Bright Spots in Tech and Pharma Bring Little Lift to Market Slump

Motorcyclists go by a recently painted mural with a masked depiction of Grant Wood’s famed “American Gothic” painting on Thursday in Torrance, Calif.(AP Photo/Marcio Jose Sanchez)

MANHATTAN (CN) — Investors hoping that April’s historic rally brings more of the same in May could be disappointed.

Despite coming off one of the best months ever, the Dow Jones Industrial Average plummeted 617 points, a 2.5% drop for the day. The Nasdaq and S&P 500 TK have even greater percentage drops, of 3.2% and 2.8%, respectively.

The freefall punctuates concerns that the White House could be instituting a new trade war — or worse — with China over its handling and alleged secrecy about Covid-19. 

A report by The Washington Post on Thursday claims the president wants to “punish” China with sanctions and new trade policies. In recent days President Trump has claimed to be privy to evidence the virus was manmade and originated from a secret weapons laboratory in Wuhan. 

Trump has also taken on a belligerent tone for the past two days regarding others he sees as China’s defenders. During a press conference Thursday the president said the World Health Organization “should be ashamed of themselves because they’re like the public relations agency for China.”

President Trump tweeted Friday that major media outlets were “going out of their way to say GREAT things about China,” calling CNN and MSNBC “Chinese puppets who want to do business there.”

Good news in the markets has been scant in recent days, and investors have pegged some of their hopes to corporate earnings, despite several major companies yanking their 2020 outlook. Many on Wall Street are watching one company more closely than the rest.

Gilead, whose remdesivir drug has shown great promise as a treatment for coronavirus, posted a $267 million increase in revenue though a $424 million drop in net income from the first quarter of 2019 to the first quarter of 2020.

The company is poised to be a major player later this year, as it promised to produce 1 million rounds of remdesivir by the end of the year and “several million” rounds in 2021. A recent study showed the drug was 50% effective on the nearly 400 patients involved in a clinical trial. Clearing some regulatory hurdles, the Food and Drug Administration granted the antiviral drug emergency-use authorization Friday for treatment on Covid-19.

The technology sector, in particular, has done well, and investors remain bullish on leading companies as industry leaders Amazon and Apple posted their earnings reports after markets closed on Thursday. 

Amazon posted a massive boost in net sales, with $75.5 billion during the first quarter of 2020 versus just under $60 billion in Q1 2019, a 26% increase. The company’s net income fell, however, from $3.6 billion to $2.5 billion year over year.

In a statement, CEO Jeff Bezos noted the company gained $4 billion in operating profit. “If you’re a shareholder in Amazon, you may want to take a seat, because we’re not thinking small,” Bezos told investors. “We expect to spend the entirety of that $4 billion, and perhaps a bit more, on Covid-related expenses getting products to customers and keeping employees safe.”

In its release, Apple posted a $300 million increase in net sales but a $312 million drop in net income year over year between the first quarters of 2020 and 2019. Most of that drop was attributed to the company’s iPhone segment, while the company’s home and accessory and its services segments saw increases in sales. 

Microsoft has already reported $2 billion more in net income and $5 billion more in total revenue, increases mostly driven by the company’s Office suite of software, its LinkedIn segment and cloud services. 

Social media companies had mixed results, with Facebook showing a 17% increase in total revenue and a whopping 102% increase in net income from the first quarter of 2019. Twitter reported $808 million in revenue during Q1 2020 versus $786 million during Q1 2019, but the company posted a net loss of $8.3 million.

A more down-to-home company for most consumers, Clorox, predictably saw a massive 32% spike in demand for its cleaning products as companies aggressively sterilize surfaces and consumers try to keep their homes clean. In total the company saw a 15% increase in demand for its products from Q1 2019 to Q1 2020.

That demand translated into $232 million more in net sales and $54 million in net earnings year over year. CEO Benno Dorer noted that Clorox has been resilient during past recessions. “Our business was on track to deliver growth for the back half of the fiscal year in line with our expectations, even ahead of the pandemic,” Dorer said.

About 3.3 million people worldwide have been confirmed infected by Covid-19, according to data from researchers at Johns Hopkins University, and more than 235,000 have died. In the United States, more than 1 million people have contracted the novel coronavirus and 63,000 have died.

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