Market Direction: BULLISH alert issued 4/10/2020
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Market Direction Week Review: Even
though stocks finished mixed the last week of April, the S&P 500 posted its
best month since 1987. A slowdown in new coronavirus cases and synchronized
stimulus initiatives globally improved sentiment from the March stock-market
bottom. Volatility has subsided some but remains elevated. Economic data,
including first-quarter U.S. GDP, point to broad weakness, marking the start of
the recession, and companies are pulling full-year guidance due to the
uncertainty. Economic activity will worsen because containment measures were
expanded in the beginning of the second quarter, but the market is discounting
that and focusing on the upcoming reopening of the economy. The Fed held its
benchmark rate at 0.0%-0.25% last week and pledged to keep rates near zero
until employment and inflation recover.
Financial markets in China were shut on Friday for an extended Labor Day holiday and were set to open again on Wednesday, May 6. Over the shortened week, the CSI 300 large-cap index rose 3.0%, beating the Shanghai Composite, which gained 1.8%.
In an attempt to boost consumer spending, the Labor Day holiday is one day longer than last year. Most analysts believe a mood of caution will prevail, however, as workers worry about job security, global recession, and a potential second wave of infections. Per capita disposable income fell by 3.9% in the first quarter, so any rebound due to pent-up consumption may be brief. Cinemas remain closed, and shopping malls are imposing social distancing and frequent temperature checks. While a few travel restrictions remain, with some local governments discouraging travel between provinces, signs suggest that economic and social activity continue to normalize across China.
Indeed, a senior health official reported on Monday that Wuhan, where the pandemic began, has no remaining cases of COVID-19 in its city hospitals. Beijing this week downgraded its emergency response level and relaxed quarantine restrictions on new arrivals. This triggered an immediate sharp rise in online domestic flight bookings to the capital. The Ministry of Commerce, meanwhile, is promoting an online shopping festival in May, and some local governments have issued shopping vouchers to residents, mostly for nominal amounts.
How the market finished last week, the S&P 500 down 0.2%, the Nasdaq down 0.3%, and the Dow down 0.2%.
Financial markets in China were shut on Friday for an extended Labor Day holiday and were set to open again on Wednesday, May 6. Over the shortened week, the CSI 300 large-cap index rose 3.0%, beating the Shanghai Composite, which gained 1.8%.
In an attempt to boost consumer spending, the Labor Day holiday is one day longer than last year. Most analysts believe a mood of caution will prevail, however, as workers worry about job security, global recession, and a potential second wave of infections. Per capita disposable income fell by 3.9% in the first quarter, so any rebound due to pent-up consumption may be brief. Cinemas remain closed, and shopping malls are imposing social distancing and frequent temperature checks. While a few travel restrictions remain, with some local governments discouraging travel between provinces, signs suggest that economic and social activity continue to normalize across China.
Indeed, a senior health official reported on Monday that Wuhan, where the pandemic began, has no remaining cases of COVID-19 in its city hospitals. Beijing this week downgraded its emergency response level and relaxed quarantine restrictions on new arrivals. This triggered an immediate sharp rise in online domestic flight bookings to the capital. The Ministry of Commerce, meanwhile, is promoting an online shopping festival in May, and some local governments have issued shopping vouchers to residents, mostly for nominal amounts.
How the market finished last week, the S&P 500 down 0.2%, the Nasdaq down 0.3%, and the Dow down 0.2%.
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 is gearing up to be another busy week for market
participants with a slew of earnings announcements on the calendar and the
highly-anticipated April’s jobs report.
Earnings
season is officially halfway through, and so far, technology companies have had
the best earnings reactions. Raymond James Chief Investment Officer Larry Adam
pointed out that the average tech name beat earnings estimates by 8.4% and
rallied 2.7% on the results.
“This
is important given the Technology sector’s market leadership and large
weighting within the S&P 500. With Q1 earnings season at the halfway point,
the S&P 500 is now expected to see a 16% earnings contraction for the full
quarter. Many companies have withdrawn guidance (due to uncertainty), however,
the consensus earnings estimate is now for a -35% earnings contraction in Q2,
followed by directional improvement in Q3, Q4, and into 2021,” Adam said.
Due
to the uncertainty caused by the COVID-19 outbreak, investors have been heavily
focused on managements’ commentary regarding the pandemic as well as any
potential guidance that’s given for the future.
One important thing to note with April’s jobs
report is that there might be some discrepancies in the two surveys. A
furloughed person, who is not working but has not been laid off, will be
classified as unemployed or temporarily laid off in the household survey.
However, if they were paid at any point during the establishment survey period,
they will be classified as employed.
“The
household survey is typically noisier, but it can be a better measure of job
losses in an extreme downturn. The payrolls numbers are based on a survey of
businesses, which will struggle to capture the magnitude of cyclical turning
points when establishments are closing rapidly. The household measure of
employment showed a decline of nearly 3 million in March,” Sweeney explained.
The
leisure and hospitality industries are expected to have been hit the hardest.
And while the unemployment rate will likely skyrocket, the surge shouldn’t persist
for long, according to economists.
“The
unemployment rate is likely to remain elevated in May, but when businesses
re-open it should fall sharply,” Sweeney said. “The recovery will be
incomplete, but we do not expect double-digit unemployment to persist for long.
Many workers are temporarily furloughed, which can speed the rehiring process.”
The
standard caveat still applies; “President Trump’s tweets still trump everything
else”.
Economic Calendar: PMI (5/5), ISM Non-Mfg Index (5/5), Weekly Jobless Claims (5/7), Employment Report (5/8)
Some of the major earnings announcements on deck: REGN, DIS, PYPL, ROKU, SQ.
$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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