Investors Shrug Off Signs of Distress in Business Survey

Tuning out the Negative Neds and Pollyannas, investors are trying their best Nostradamus impression and betting on an improved second half of 2020.  

Outside a yoga studio in San Diego, a sign encourages pedestrians to take what they need from a table piled with food and other goods. (Courthouse News photo/Barbara Leonard)

MANHATTAN (CN) — Markets began Tuesday making mild gains, as experts increasingly wave away current economic conditions and focus on the second half of the year.

At the morning bell, the Dow Jones Industrial Average gained about 150 points, a 60% increase, while the S&P 500 and Nasdaq both had similar early gains.

Lately investors seem eager to ignore negative surveys, poor earnings reports and dire warnings from market watchers, instead focusing on the what they hope will be a much better second half of 2020. 

“In six weeks, as the S&P 500 index has soared by 30%, investors have raced from despair at the market bottom to optimism about the economic restart,” according to an investors’ note from Goldman Sachs equity strategist David Kostin.

Among the ominous reports to sift through Tuesday morning was a survey by the National Federation of Independent Businesses, which showed small business optimism dropped again last month. Optimism among small businesses fell 5.5 points in April, compounding the 8-point loss in March.

The survey found a 30-point drop in real sales expectations over the next six months, the lowest reading since the survey began in 1973. Most small business owners in the survey also believe the economy will continue to weaken in the short term. 

“The impact from this pandemic, including government stay-at-home orders and mandated non-essential business closures, has had a devastating impact on the small business economy,” NFIB chief economist William Dunkelberg said in a statement. 

However bad things look for small businesses now, the more important metric is how they look later this year, some experts say.

“It is what things look like in coming months when most things are reopened that matter,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group, in an investors’ note. “This ‘spread’ between the now and the reopenings over the next month is why the market has had this ‘hall pass.’ That ‘hall pass’ though will expire sometime in coming months, I believe.”

Using a different metaphor for the coming months, Federal Reserve Vice Chair for Supervision Randal Quarles warned that, while “the first wave of acute financial stress has begun to ebb,” there may be squalls on the horizon. 

“The storm, however, is not over,” he said in written testimony before the Senate Banking Committee released early Tuesday morning. “As the response to these public health concerns continues to unfold, the strength of the U.S. financial sector will reflect and depend on the strength of the U.S. economy. That strength, in turn, will depend on the calibration and effectiveness of our public health response.”

Optimism lacking on Main Street is more prevalent on Wall Street, as earnings reports show many reporting companies hoping to pivot from a poor first quarter into a more stable second. 

Real estate investment trust Simon Property Group, which owns more than 200 shopping malls and shopping outlets worldwide, reported about $100 million less revenue between Q1 2019 and Q1 2020. Contrasting those two periods, the company reported an even greater loss in net income, from $548 million during last year’s first quarter to $437 million during this year’s first quarter.

“In March, we quickly pivoted to address the rapid spread of Covid-19, temporarily closing U.S. properties, reducing operating costs, and increasing financial resources,” CEO David Simon said in a statement. “We are beginning to reopen properties and are encouraged by the consumer response thus far.”

The company plans to reopen about half of its properties by next week. During a call with investors, Simon stressed the need to reopen malls to help local economies, “because frankly they depend on our sales taxes.”

Pharmaceutical company Mylan, which gained notoriety in 2016 over alleged price gouging over EpiPens, reported a slight increase in its revenues, from $2.5 billion during last year’s first quarter to $2.6 billion during this year. The company also reported about $40 million in additional net earnings year over year.  

In its release, Ingersoll Rand reported a whopping 29% increase in revenues, but that was primarily driven by the completion of its sale of its industrial segment to Gardner Denver Holdings in February. The manufacturing company also reported a nearly $37 million loss in income during the first quarter of 2020, compared with a $47 million profit during last year’s first quarter.

Nearly 4.2 million people worldwide have been confirmed infected by Covid-19, according to data from researchers at Johns Hopkins University, and 286,000 have died. In the United States, more than 1.3 million people have contracted the novel coronavirus and more than 80,000 have died.

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