, contrary to expectations for massive layoffs elsewhere in the economy, is planning to hire another 150,000 people to handle the viral-driven demand.

Volatility Rising, Labor Data Worsens Under Viral Impact, Analysts Fear Dark Times Ahead For Wall Street

Equity Markets Whipsaw In Overnight Action

The U.S. equity futures whipsawed in overnight action but did not trigger a limit-up or down event. The Dow Jones Industrial Average was down more than 3.0% in the earliest electronic trading, turned positive in the early AM hours, and then fell back to negative territory before the open of the session.  At last check, the major indices are all down about -2.5% but that could change at any time. Price action is driven in part by fear, in part by hope, and in part by forced liquidations in margin accounts. So far, the S&P 500 has shed a little more than 30% putting many levered accounts deep into the red.

Ray Dalio, head of Bridgewater Associates, estimates the loss to corporate America over $4 trillion. To combat the effect, the FOMC has lowered its interest rate to 0.0% and initiated a number of liquidity facilities aimed at propping up business. The latest move is a backstop for money market ETFs and comes in tandem with an emergency move from the ECB. The ECB has maintained its interest below 0.0% for many years so its tools are limited. What they’ve decided to do is begin the Pandemic Emergency Purchasing Program. The PEPP is worth nearly $820 billion in bond purchases.

Markets On The Move

Shares of automakers are moving lower in early trading following massive losses on Wednesday. GM is down more than -4.0% in early Thursday trading, it fell more than 17% on Wednesday. The reason is major automakers are shuttering their plants at the request of the UAW. The shut down is scheduled for two weeks but may extend if the virus threat lingers. BMW reported earnings this morning and show strength leading up to the pandemic. The company reported a 7.6% increase in YOY revenue that will not be matched this year. Shares of the stock are up slightly in early trading.

Restauranter Darden Restaurants Inc reported this morning and beat on the top and bottom line. The company says comps were strong across all brands and helped by traffic and pricing. Outlook for the coming year is dark, the board cut the dividend, full drew-down its credit facility as a precautionary measure, and pulled guidance.

The Labor Market Catches Cold

The initial claims data shows a surprisingly sharp uptick in first-time claims. The analyst’s consensus was only 220,000 despite knowledge of viral-induced shutdowns so the 281,000 reported should not have been a surprise. In my view, the increase is less than expected but surely foreshadows high numbers in the weeks to come. The dollar continues to move higher and is now trading at three-year high levels.

Scared Markets Crash Again, Volatility At Record High, Airlines Need Bailout Or Disaster Looms

Equity Futures Trigger Limit-Down Circuit-Breaker

The U.S. equity markets rebound from the lowest levels in over a year Tuesday but the gains did not hold. Efforts to prop up the economy were not enough to satisfy investors running scared from uncertainty. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite all shed -5.0% in overnight electronic trading to trip the limit-down circuit-breaker once again. The trading in the S&P 500 ETF SPY is down about -6.0% and indicated a pause is likely at the open of today’s session.

Treasury Secretary Steven Mnuchin asked Congress for over $1 trillion aid on Tuesday. The money is intended to aid small businesses, individuals, and industries hurt worst by the viral-induced shutdown.  Part of the package will likely include checks mailed directly to U.S. citizens to help them navigate these troubled times. Mnuchin says that unemployment could hit 20% if Congress doesn’t act fast because many small businesses are already on the brink of collapse.

Virus Threat Still Spreading

The number of infected persons topped 200,000 on Wednesday. The good news is that China only reported 13 new cases showing that containment efforts can work. Italy is the hotbed of infection outside of Asia with over 2,500 infected. The U.S. has over 6,400 cases and 100+ dead from the illness.

Economists are estimated GDP growth could fall to only 3.0% for the Asia-Pacific region this year. The outlook includes a short, sharp contraction in the first and second quarters of the year followed by a rebound in the second half.

Energy prices are in freefall because of the viral threat and its impact on demand. WTI shed more than 6.25% in the early hours of the morning and is trading at a 20-year low. Energy companies around the world are scrambling to hoard cash and many of them will fail if prices don’t rebound soon.

Volatility At Record Highs, No Sign Of Recession In The Housing Data

The VIX retreat a bit in early morning trading but is still trading at the highest levels since 2008. At current levels, without some mind-bending good news, it will be weeks if not months before the market is fully calm again. Traders should expect the broad equities market to continue making large, wild swings in day to day trading action.

The economic data is still good and shows fundamental strength in the core U.S. economy. Housing Starts and Permits both fell from the previous month but there are mitigating factors. Both starts and permits for the previous month were revised higher to 13 or near-13 year highs. This month’s retreat leaves housing activities at the highest level since before the housing bubble burst. This activity will underpin the economy in 2020 and likely get a boost from the low-interest environment.

