The Market Today

Optimism as Regions Attempt to Ease Lockdowns

by Craig Dismuke, Dudley Carter


Coronavirus Chartbook (Click Here) – Updated by 9:00 a.m. CT

Daily Confirmed Cases Decline: The number of new cases confirmed over the past 24 hours has been encouraging both globally and in the U.S.  There were 63,267 new cases reported globally and 22,536 reported in the U.S. (according to the Johns Hopkins CSSE data).  In both regions, the number of new cases each day has declined for three consecutive days.

Cases Globally Top 3 Million, U.S. Nears 1 Million: The number of total cases globally topped the three-million mark early yesterday, now totaling 3,057,957 including 211,894 reported deaths.  The U.S. total is likely to surpass the one-million mark today, standing at 988,469 this morning and 56,253 deaths.

Tracking the Headlines: The virus headlines were focused on reopening activities in several U.S. states as well as efforts to compliment that process with expanded testing capabilities. Georgia and Ohio were among a handful of states that began the first phase of restarting some activities while Texas announced that its stay-at-home order would expire on Thursday. New York and Florida said some activity could be slowly phased in by region in the weeks ahead while Louisiana extended its restrictions until May 15. As testing could determine the pace of reopening, the president hosted leaders of several major U.S. retailers and other companies to discuss expanding the nation’s testing capacity across the country in May.

PPP Lending Resumes: Related to stimulus, lending under the SBA’s freshly-replenished Paycheck Protection Program resumed, although there were reports of application congestion reflecting heavy demand.

Senator McConnell Nuances Last Week’s Comments: Senate Majority Leader McConnell addressed his widely unpopular comment last week about states potentially seeking bankruptcy instead of federal aid, saying his remarks were misconstrued. He said he expects there to be a state and local aid bill, but that any additional bill must include legal protections for businesses who risk re-opening.

Fed Expands Municipal Liquidity Facility: The Federal Reserve expanded its Municipal Liquidity Facility yesterday afternoon, increasing the eligible municipal issuers for which the Fed may fund note purchases to include counties with at least 500,000 residents (down from 2,000,000) and cities with populations of at least 250,000 (down from 1,000,000).  Additionally, the Fed extended the maturity of notes whose purchase it will fund to include maturities out to 36 months (increase from 24 months).  Issuers must have been rated investment grade by at least two national rating organizations on April 8 to qualify.  The duration of the facility was also extended to December 31, 2020.


U.S. Trade of Goods Declines $13.9 Billion in March: The Advanced Goods Trade Balance report for March showed a further decline in global trade activity with imports and exports of goods down 4.2% (-$13.9 billion).  Imports of goods declined $4.76 billion while exports fell $9.1 billion.  On the import side, autos/vehicles/parts and consumer goods were decimated.  On the export side, industrial supplies, capital goods, and autos/vehicles/parts were hardest hit.

Home Prices and Consumer Confidence: At 8:00 a.m. CT, the S&P CoreLogic Home Price Index for February is expected to show a 0.35% MoM increase in home prices.  The report will be old news and irrelevant to today’s economic environment. At 9:00 a.m. CT, the Conference Board’s April report on consumer confidence is expected to show confidence fall from being quite strong to its lowest level since 2014.

Corporate Earnings Heat Up: Corporate earnings releases are hitting their quarterly peak this week and key companies will report after the bell today, including Ford, Starbucks (significant exposure to Chinese retail), and Google.


Stocks and Yields Rose as Reopening Begins Amid Expanded Testing Efforts: U.S. stocks rose 1.5% Monday and longer Treasury yields moved up ahead of a busy week of economic and corporate earnings events as investors watched more countries and U.S. states begin the process of gradually reopening their economies. The cheerful tone was global and started early as Asian and European equities closed solidly in positive territory. All eleven sectors of the S&P 500 closed in the black, led by U.S. banks as rates rose and the curve steepened. While the 2-year yield inched down 0.2 bps to 0.22%, the 5-year yield rose 3.0 bps to 0.40% and the 10-year yield added 6.0 bps to 0.66%. Even energy companies gained more than 2% despite U.S. WTI for June dropping nearly 25% in an unwind of last week’s late-week rally.

White House Looks to Expand National Testing Capacity: Broad strength for equities occurred as European countries and some U.S. states proceeded with gradually reopening their economies. The S&P 500’s gain pushed the index to a seven-week high and the 10-year yield’s close was the highest since April 14.


Equities Remain Resilient as Corporate Results Reflect COVID Impact: U.S. equity futures rose during European trading amid a busy day for corporate earnings on both continents and despite another steep decline in the cost of crude. Futures on the S&P 500 drifted 0.6% lower during an uneven day for Asian indexes but turned markedly higher as the Stoxx Europe 600 moved up quickly and convincingly after it opened. The European index had climbed 1.6% at 6:50 a.m. CT to its highest level in more than seven weeks. U.S. futures tracked that move and held gains of more than 1% through the first real wave of corporate earnings scheduled for this week.

Companies Withdraw Outlooks as COVID Creates Unprecedented Uncertainty: Southwest Airlines posted its first quarterly loss in nine years, expects the second quarter to be worse, and announced debt and equity offerings to raise cash. It sees “no material improvement in air travel trends” and noted “trip cancellations remain at unprecedented levels.” 3M posted better-than-expected earnings with a divergent virus impact across its business lines but cut back its cap-ex plans. Caterpillar reported a roughly 50% decline in earnings that was better-than-estimated and said the current quarter will “be more significantly impacted.” UPS’s earnings fell short of analysts’ expectations and the CEO said “It was like people turning off light switches.” He also highlighted a significant shift from roughly even shipment splits between residences and businesses to a current mix which sees approximately 70% of packages drop at American’s homes. Each of these companies withdrew its full-year guidance. Pfizer beat on revenue and earnings and affirmed its 2020 guidance.

Treasury Yields Little Changed, Oil Drops Again: With equities weathering the first line of this week’s earnings storm relatively well, Treasury yields were little changed just before 7:30 a.m. CT. The 2-year yield had edged 0.8 bps lower to 0.21% while the 10-year yield had dipped 1.1 bps to 0.65%. Lower oil prices likely kept downward pressure on yields and equities’ gains in check. The U.S. WTI contract for June was nearly 12% lower at $11.30 per barrel after falling as much as 21% overnight. The same reality that sent the May contract to its historic 300% plunge into negative territory – a reality of too much oil with no place to put it – has begun to weigh more acutely on the June contract as it inches towards expiration.


Dallas Fed Manufacturing Activity Inched Deeper Into Contraction in April: The Dallas Fed’s manufacturing activity index inched down 3.7 points in April to a new record low of -73.7 after having plunged more than 70 points in March. While the outlook stabilized somewhat, it remained at an incredibly weak level and most current indicators deteriorated more than the broader headline. Among those, production, utilization, new orders, shipments, the workweek, and investment plans also contracted sharply from March.

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
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