Flowering Tech & Flattening Infections Give Investors Some Temerity

Mural on a Colfax Avenue pawn shop in Aurora, Colorado, embodies the national mood during the coronavirus pandemic. (Courthouse News photo/Amanda Pampuro)

MANHATTAN (CN) — More jaw-dropping unemployment numbers left their mark Thursday, but U.S. markets overall are in a better spot than they were a month ago.

By closing bell Thursday, the Dow Jones Industrial Average had lost 300 points for the day, a 1.2% drop. The S&P 500 and Nasdaq had similar losses.

But the headline for many investors will likely be how surprisingly good the last month has been overall for Wall Street.

Sitting at 24,332 points, the Dow is still thousands of points away from its high at the end of February, but the market now sits at roughly the same spot it did in mid-March as investors have clawed back some of their losses. 

In an investor note, Nicholas Colas of DataTrek said the Federal Reserve’s bold actions to keep rates low will continue to bolster U.S. stocks.

“This move will feel profoundly irrational, deeply uncomfortable, and vulnerable to sudden setbacks,” Colas wrote. “And if you have to explain to a client why you’re buying stocks here, they may well fire you because the narrative is not about earnings or even interest rates but rather a levered call on America itself. Strange, but true.”

The technology sector, in particular, has done well, and investors remain bullish on leading companies.

“For now, investors are simply relieved that the Covid infection rates have flattened, that G-3 central banks are in a near-universal stance of unlimited accommodation and that at least the high-tech sector has managed to weather the storm, so the immediate impulse remains pro-risk,” Boris Schlossberg of BK Asset Management wrote in an investor note Thursday.

Other notes from Goldman Sachs say companies like Microsoft and Facebook — both of which continue to receive “buy” recommendations by the investment bank — have benefited from the supply chain in China returning to normal faster than original anticipated. 

In its earnings report Wednesday, Microsoft reported $2 billion more in net income and $5 billion more in total revenue. Most of the increases were driven by the company’s Office suite of software, its LinkedIn segment, and cloud services.

Social media has had mixed results during the first quarter. In its earnings report, Facebook showed a 17% increase in total revenue and a whopping 102% increase in net income from the first quarter of 2019. The company also reported its effective tax rate dropped to 19% in early 2020 from 30% this time last year, and it repurchased nearly double the amount of its Class A stock compared with Q1 2019.

Similarly, Twitter reported a huge decrease in taxes, from paying $94 million during last year’s first quarter to only $7.7 million in the last three months. While the company has better revenue — $808 million during Q1 2020 versus $786 million during Q1 2019 — it posted a net loss of $8.3 million. 

In Facebook’s case, Goldman Sachs raised its forecasts and now expects revenue growth of 6% for the remainder of the calendar year.

A technology-consumption measure by comScore says social media traffic in March remained a steady one-fifth of the total time spent on the internet —on average 62 minutes per day — compared with slightly more last March. 

Other tech giants Apple and Amazon will release their earnings reports after markets close Thursday.

About 3.2 million people worldwide have been confirmed infected by Covid-19, according to data from researchers at Johns Hopkins University, and more than 230,000 have died. In the United States, more than 1 million people have contracted the novel coronavirus and 61,000 have died.

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