Futures Rebound, Mnuchin To Request Spending Package, Alarming Viral Threat Continues To Grow

Futures Trading Is Volatile In The Overnight Session

The U.S. futures are indicating a positive open on Tuesday following a volatile evening of trading. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite are looking to open with gains in the range of 2.5%. Earlier in the session, trades on all three major indices hit their limit-up triggers of +5.0%. The moves come a day after the major indices posted their largest declines of the selloff. The Dow posted its third-worst decline ever while the NASDAQ set a record.

The S&P 500 is down about 30% from its most recent high and may be nearing a bottom. Another 3% or so will put the index at the lows of 2018 and what many traders consider critical support.  If the index moves below this level it could signal a much deeper decline for U.S. stocks.

Overnight, President Donald Trump tweeted the U.S. will support the industries hurt worst by the virus. This morning’s news includes rumors Treasury Secretary Steve Mnuchin will ask Congress for an aid package worth $850 billion. If passed, the bill would provide emergency funding for key industries as well as U.S. workers.

The Threat To U.S. Economy Is Spreading

The number of cases globally has risen to over 170,000. The number of cases in the U.S. now tops 4,280 with over 70 dead. All 50 states report a growing number of cases and intensifying efforts to control the spread. Businesses like McDonald’s are closing their dining rooms while ramping up take-out services. eCommerce giant Amazon says it needs to hire 100,000 new workers to meet the rising demand.

Shares of Regeneron are moving higher in early trading. The company is speeding up the timeline for its Covid-19 therapy/vaccine and sees it entering human trials by late spring. Shares of the stock, among other healthcare equities, have been holding up well during the crisis and moving higher by 10% today.

Retail In Focus This Morning

Retail sales were reported this morning and show a net-decline in sales for February. The headline figure came in at -0.5% versus an expectation for increase. At the core-level, retail sales are down but the YOY comparisons are much better. YOY, retail sales are tracking 4.3% higher than last year. Sales for the three-month period ending February 2020 are up 4.9% from last year.

In stock news, retailer Land’s End reported this morning. The seller of specialty outdoor clothing reported a 9.4% increase in revenue that beat consensus estimates. Shars of the stock are moving lower despite the beat due to the worsening outlook for discretionary spending.

Panic Selling Grips Market, Futures Trigger Circuit Breakers, Coronavirus Spread Threatens Global Economy

Panic Selling Sends Equities Down 10%

The U.S. futures are indicating a sharply lower open on Monday morning as panic begins to grip the market. The futures all fell more than 5.0% triggering circuit breakers that only allow trades above the -5.0% cutoff limit. The SPY, an ETF that tracks the broad market S&P 500, becomes a better gauge of the market in this circumstance, it is down about -9.0%. At this level the SPY will trigger a 15-minute pause at the open, if it falls more than -10% it will trigger another circuit breaker.

The fall is due to the coronavirus. The number of cases has risen to near 170,000 globally with rising death tolls worldwide. There are now 3,775 cases in the U.S. with 69 dead. Large portions of the U.S. economy are being shut down in an effort to contain the spread. States of emergency exist at the national and state levels that include a shut down of most public school systems. Shortages exist in many product verticals as prepping and hoarding for an extended period of “social distancing” begins.

Stimulus Abounds

The threat to global economies is very real and highlighted by moves made by several central banks in the overnight session. The FOMC began with another emergency preemptive rate cut, this time over 100 bps, bringing the U.S. benchmark to 0.0%. This is the lowest level since 2015 and includes the resumption of $700 billion in QE purchases. The Bank of Japan and RBA both engaged stimulus efforts following the move.

The IMF made headlines this morning. The IMF says it will make it’s $1 trillion loan capacity available to aid ailing nations during the crisis. Market activity perked up on the news but did not sustain a rebound. Futures were back to the lows of the session soon afterward. On the economic front, the Empire State Manufacturing Survey came in at -21.5 for March and the lowest level since 2009. Analysts had expected a reading closer to 3.5.

Stocks On The Move

Shares of Apple are down -11.0% but not the hardest hit. Apple says it will close all of its U.S. stores to fight viral impact. The company estimates its China closures could impact revenue by 10% in the 1st quarter. This shut down could impact revenue another 10% over the course of the 1st and 2nd quarters this year. Airlines are falling the worst, down -10% to -15%, after capacity schedules were slashed.

Later this week traders will be looking for some important EPS announcements from retailers as well as retail sales figures. Reports are due from consumer staples giant General Mills as well as a host of retailers. Guess, Five Below, Cato and Tiffany are likely to report misses and give negative virus-related guidance.

