The much anticipated Q2 earnings season kicked off this week with investors eager to see how companies have fared through the depths of the economic shutdown and look for any indication on outlook. Many of the large U.S. banks reported this week noting strength in their trading segments due to heightened market volatility during the quarter. However, the overall tone was cautious with large reserves being set aside for expected losses from looming loan defaults. Delta also reported earnings earlier in the week confirming a catastrophic quarter for airlines and expectations for a very slow road to recovery for the industry in particular. Two of the largest stocks in the S&P 500, Amazon and Microsoft, took a heavy breather, down over 7% and 5% respectively for the week. QQQ which is a proxy for technology and large growth stocks was down as well while broader U.S. indexes closed in the green. Despite some positive developments on the vaccine front, the immediate focus has been on what is next regarding a stimulus as many measures are set to expire soon and reopening efforts stall with surges in coronavirus cases nationwide.
S&P 500: 3224 (1.25%)
FTSE All-World ex-US (VEU): (0.99%)
US 10 Year Treasury Yield: 0.64 (-0.01)
Gold: $1,810.60 (+0.63%)
EUR/USD: 1.1431 (+1.16%)
- Monday – Tesla stock jumped as much as 16% intraday before closing down 3% Monday. 40,000 Robinhood accounts added shares of Tesla during a four-hour period during the trading day.
- Monday – California’s Governor Gavin Newsom announced statewide closing of all indoor operations of bars, restaurants, and movie theaters due to the increase in coronavirus cases with additional restrictions on harder hit counties.
- Tuesday – JP Morgan reported earnings that beat estimates on the back of strong trading revenue but warned of continued economic uncertainty and the need for large cash reserves set aside.
- Wednesday – Moderna released positive results from a recent coronavirus vaccine trial that showed all patients produced neutralizing antibodies.
- Thursday – Netflix stock dropped 10% in after hours trading following the company’s earnings release. The company forecasted a slowdown in user subscription growth and named Ted Sarandos co-chief executive officer.
- Thursday – The average rate on a 30-year fixed rate mortgage dropped to a fresh all-time low of 2.98%.
- Friday – California ordered the hardest hit counties to postpone opening schools and will require an online only approach until coronavirus case counts in the state improve.
The deadline is approaching for leaders in Washington to make some critical decisions regarding stimulus measures to be put in place to help weather the fallout of the pandemic for both individuals and businesses. The bazookas fired by the federal government starting in March were enough to provide short-term support for financial markets and the economy, but questions remain about the sustainability and path forward.
A recent Bloomberg news article published a compiled stimulus expiration timeline as shown here:
As it stands now, there continues to be gridlock over what benefits should be extended and how much. As it relates to unemployed individuals, the expiration of the weekly $600 federal unemployment insurance at the end of the month is of the utmost concern. The major point of contention is that some individuals received more money collecting unemployment benefits than what they made when employed, potentially disincentivizing reentering the workforce. We think they will likely extend these unemployment benefits, but on a modified form. Two potential possibilities being floated are to cap benefits at the amount made when previously employed, or to redistribute a portion of the funds as a “back to work bonus.”
We expect these looming uncertainties to spark renewed volatility in the stock market. It will be a tough job for leaders to make these decisions with the information at hand. As cases continue to surge and efforts to reopen the economy stall, we do not expect a change to the “whatever it takes approach” any time soon. The Fed has already stated its plan to keep rates low for the foreseeable future due to severe economic damage that will take significant time to repair such as reducing the massive unemployment rate. This has been seemingly necessary to battle the immediate crisis at hand but means kicking the can down the road when it comes to confronting future ramification of unprecedented amounts of government stimulus.