Market Direction Week of April 20, 2020: COVID-19, Reopening the Market

Market Direction: BULLISH alert issued 4/10/2020



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Market Direction Week Review: The S&P 500 advanced for the second week in a row, the longest streak since the market peaked in February. Economic data released for the month of March were weak across the board, reflecting the sudden stop in economic activity as containment measures were implemented. However, investors cheered signs that the pace of new infections is peaking and announcements that governments are working on plans to reopen the economies. The U.S. administration released new federal guidelines to reopen the economy in different phases, and Germany announced tentative steps to ease restrictions.

European shares ended higher, clawing back earlier losses, on U.S. President Donald Trump’s plan to start reopening the U.S. economy and hopes for a treatment for COVID-19, the disease caused by the coronavirus (see above). The STOXX Europe 600 Index rose 0.61%. Other markets were mixed, with Germany’s Xetra DAX up 0.66%, France’s CAC 40 little changed, and Italy’s FTSE MIB down 2.91%. The UK’s FTSE 100 Index slipped 0.93%.Markets were closed for the Ching Ming holiday on Monday. Taking their cue from the rally in global markets on better coronavirus numbers, they opened higher on Tuesday. From the previous Friday to Thursday, the Shanghai Composite and CSI 300 large-cap index both rose by around 2.2%.

Japanese stocks rallied for the week. The Nikkei 225 Stock Average advanced 399 points (2.0%) and closed at 19,897.26. The widely watched benchmark is down 15.9% for the year-to-date period. The large-cap TOPIX Index and the TOPIX Small Index also posted gains for the week but ended with slightly larger year-to-date losses. The yen was modestly stronger and traded in a range near JPY 108 per U.S. dollar on Friday.

How the market finished last week, the S&P 500 up 3.0%, the Nasdaq up 6.1%, and the Dow up 2.2%.

Market Direction This Week: We track the stock market based on our Bullish and Bearish Alerts a new Bullish Alert recently started on 4/10/20 and we suggested to our followers they can trade any new long positions based on are model. We will continue to provide you the current stock market conditions as they develop. The current stock market environment is in an uptrend (see Market Direction Mid Week Update: Trading Strategies).  

It’s all about earnings this week for the markets, as about a quarter of the S&P 500 companies gear up to report results.

Through Friday, about 18% of the S&P’s market cap reported earnings. “Earnings are beating by 4.9%, with 78% of companies exceeding their bottom-line estimates. This compares to 5.4% and 71% over the past 3 years,” Credit Suisse strategist Jonathan Golub pointed out in a note Friday.

While earnings season has been off to a positive start with big banks delivering solid results, some strategists warn that it is too early to brush off concerns of negative earnings growth. “As any seasoned runner knows, an aggressive pace out of the gate may be difficult to maintain,” Raymond James Chief Investment Officer Larry Adam wrote in weekly note to clients Friday. “As we cautioned last week, headline earnings were expected to decline 4% year-over-year (YoY) in 3Q19, and although earnings typically beat estimates by ~4%, it is likely to ‘come down to the wire’ on whether or not we can skirt negative earnings growth. The next two weeks should provide additional insights, as 284 companies representing ~66% of the market capitalization of the S&P 500 are set to report.”

Adam explained that the tech sector will be a key group to watch this earnings season and reiterated the firms positive outlook on the sector. “There are growing concerns that the slowdown in global economic momentum and the US-China trade war could start to impact the [tech] sector’s earnings,” Adam noted. “Earnings expectations were revised lower by 1.46% in the preceding three months, but that is substantially less than the 3.87% downward revision for the broader market. Over the last ten quarters, the Technology sector has seen the second largest earnings beats at 6.8% and we expect similar success this quarter. Headline risk (e.g., anti-trust debate) could present an opportunity to add exposure, and we maintain our positive outlook on the sector as it has historically been the top performer in an ‘insurance’ rate cut environment.”

The standard caveat still applies; “President Trump’s tweets still trump everything else”.  

Economic Calendar: Existing Home Sales (4/20), PMI (4/23), Weekly Jobless Claims (4/23), Durable Goods (4/24)

Some of the major earnings announcements on deck: MCD, CMG, BA, MSFT, AMZN.

$tockMarketDirection proprietary model is currently BULLISH. We strongly encourage you to monitor positions closely, exercise proper money management strategies and follow us at $tockMarketDirection for ALERTS we may issue advising a change in the current market direction. Stay tuned and follow us. If you have a testimonial or comment of how this website has helped you we would like to know, email us. Building a community of investors one trade at a time. Share with a friend. Cha-ching!

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