Equity Markets Are Rebounding, The Circuit Breakers Sound Alarm Again, Expect Volatility In Friday 13th Trading

Equities Rebound On Friday the 13th

The U.S. equities are in rebound mode once again. Traders are scooping up bargain stocks in earnest even though bear market conditions have set in. Yesterday’s action saw the largest single-day declines in over a decade and left the S&P 500 down more than 25%. Today’s action has the Dow Jones, S&P 500 and NASDAQ up 5.3% to 5.65% but traders should expect volatility. Today is Friday the 13th and there has been a full moon, two triggers for market psychology that should not be discounted.

Early action saw the futures indicating a loss of nearly 700 points for the Dow. Positive news from Capitol Hill sparked a reversal that sent the blue-chip index up more than 1,100 points. The rebound was so strong it triggered the market circuit breakers for the third time this week but this time to the upside. Yesterday, talks between Democrats and Republicans appeared to break down on the subject of economic stimulus. This morning, the word is most differences have been resolved and a deal is close at hand. When and if announced such a deal could send the indices up to trigger the second circuit break at 7%.

Stimulus Actions Are Spreading Faster Than The Virus

The number of cases continues to grow globally although China appears to have peaked. Apple reports it is opening 42 of its branded stores, a sign the threat is largely passed. In the meantime, central banks around the world are scrambling to shore up financial systems to aid economic activity during the crisis.

The FOMC increased its repo operations on Thursday, today word from the Bank of Norway and Bank of Korea offered further support for battered markets. The Bank of Norway cut its key rate by 50 basis points while the Bank of Korea indicates it may do the same.

In the U.S., the signs of an economic slowdown are growing. What investors need to remember is the slowdown is only occurring in certain industries. Travel and tourism remain the most heavily impacted and that impact is growing. The NBA, NCAA, and NHL have all canceled seasons and major events the would normally drive in billions in consumer spending.

Earnings Season Mostly Over

The 4th quarter reporting season is all but over. Today’s news includes a report from Oracle that shows business was still strong in the first two months of 2020. The company beat on the top and bottom line due to strength in the cloud segment. Shares are up 10.5% in early trading. Overstock.com is also up sharply in early trading, +14%, after it reported solid earnings and outlook. Gap Stores, another retailer in transition, beat top and bottom-line earnings, provided positive guidance, and saw shares rise 7.5%.

The Bear Market Begins, Travel Ban Spooks Traders, Scare Of Viral Fallout Is Rising

Stocks Futures Plunge After Trump Speech

The U.S. stock futures are down hard in early Thursday trading. The futures indicate a loss of nearly -4.75% for most major indices. The overnight plunge is so severe it triggered a market-circuit breaker for the second time this week. If the market opens at the current level it will only have to fall another -2.5% to trigger another halt to trading. The circuit breakers are built into the market to help traders reassess the situation and calm the market down. So far they are working as intended, there is no sign of a breakdown in market mechanics.

Last night President Trump made a lackluster speech from the Oval Office. He says they are fighting the spread of the virus, that there is nothing to worry about, and that travel from Europe is restricted for the next 30 days. The news did not appease investors looking for concrete details on the President’s plans. Trump has floated the idea of a payroll tax-cut but so far there is no word on what is actually to be done. The FOMC meets next week and is expected to deliver a 50 to 74 basis point cut to the benchmark rate.

The Virus Is Still Spreading

The global count of infected topped 124,000 in the overnight hours, the total dead is 4,589. Governments around the world are cracking down on travel and public gathering in an attempt to slow the spread. Regardless of their success, the restrictions will have a negative impact on economic activity. The impact could become bad enough to send the world into a recession. The silver lining is that fundamental conditions remain bullish, once the virus threat passes economic activity should be able to rebound.

Italy continues to crack down hard in its attempts to slow the virus. Italy closed all stores except pharmacy and grocery stores effectively shutting the economy down until further notice. In the U.S., the NBA announced it would suspend its season indefinitely after a player tested positive for the sickness.

Economic Data Is Still Favorable

Today’s economic calendar includes jobless claims and PPI, both remain favorable to the market. Jobless claims fell for first and second-week claims showing not near-term impact from the virus yet. The PPI figure came in weaker than expected, probably due to supply chain hiccups, at -0.6%. Economists had been expecting about half that. The YOY read is also light at 1.3%.

Stocks on the move include Dollar General. Dollar General beat on the top and bottom line in the 4th quarter. The company delivered strong comps and will likely do so again because of viral-driven hoarding. The risk for this and other companies is a viral-induced supply chain hiccup as most products are made overseas.

U.S. Stock Futures Crash Again, Viral Threat Growing, Stimulus Uncertainty Raises Fear

Stock Futures Fall In Early Trading

The U.S. stock futures are down again in early trading. The spreading coronavirus has severely damaged economic stability and traders are looking for the government to step in. On Tuesday, President Donald Trump floated the idea of a 0% employment tax through the end of the year, raising the market’s hopes. His staff caused confusion stating no decision had been made and uncertainty about what might be done was still present.

