Earnings Report Anxiety Puts Stock Surge Out of Sight

A passenger sits at Barcelona airport in Spain on Monday. (AP Photo/Emilio Morenatti)

MANHATTAN (CN) — Investors coughed up last week’s gains, as Wall Street prepares for a wave of poor company earnings later this week.

The Dow Jones Industrial Average, which opened to mild losses, dropped 325 points Monday to close 1.3% down for the day.

Some experts had predicted many companies to report a 10% decrease in earnings per share, though some industries — such as the pharmaceutical industry — may see an uptick in earnings per share. 

The lion’s share of corporate earnings won’t be released until starting Tuesday. Investors also likely want to see a crucial report from the International Monetary Fund due Tuesday, which will report on the health of the international financial system.

One of the early companies out of the gate this week will be JPMorgan Chase, which may help set an early tone on just how bad company earnings will be this week. CEO Jamie Dimon had previously warned investors to expect a “bad recession” in the months to come. 

The Securities and Exchange Commission has requested companies focus their Q1 earnings reports on “where the company stands today” and what impact the coronavirus may have on the company, noting that “historical information may be relatively less significant.”

In an investor note on Monday, Goldman Sachs research analyst David Kostin wrote that stocks may be artificially highly priced right now.

“It is remarkable that the U.S. is in the midst of its greatest economic crisis in nearly a century and unprecedented societal disruption while the stock market trades at the same level it did in June 2019,” Kostin wrote.

He added, “Equity valuations today [may be] tied more closely to policy support and investor sentiment than to the traditional drivers captured in our model.”

This means previous estimates about the S&P 500 falling to 2,000 points might now be obsolete, Kostin noted. “If the U.S. does not experience a second surge in infections after the economy reopens, the ‘do whatever it takes’ stance of policymakers means the equities market is unlikely to make new lows,” he wrote.

The S&P 500 closed at 2,761 points Monday, down still more than 600 points since its high of 3,386 points in mid-February.

Government officials are not likely to rest on their laurels anytime soon, even as the spread of the respiratory disease Covid-19 appears to be waning. 

Finance ministers and central bank governors will meet virtually on Wednesday for a G20 meeting, during which member countries likely may draft a plan to halt loan repayments from lower-income countries and discuss further cuts to oil production. 

In a historic deal over the weekend, members of OPEC and allied countries agreed to reduce oil production by 9.7 million barrels a day. The deal was in response to plummeting demand due to social distancing and the ongoing price war between Russia and Saudi Arabia. 

Oil prices remained flat Monday despite the deal, with the West Texas Intermediate dipping below $23 per barrel and the Brent increasing to about $32. Some analysts say the deal will have little impact on markets while demand for oil remains low due to social distancing.

On Twitter, President Trump touted the deal and hinted that the true production cuts will be far greater. “Having been involved in the negotiations, to put it mildly, the number that OPEC+ is looking to cut is 20 Million Barrels a day, not the 10 Million that is generally being reported,” the president wrote.

More than 1.8 million people have been confirmed to have Covid-19, and nearly 115,000 have died worldwide, according to data compiled by Johns Hopkins University. In the United States, more than 557,000 have been infected by the virus in the United States, while more than 22,000 have died.

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