Markets in Holding Pattern Ahead of First-Quarter Updates

Wall Street is in “wait-and-see” mode this week, as some states start to reopen and corporate giants release earnings reports. 

Yelitza Esteva was a hairstylist. She now makes supermarket deliveries. She is pictured at right, bagging groceries Wednesday for an order in Surfside, Fla. (AP Photo/Wilfredo Lee)

MANHATTAN (CN) — A glut of corporate earnings reports are due this week, though so far Wall Street thinks the damage is not yet as bad as it could have been. 

A number of huge corporations — among them Apple, Amazon, McDonald’s, and Starbucks — later this week will release their earnings reports for the first quarter of 2020. 

Corporate earnings for Q1 2020 have largely been negative, with normally recession-resistant companies IBM and Coca-Cola showing significant declines in revenue.

So far, companies have reported on average a 15.2% decline in earnings and flat revenues during the first quarter of 2020, according to an analysis by DataTrek.

“By these numbers, the Covid-19 Crisis is not as bad as the Financial Crisis, when S&P 500 earnings fell by just over 50% over a 2-year stretch,” according to DataTrek’s Monday morning investor’s note. “The back half of the year should be ‘less bad’ than Q2.”

DataTrek predicts the third quarter of this year will see earnings from nearly 17%, with 3.4% decrease in corporate earnings in the fourth quarter.

An April 21 survey of the S&P 500 by FactSet that found that first-quarter earnings are on track to drop nearly 16%. That marks the largest overall earnings decline since the second quarter of 2009, FactSet states.

Earnings reports are only likely to get worse next quarter, as the crop includes revenues through March. Shutdowns and social distancing began in March, but the economic downturn began to intensify in April.

U.S. markets opened slowly on Monday, with the Dow Jones Industrial Average gaining more than 100 points at the morning bell. The S&P 500 and Nasdaq both had increases of less than 1% in the opening minutes of trading.

Wall Street has been heartened by fewer reported hospitalizations from coronavirus in New York, the epicenter of the virus in the United States, as well as the prospect of certain states reopening parts of their economies.

Markets also last week received a temporary lift when President Trump signed into law a new stimulus package that includes $310 billion for the Small Business Administration’s Paycheck Protection Program.

The funding is a welcome spot of good news for investors and a lifeline for small businesses, many of which were shut out of the immensely popular lending program due to a run at the banks. 

Banking groups worry the $310 billion will last only a few days, though, and reports continue to come in that publicly traded and larger companies have found loopholes to tap the program. 

In Asia, markets closed on a positive note, with Japan’s Nikkei leading the way with a 2.7% increase after the country’s central bank announced it was purchasing corporate and government bonds to keep liquidity flowing.

European markets also are poised for a good day. As of 8 a.m. EST, the pan-European Stoxx 600 up about 1.7%. Even further along were Germany and France, whose markets had increased more than 2% each for the day.

Worldwide nearly 3 million people have been confirmed infected by Covid-19, according to data from researchers at Johns Hopkins University, and more than 206,000 have died. About 965,000 people in the United States have contracted the virus, while almost 55,000 have died.

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