The number of cases of coronavirus continues to spread worldwide. The last WHO report has the number of cases at over 113,000 globally but that number is sure to have changed in the last 24 hours. The U.S. counts more than 1,000 cases with reported outbreaks in more states.

Italy and the UK both got a shot in the arm from their governments but the news was bitter medicine. Italy says it will increase spending to aid the economy while hinting at new travel restrictions. In the UK, the BOE slashed rates by 50 basis points in an emergency move that has GBP backed trading pairs on the move. The FOMC meets next week and is expected to deliver another 50 to 75 basis point cut to its benchmark rate.

Economic Data Is Strong

The economic data remains strong. Today’s news includes mortgage data and the Consumer Price Index. On the housing front, the number of refinancing request jumped 79% from the previous as interest rates hit record lows. The average homeowner is expected to save thousands over the life of their loans and that savings should support consumer spending.

The CPI came in at 0.1% month to month and 2.3% up from last year, both reads slightly better than expected. At the core level, ex-food and energy, CPI rose 0.2% and 2.5% making the 24th month of gains greater than 2.0%.

Stocks On The Move

Travel related stocks are among today’s hardest hit. The travel and leisure complex is taking a big hit. Mounting travel restrictions that have them cutting back on flights and occupancy outlook. Air carriers American, Delta, and Jetblue are all down about -2.0% in early trading. Cruise ships Norwegian Cruise Lines and Carnival are down -4.5% and 7.0%. Carnival is down the most because of its international presence and high exposure to the virus.

Oil is down again in early trading and having an impact on the energy complex. WTI is down about -4.5% following Tuesday’s rebound and indicates more downside is likely. The yield on the Ten Year Treasury, an indication of market fear, is still trading below 1.0%. It is likely to remain there until this threat has passed.

Global Equities Rebound Sharply, Trump Offers Stimulus Package, Coronavirus Risks Remain High For Markets

Stock Futures Point To Higher Open On Wall Street

The U.S. equity futures are indicating a sharply higher open on Wall Street. The move comes a day after the broad market S&P 500 posted its biggest one-day loss in a decade. The SPX and Dow Jones are both up about 3.5% in early trading while the NASDAQ leads with a rise of 3.6%. Markets are buoyed by Trump’s pledge to pass some form of economic relief package although there are no details forthcoming. Trump suggested a payroll tax cut that would impact both employer and employee income, a press conference is expected later today.

Today’s bounce is good news for the market. The S&P 500 was down as much as 19% from its high on Monday putting it close to bear-market territory. The caveat is that volatility remains high and coronavirus risk is still present so more selling may ensue. The major indices had been up as much as 5.0% in early premarket trading but gave up some of their gains as market participants digested the day’s news.

Coronavirus Risk Is Still High

The total number of cases of the Covid-19 virus has topped 115,000 and still growing. The number of deaths reported globally is ow over 4,000. In the U.S., there are 755 known cases with 26 dead. Cruise ships remain a major risk to travelers as another enters quarantine due to the virus. Iran is still a hotbed of infection, the number of cases grew by 18% overnight with a rising death toll. Iran is the hardest hit in the Middle East and faces a severe economic impact from travel and work restrictions. Italy is also proving highly vulnerable to the disease.

The airlines are rising in today’s action although the number of flight reductions continues to grow. Delta, United and American Air Lines are all up between 3% and 6% on hopes of a rebound later in the year. Delta announced this morning it would cut its international flights by 25%, domestic by 19%, while American and United make similar cuts. Delta’s CEO says he expects the crisis to worsen. The CEO of Southwest is taking a 10% pay cut to offset the decline in bookings but the move is mostly show.

Stocks News Impacting Markets

Shares of Dick’s Sporting Goods are up more than 11% after reporting earnings. The sporting goods company beat comps as foot traffic and ticket averages came in above consensus. The company also provided positive guidance for 2020. Shares of Stitch Fix are moving in the opposite direction after beating estimates. The company says promotional activity is hurting its revenue outlook and lowered full-year guidance.

Alarming Crash In Equity Markets, Oil Markets Crash, The Coronavirus Is Virus Still Spreading

Equities Crash After OPEC Cuts Its Oil Sales Price

The global equities markets crashed in overnight Monday trading following news in the oil patch. Saudi Arabia has drastically cut its oil selling price for the next month sparking an all war with former partner Russia. The group labeled OPEC+ met last week to discuss what they might do to prop up oil prices this year. The group had a falling out on Friday that split the group and caused Saudi Arabia to change its tack. The leader of OPEC is now seeking to maintain market share in a low-price environment and will put pressure on suppliers around the world.

