Investors Notch Small Uptick as Parts of Europe, US Reopen

As businesses reopen their doors in several states, Wall Street hopes for good news to push back the tide of negative corporate earnings reports.

People sit in the Cerro del Tio Pio park in Madrid, Spain, Spain, on Sunday. For the first time in seven weeks since the lockdown began to battle the coronavirus outbreak, Spaniards have been able to go outdoors and exercise. (AP Photo/Manu Fernandez)

MANHATTAN (CN) — The gradual reopening of America has some investors hopeful, even in the face of continued negative earnings releases and trade data.

At Tuesday’s opening bell, the Dow Jones Industrial Average gained 1%, or 250 points, with the S&P 500 and Nasdaq enjoying similar percentage gains.

Markets abroad also forgot about Monday’s losses to post moderate gains. As of 9 a.m. EST, most indexes in Europe — where hard-hit countries like Italy are beginning to ease lockdowns — gained about 1% to 2%, while those markets in Asia that were open closed with similar gains.

Parts of America are seeing a variety of retail establishments opening their doors now, but New York and New Jersey, which opted not to reopen schools for the remainder of this academic year, are among U.S. states whose lockdowns are continuing.

Investors are crossing their fingers the end to lockdowns means company earnings will once again show positive signs.

Before markets opened on Tuesday, earnings reports by several leading manufacturers — less flashy but no less important that last month’s bank earnings reports — showed a consistent drop in sales throughout the world.

Infrastructure leader AECOM reported a 5% drop in revenue from the same quarter last year and a 6% drop in net income. The company noted in its earnings release that it has not had any major infrastructure project cancellations due to Covid-19.

Putting on its best face, the company said it anticipates strong cash flow in the second half of this year, while CEO Michael Burke said in a statement that “the business has never been stronger or more resilient.” 

Global water technology company A.O. Smith reported a massive year-over-year drop in earnings, from $89 million in 2019 to $51 million this year.

“We have been weathering the storm brought by Covid-19 since the very start of 2020 — first in China, then followed by pressure in other end markets globally during March and April,” company CEO Kevin Wheeler said in a statement.

DuPont de Nemours, the world’s largest chemical company, posted a $610 million drop in net income last quarter, while its net sales fell 4% to $5.2 billion versus one year ago.

AGCO, a leading manufacturer of agricultural equipment, actually improved during the first quarter of 2020, seeing a slight increase in net income boosted mainly by its North America region, which saw net sales increase by 11%.

The company’s other regions all fared poorly, though, with consistent drops in net sales, and a large 18% decrease in sales in its Asia-Africa region.

Other major companies are expected to release earnings this week. Disney and Beyond Meat will announce their first-quarter earnings after the markets close Tuesday, while General Motors, CVS and Fox are scheduled to release earnings on Wednesday.

Meanwhile investors are again turning part of their attention to Capitol Hill, where senators are now discussing a Phase IV stimulus package. Such a package would likely include liability protections for businesses — Senate Majority Leader McConnell called such protections a “red line” for any stimulus bill — as well as money for state and local governments. 

“We have to think big,” House Speaker Nancy Pelosi reportedly told fellow members during a Monday conference call in preparation for the House reconvening possibly next week. 

Wall Street is also closely watching for further escalation of the U.S.-China trade war, which could prove costly to businesses and detrimental to an economic recovery. 

Despite tariffs and a Phase I deal in which China agreed to purchase more American-made agricultural products, the United States hasn’t been doing well on trade. 

The trade deficit increased 11% in March, up to $44.4 billion, according to the monthly U.S. international trade report released Tuesday morning by the Census Bureau. The deficit in goods between the United States and China fell $4.2 billion last month but now sits at $15.5 billion, with the only higher deficit the $16.9 billion with the European Union.

About 3.6 million people worldwide have been confirmed infected by Covid-19, according to data from researchers at Johns Hopkins University, and more than 252,000 have died. In the United States, nearly 1.2 million people have contracted the novel coronavirus and 68,000 have died.

Recent estimates by the Trump administration suggest total cases and deaths in the United States could soon spike. Modeling attributed to but disavowed by the Centers for Disease Control and Prevention suggest that Covid-19-related deaths could reach 3,000 a day starting in June. Made public Monday, the report is stamped with the logos of the Department of Homeland Security and the Federal Emergency Management Agency.

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