Capital 19 Catch-Up

April Sees Biggest Gains Since ’87 Despite Skyrocketing Unemployment

April saw the biggest gains the S&P500 has experienced in more than 33 years, rising 12.7% and gaining back the 12.5% it lost in March. It was its third-best month since World War 2, beaten only by January 1987 and October 1974. 

The Dow rose 11.1% in April, restoring much of its 13% loss in March and also having its best month since 1987. The Nasdaq also leapt 15.5% in April, in what was its biggest gain since June 2000. 

The strength of the market comeback has been staggering. Especially when you have to reconcile the fact that the US added another 3.84 million to the unemployment queue this week, taking the number of jobs lost over the last six weeks to more than 30 million. 

First-quarter GDP readings also came in below expectations as the economy contracted by 4.8%. Keep in mind that the economy only closed down for two weeks of the entire quarter. It’s amazing how quickly it derailed. This has led to economists readjusting their second-quarter numbers with some expecting the economy to contract by up to 45%.

It’s an indicator as to why many State governments are desperate to open up their economies again, despite the US death toll surpassing President Trump’s prediction of 60,000 fatalities through the week. Alaska, Georgia, South Carolina, Tenessee and Texas are all showing a willingness to do away with isolation restrictions and get people back into work. 

The stock market is taking a punt that the crisis won’t worsen when they do this, despite the predictions of most of the medical community. It’s also possible that they are hoping governments will ignore an increase in the death rate and leave everything open regardless. It seems a mighty big gamble to me.

What the market really wants to see is a cure or a treatment. There were some positive signs for Gilead’s Remdesivir drug during the week which showed it had helped some patients in a Federal trial “modestly” speed up their recovery. Dr Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, and prominent in many of the White House press briefings, has stated the improvement in recovery times “doesn’t seem like a knockout 100 per cent, but it is a very important proof of concept because what it has proven is that a drug can block this virus.”

Gilead shares jumped 5.7% on the initial news, however, fell back the same amount in the last session of the week as hopes for its success as a “game-changer” faded. CNBC now have a Covid-19 Testing and Treatments Index which includes 29 companies that are invested in finding a vaccine or treatment for the virus. Not surprisingly it has moved lock, stock, and barrel with the wider market since the middle of March, helping to highlight just how important a cure is to a continuing market fightback. You can check it out here:

Earnings mostly focussed on the tech giants during the week and there were varying results for the big hitters. Alphabet (GOOGL), aka Google, was the big winner as revenue fell less than forecast and youtube advertising revenue beat expectations. The share price jumped an impressive 8.9% after the results were announced and managed to hold gains despite the market falling away later in the week.

Facebook (FB) did the same, with revenue coming in $520 million above expectations at $17.74 billion, and earnings per share just beating by 0.01c at $1.71 per share. User engagement increased dramatically in the last few weeks of the quarter, and you can no doubt expect much of the second quarter to be the same, with most of the world’s population stuck at home in their living rooms. Facebook now has 7.78 billion users globally, a quarter of which are daily active users of the site. It’s not hard to see why they’re are an advertisers dream.

Apple (AAPL) also beat expectations on both revenue and profit with sales coming in at $58.31 billion, nearly $4 billion more than expected, while earnings hit $2.55 a share when expectations were at $2.24. The services sector continued to excel – you can check out our stock report here about why we think the services sector is the future for Apple going forward. It generated $13.35 billion, up from $11.45 billion year on year, and beating expectations of $12.85 billion. 

Apple refused to give guidance for the second quarter, however, which saw the share price fall $1.61 after the results. CEO Tim Cook said that retail stores saw a slow down in traffic in China in February but a rebound in March, while demand issues impacted the company globally in March. Despite concern over the current state of the economy, they increased their dividend to $82 cents per share and promised shareholders buybacks of $50 billion in the next quarter. 

Amazon (AMZN) was the most disappointing of the top four, despite seemingly being a bright spot during the pandemic. The share price dropped 7.6% on Friday as they missed revenue expectations by $2 billion and earnings per share by $1.25. 

Most importantly Amazon advised they would be spending almost all of their Q2 profit in responding to the coronavirus. This includes Covid-19 testing of its workforce, providing employees with protective equipment, better cleaning protocols, and boosting its delivery networks to cope with the extra demand. CFO Brian Olsavky stated ” If you’re a shareowner in Amazon, you may want to take a seat because we’re not thinking small. Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances.”

And now we come into the month of May where we’ll have all of the economic reports coming out for the month of April, which experienced the first full month of coronavirus restrictions. Markit services PMI and the ISM nonmanufacturing index will come out on Tuesday, the ADP employment report of Wednesday, and then the all-important non-farm payrolls on Friday.

This is where I’ll be taking a seat, as the real impact of the economy is finally unveiled. The unemployment rate is expected to hit 15% due to the 20 million jobs that were lost in April. Weekly average hours are also expected to hit a record low of 33.5, but the number could be anything. It’s going to be a tough week for the data watchers.

There’ll also be plenty of big earnings reports. These will include names such as Tyson Foods (TSN), Skyworks (SWKS), Beyond Meat (BYND), Disney (DIS), General Motors (GM), PayPal (PYPL), Baidu (BIDU), and Uber (UBER) amongst others. All shareholders will need to buckle up as companies let us know how they’ve been getting on during the pandemic.

Something that I would never have noticed in past years, but has piqued my interest in 2020 is the Maxim Infectious Disease Virtual Conference which will be held on Tuesday. Could there be a more timely conference? All of the big names in the biotech industry will be involved and we can expect plenty of big headlines (aka rumours). Let’s hope they can come up with something positive for us.

Have a great week. Stay safe!