The risk to the market from low oil prices is wide-ranging. At face value, oil producers will have a much harder time making money. Digging a little deeper, it will become clear the U.S. shale-oil producers will not be able to operate because $28 oil is far below the break-even price. The consensus for near-term oil prices has fallen to near $20 so there is a high risk for the shale oil industry. Looking at oil, energy, and earnings from the broader perspective, the decline in prices means the S&P 500 will likely see average EPS growth come in negative for the year.

Equity Indices Down More Than -7.0%

The major U.S. equity indices fell more than -7.0% in early Monday trading. The move triggered a market circuit-breaker that will pause trading for 15 minutes. Safe have assets like gold and U.S. treasuries are also on the move but in the opposite direction. The yield on the ten-year treasury hit a new all-time low below 0.50% while spot gold moved up through resistance to set a new seven-year high.

The coronavirus is still having a negative impact on trading which is adding to today’s worry. The number of cases globally is now over 110,000 with more than 3,800 dead. States New York, California, and Oregon have all declared states of emergency and more are sure to follow. Norwegian Cruise Lines announced this morning it was relaxing its cancellation policy. Customers can now cancel up to 48 hours before their cruise and get a 100% credit for a future date.

Rate Cuts Ahead

The FOMC is now expected to cut interest rates by 75 basis points at the March meeting. The meeting is scheduled for next week and will be a high-impact event. This week, the economic calendar is fairly light. There is no data today and only a few the remainder of the week. Economic releases include the NFIB small business index, CPI, PPI, initial claims, and consumer sentiment.

Equities Plummet, Virus Fear Is Rising Fast, The Earnings Outlook Is In Jeopardy

The U.S. Futures Are Down Hard

The U.S. futures are down hard in early trading as rising fear of economic fallout from the coronavirus grips the market. The Dow Jones and S&P 500 are both down about -2.80% in early trading while the NASDAQ Composite leads with a loss of -3.10%. The NASDAQ Composite is getting hit hardest due to its overweigthing in technology and internationally-based companies.

The global tally of infected has now topped 100,000 and rising. The number of dead was last reported at 3387 with 12 dead in the U.S. New York revealed their case tally has risen to 12 while California continues to crack down with its state of emergency. Internationally, Egypt is the latest to report new cases as viral spread in the Middle East accelerates. Iran and Italy remain the hardest hit outside of Asia but they may change any day.

The risk from the virus isn’t the illness itself, it is the impact on activity. The illness is less harmful than flu although much more contagious. At the current rate, we can expect it to have moved through the world’s population within the next two to three months. Until then, traders are eyeing impediments to businesses that will have an impact on future earnings.

Stocks On The Move

Today’s action is being led by travel and leisure stocks as well as the energy sector. Shares of air-carrier American Airlines and Connoco-Phillips are both down more than -5.0% while Las Vegas Sands trails at only -4.5%. Starbuck’s is the first to warn of an impact to 2nd quarter earnings but not the last. With earnings pressure extending to the 2Q, we can be sure the sell-off isn’t over yet.

In other news, Costco reports they are “beyond busy” as stockpiling and hoarders ramp up demand. Customers are preparing for extended stays at home and the possibility of mandatory quarantines.

The Labor Data Is Strong

Today’s data is dominated by a blow-out labor report. The employment situation summary, also known as the NFP, came in at a mind-bending 277,000 and 100,000 above consensus. Along with that, the unemployment rate fell to 3.5%, wages rose 0.3% MOM, and upward revision to previous data padded the report.

Regardless the data, the dollar continues to fall. The DXY is down hard over the past few days due to the FOMC’s surprise rate cut. The FOMC is expected to cut rates again as soon as two weeks at the March meeting in an effort to fight the economic impact of the virus.

Stocks Fall Sharply Again, Volatility Is On The Rise, Coronavirus Risk Drags On Sentiment

Equities Shed 2.25% In Early Trading

The U.S. equity market is indicated to open sharply lower in early trading. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite are all down about -2.25% with industrial giants in the lead. The moves are not a surprise in a week filled with record-setting market movements and confirm traders are still nervous. The spreading coronavirus is going to have a negative impact on future earnings that grows larger with each passing day.

In the latest news, California has declared a state of emergency. The state confirms its first death and the possibility undiagnosed infected are moving within the population. The death is reported to be a man who had disembarked a cruise ship in Los Angeles, others are known to have exited the ship as well. The U.S. Congress voted in an $8.3 billion spending package that passed with little to no opposition. The CDC says it is going to purchase 500 million high-grade masks as part of the strategic stockpile. The guaranteed purchases are hoped to spur manufacturers to ramp production.

The latest statistics have the total number of infected at 95,700 with 3,280 dead. China remains the hardest hit but its containment efforts seem to have arrested the acceleration of spread if not the spread itself. South Korea is still the #1 hardest hit outside of China with Italy and Iran not far behind. South Africa is the latest to announce the first case. Needless to say, the virus is going to be with us for a while and likely spark further volatility.

Stocks On The Move

An airline industry group has estimated the total cost to air carriers related to the virus at up to $113 billion. The news has the entire group down about -4.0%. Shares of Ciena, however, are moving higher after the networking company reported much better than expected figures.

The yield on the Ten Year Treasury fell below 1.0% for the first time ever on Thursday. The move is sparked by the Fed’s surprise rate cut on Tuesday and growing risk within the equities market. The VIX, a measure of market volatility and fear, is moving higher in early trading and may soon retest the freshly set high.

The U.S. Economy Is Still Strong

The U.S. economy is still strong, at least according to today’s labor data. The number of jobless claims fell for first-week claims and held steady for second-week claims. The data, which is slightly rear-looking, is trending near historic lows and consistent with tight labor conditions. Traders will be looking for more confirmation of labor market health in tomorrow’s NFP report.

Biden Takes Lead In Super Tuesday, Equities Surge But Give Up Early Highs, Downside Risk Remains High

Equities Up In Early Trading

The U.S. futures are indicating a solidly higher open on Wednesday. The move is driven by the Super Tuesday primary results that put Joe Biden back in the lead for Democratic Nominee. Today’s market action is firm evidence that Bernie Sander’s socialist agenda is not what investors want. Biden now leads the delegate count 453 to Sanders 373. The Dow Jones Industrial Average, NASDAQ Composite, and S&P 500 are all up about 2.0% in premarket action.

Equity markets are also buoyed by yesterday’s surprise rate cut from the FOMC. The FOMC cut rates by 50 basis point in an emergency statement, the first since the Global Financial Crisis. The vote was unanimous, the statement from Jerome Powell cited a preemptive attempt to combat the economic effects of the coronavirus. Powell also says the U.S. fundamental outlook remains strong and that he expects a quick bounce-back once the virus is passed. Later today, traders will be on the lookout for the Fed’s Beige Book. The Beige Book is a summary of conditions across the 12 Federal reserve regions.

The Virus Is Still Spreading

New cases within China are dwindling but still rising. The epicenter of the outbreak reports 2981 dead so far. The full impact of the virus on China is only now becoming apparent. Earlier in the week, manufacturing PMI showed a deep contraction in both the large-cap and small-cap economies. Today’s news includes a read on small-cap services and it too contracted deeply. The Caixin PMI came in at a record low of 26.5.

Globally, there are more than 93,000 cases and over 3100 dead. South Korea remains the most heavily affected outside of China with 5380 cases but Italy and Iran are both struggling too. Poland is the latest to report a first case showing containment efforts are not working. Germany, Italy, and Iran all report a rising number of infected as well.

Italy has closed all of its schools in an attempt to slow the spread. In Iran, the number of infected topped 3,000 with nearly 100 dead. Iran canceled public prayer in the largest cities in its work to contain the spread. In the U.S., new centers of the outbreak are popping up along the east and west coasts.

Economic Data Still Solid In The U.S.

Today’s economic calendar includes the ADP report on labor. The report showed a larger than expected increase in new jobs for February as job gains occurred across all business sizes. The previous month was revised lower to just over 200,000 but changes to the modeling process make the comp irrelevant. Bottom line? The U.S. labor market is still healthy.

G7 Offers No Aid To Worried Markets, Coronavirus Is Still Spreading, Equities Lower Again

Equities Move Lower

The U.S. futures are indicating a slightly lower open on Tuesday. The major indices are looking at losses in the range of -0.10% after trading in a wild range during the overnight session. Today’s moves are spurred by the G7 and hope the group would announce some form of economic support. The G7 says it will act to support the economy but gave no details and disappointed hopeful traders.

The Reserve Bank of Australia announced it would cut rates by 25 basis points in the overnight hours. This puts the Australian benchmark rate at 0.50% and a record low. The RBA’s statement cited the coronavirus as a significant risk to the Australian economy. The CME FedWatch Tool shows the market is pricing in not one but three rate cuts by April. The odds are high for a 50 basis point cut this month with an additional 25 basis points next. The latest counts list more than 89,000 infected and 3,000+ dead with the virus still spreading.

Stocks On The Move

Travel & Leisure stocks are among today’s hardest hit. Shares of Carnival, Marriot, and Las Vegas Sands are all down about -0.50% in early trading. Shares of American Airlines are bucking the trend with a rebound of 4.5%.

UBS got an upgrade from Deutsche Bank based on valuation and shares advanced on the news. Kohl’s reported earnings this morning and beat on the top and bottom lines. Shares are up more than 3.0% on the news. Target and Autozone, however, are both moving lower in the premarket session. Target reports weaker than expected comps while Autozone’s mixed results and tepid outlook did not please investors.

Volatility Is On The Rise

The VIX has retreated from its recently set high but traders are not complacent. The fear-index is trading well-above ordinary levels and points to ongoing volatility in the market.

Volatility may be sparked again this week and there are a number of catalysts to do it. First and foremost is the coronavirus. The spreading virus and potential for economic impact are becoming very real and much larger than first thought. The UK estimates that up to 20% of the workforce could be out of work due to the cold by the time the pandemic has passed.

On the economic front, the Fed’s Beige Book stands the most chance for moving the market. A strong report could dash hopes for FOMC easing at the March meeting. A weak report will reinforce the idea the U.S. economy is threatened by the virus and raise the odds of future rate cuts. After that, the NFP and labor data will be the most closely watched.

Stocks Continue To Fall, Coronavirus Scare Still Spreading, Big Data On Tap

Equity Futures Have Wild Ride

The U.S. index futures are indicated to open with modest losses on Monday. This comes after a wild ride in the overnight electronic session. The Dow Jones Industrial Average had been down as much as 500 points or -2.0% but cut the loss to only -0.25% by the 8:30 AM hour. Trading had turned mildly positive but those gains were not able to hold. The S&P 500 and NASDAQ Composite are indicated to open with losses of -0.45% and -0.15% after similarly wild trading in overnight action.

The moves are driven by the spreading fear of the coronavirus. It’s not that the coronavirus is all that deadly, it’s the growing potential for significant economic disruption that has the market scared. The number of infected has grown to over 89,000 with more than 3,000 dead and new outbreaks popping up every day.

NY confirmed its first case over the weekend, becoming the second east coast state to do so. Europe has raised its threat level to severe as it battles spreading outbreaks in Italy and other parts of the union. A member of Iran’s parliament says his country is hiding a “horrific” number of deaths related to the virus. Infections have been reported in the highest levels of Iran’s government.

Stocks On The Move

United Airlines is down more than -2.5% this morning. The global air-carrier says it may have to further reduce the number of planned flights because of the viral impact to travel. Other airlines are down about -2.0%. Shares of Marriott are also moving lower, down about -2.25%, as traders trim back full-year revenue outlook. Cruise-ship operator Carnival is down -7.0% on virus fears, it is one of the worst-hit in today’s action.

Both Gold and Oil are trading at support levels this morning. Gold prices are in an uptrend and confirming support at the previous multi-year high. Oil prices are in steep decline. The demand outlook for oil was already tepid, the onset of coronavirus and Wuhan Flu has taken a serious toll. ConocoPhillips, an integrated oil company, is down more than -6% on falling oil prices, declining demand outlook, and lower EPS forecasts.

A Big Week For Data

This is a big week for data and today’s list is no exception. Traders can expect readings on PMI and ISM manufacturing later in the session. Also on tap, today is construction spending. Later in the week, we’ll get an important read from the Fed, the Beige Book. Along with that is the ADP, Challenger, and NFP reports on employment.

The S&P 500 Enters Correction, Coronavirus Fear Grows, Consumer Data Still Solid

The U.S. Market Is Down In Early Trading

The U.S. index futures are down hard again in Friday trading. This is the 7th day of decline and puts the major indices deep in correction territory. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite are all down more than 10% in that time.  The Dow Jones Industrial Average fell nearly 1200 points in Thursday action, its biggest one-day drop on record. This has been the worst week for equities since 2008 and the pain is not yet over.

The sell-off was sparked by the coronavirus and the market’s realization it will have a profound impact on global GDP this year. Yesterday’s warning from Goldman Sachs, that EPS growth would fall to 0% or lower, is the prime example. In virus news, the spread of the virus is not contained. New Zealand and Nigeria have reported their first cases while China and South Korean totals continue to rise. South Korea is now the center of the spread with 500 new cases. China’s epidemic appears to be slowing with only 327 new cases.

The virus is expected to gain a foothold in the U.S. and may already have done so. California reported its first case of community-based transmission and now has roughly 8,500 hundred people under observation.

 Stocks On The Move

Caterpillar is the worst-performing stock in the Dow. The bellwether of global economic activity was down as much as 3.0% in early pre-market trading but cut the losses to only -2.0% by the open of the session. Shares of Apple were also down about 3.0% in early trading while Chevron and Cisco both posted losses near 2.0%. Hard-hit S&P 500 stocks include Norweigan Cruise Lines and American Airlines are moving lower in today’s session and down more than 20% since the broad-market sell-off began.

Paypal is the latest to issue a warning about the virus. The global payments company says revenue will be impacted by the virus because the cross-border activity is slowing. Paypal says revenue will come in at the lower end of the previously stated range and below consensus.

Consumer Data Remains Strong

The day’s economic calendar is topped by the Personal Income and Spending data. The report shows income rose by a larger than expected 0.6% while spending increased only 0.2%. Analysts had been expecting income to rise by about 0.3% and spending the same. Looking in the rearview mirror, the previous month’s income was revised down by 0.1% while spending was revised higher. On the inflation front, PCE prices rose 0.1% last month and are up 1.7% YOY. At the core level, consumer inflation is up 1.6% from last year.

Virus Fears Scuttle Market, EPS Growth In Question, Data Still Holding Up

Equities Fall In Fourth Day Of Viral Rout

The U.S. futures market is indicating another deep decline on Thursday. The move, sparked by a growing fear of the coronavirus, shaved another -1.0% and more off of the major indices. Today’s news includes word of the first community-spread case of coronavirus in the U.S. Health officials in California report the first case in which there is no known trail of contagion. The news raises the stakes in terms of economic impact, if the U.S. shuts down like China and other countries global GDP could contract sharply in 2020.

Elsewhere in the world, China continues to report new cases despite signs its containment efforts are starting to pay off. In South Korea, the second hardest nation, the number of new cases spiked to set a new daily record. The disease is not yet contained in that country. Officials in Japan are taking precautionary efforts and have closed all schools, the number of cases is growing in the EU as well.

Stocks On The Move

Tech is among the days hardest hit. The sector has above-average exposure to China and international markets making it particularly vulnerable to the disease. Apple and Intel are among the days leaders but are not the biggest losers by far. Apple and Intell are both down about -1.5% while chipmakers NVDA and AMD have shed -2.5% and -3.9% respectively.

Microsoft and Goldman Sachs are the latest to issue warnings about the viral impact. Microsoft says it will not meet its Q1 revenue targets because the supply chain is re-ramping slower than expected. Goldman Sachs analysts issued a warning that EPS growth for the entire S&P 500 could come in well below expectations for the year, as low as 0.0% but I think their estimate is generous.

Best Buy issued a Q4 earnings report this morning. The company reports better than expected revenue and earnings that were driven by an increase in comp-store sales. Shares were up sharply following the news but have since given up their gains. Virgin Galactic got a major catalyst from analysts this morning. A double-dose of downgrades from Morgan Stanley and Credit Suisse have shares down more than -13.0%.

The Data Is Good, No Indication Of Weakness

The number of new claims for unemployment insurance climbed 8,000 over the last week but remains low and trending near historic lows. The continuing claims and total claims figures, both indicators of conditions within the broad labor market, were relatively flat over the past week. New orders for durable goods fell -0.20% over the past month. The figure is better than expected and accompanied by a double-digit increase in core capital goods orders. On the GDP front, the final read for 4th quarter GDP is 2.1% and unchanged from the previous estimate.

Equities Attempt Rebound, Coronavirus Spreading, 2020 Growth In Question

The U.S. Futures Edge Higher

The U.S. futures are edging higher in early Wednesday trading following two days of massive declines. The broad market made its biggest drop in over four years over the course of Monday and Tuesday. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite are all looking at opening gains in the range of 0.10% to 0.15%. Although early action looks bullish, traders are warned not to read too much into the move. The Coronavirus is still spreading and its impact on global economic activity only now being felt.

China reports an additional 406 cases in the overnight session with 52 more dead. South Korea says it has 169 new cases and a rising death toll as does Italy. France now reports its first case proving the virus can spread despite the best efforts of health officials. In the U.S. officials report over 50 cases, they are prepping the public for an epidemic the only questions are when it will start and how long it will last. Regardless, the economic impact of this event will be wide-ranging and long-lasting.

Stocks On The Move

The tech sector is trying to move higher in early trading despite its entering correction territory. Now down 10% from recent highs the sector is on the verge of a full-blown bear market. Shares of Apple are among the leaders, down -12% in the last two days, but up about 0.4% in early action.

Shares of Office Depot are among today’s hottest issues. The company reported better than expected results and positive guidance that lifted shares 5.0%. Shares of TJX, parent of the TJMaxx chains of apparel stores, are up more than 6.15% after it reported better than expected earnings. The company says comps rose 6.0% sparking a similar rise in share prices.

Fast-food retailers Papa John’s and Wendy’s are both moving lower. Both companies reported better than expected results due to strength in the U.S. consumer. the downside is outlook failed to impress and that has investors second-guessing their positions.

Volatility Is On The Rise

The VIX, a so-called “fear gauge”, spiked over the last two days. The index, a measure of options prices relative to the S&P 500, has reached levels above 25 and is fast approaching a two-year high. The index shows a high degree of demand for options, protection against a market downturn, and that spells lower prices for the S&P 500.

On the economic front, New Home Sales are due out later in the session. Sales are expected to rise from the previous month and may top estimates. Warmer than expected weather has had a positive impact on other housing data.