Wednesday April 15th

15-04-2020

Dow futures fall 600 points as coronavirus shutdown slams economy, bank earnings

U.S. stock index futures slumped in early trading Wednesday as weak earnings, a record plunge in retail sales and an anemic report on New York manufacturing threatened to erase the market’s gains since Monday. Dow futures fell more than 605 points, indicating a loss of about 558 points at the open on Wednesday. The S&P 500 and Nasdaq were also slated to open about 2% lower. Equity markets came under pressure Wednesday as the beginning of the first-quarter earnings season continued to show profit declines at some of the largest U.S. banks. Banks, among the first major companies to report first-quarter results, gave an early look at the damage the coronavirus downturn is set to do to corporate earnings. The major banks have all reported 40%-plus declines in earnings as they set aside billions to cover what they see as major upcoming losses on loans, credit cards and mortgages. Bank of America reported weaker-than-expected earnings, sending the stock down more than 3% in premarket trading. The banking giant said its first-quarter profit fell 45% as its loan-loss reserves grew by $3.6 billion because of the coronavirus outbreak.  Goldman Sachs shares also dipped more than 3% after the bank reported a 46% decline in first-quarter profit as the coronavirus whacked performance in its asset-management division. CEO David Solomon said the bank’s profitability was “inevitably affected by the economic dislocation.” Citigroup, too, said it saw first-quarter income slide 46% as it set more funds aside to protect itself from potential missed payments from borrowers and other loan holders. Earnings per share of $1.05 came in well below those Citi reported one year ago, when it reported $1.87 in the first quarter of 2019. Citi stock fell 3% in the premarket session following its financial report. Analysts expect S&P 500 earnings growth to decline 10.2% in the first quarter year-over-year, according to Refinitiv. For the first quarter, 88 negative earnings pre-announcements have been issued by S&P 500 corporations, according to Refinitiv. A wave of major companies has already withdrawn their full-year guidance. Retail sales during the month of March plunged a record 8.7%, according to a report from the Commerce Department published Wednesday. That was the largest one-month decline since the department began tracking the series in 1992. Grocery stores, pharmacies and other retailers of essential goods saw a surge in demand last month amid the outbreak, the government said. But sales at a variety of other businesses — such as gas stations, auto dealerships, and restaurants — swooned as state governments shuttered commerce in an effort to slow the virus. Manufacturing in the New York area also slumped by its biggest margin ever to a historic low, surpassing the levels seen in the throes of the Great Recession. The Empire State Manufacturing Index hit -78.2, blowing past the prior worst reading the index had seen of -34.3 during the financial crisis. Separately, crude prices fell to their lowest level in 18 years as worries over the economic toll from the coronavirus pressured oil’s demand outlook. West Texas Intermediate futures fell 2% to $19.69 per barrel. Signs that the coronavirus pandemic is easing drove stocks higher on Tuesday, even as the first batch of quarterly earnings showed the outbreak is taking a toll on corporate profits. The Dow climbed about 560 points, helped by Johnson & Johnson, Microsoft, and Apple which rose 4.5%, 4.9%, and 5%, respectively. The S&P 500 also registered a significant gain, rising more than 3%. The tech-heavy Nasdaq Composite rose 4%, led by Amazon, which notched an all-time high as investors bet on increased demand amid the nationwide shutdown. The Nasdaq is less than 14% from its 52- week high on February 19. “The bending of the virus curve simultaneously across this country and around the globe has brought widespread and serious national conversations about restarting the economy,” Leuthold Group’s chief investment strategist Jim Paulsen told CNBC. “For a crisis whose primary tagline for investors was ‘that is completely unknown,’ this is perhaps the first time there is some semblance of clarity as to a timeline for the end of this sad situation.” The market rallied on the idea that “maybe the worst of the economic freefall is over” and talk about reopening the economy, Charles Schwab’s Jeffrey Kleintop told CNBC’s “Squawk Box Asia” on Wednesday morning Singapore time. But Kleintop, who is chief global investment strategist at Charles Schwab, warned that “the stock market may have a tougher time from here.” He said one unknown is the possibility of a second wave of infections as lockdown measures lift. President Donald Trump said Tuesday that he believes some states will be able to lift the strict social distancing measures that have strained their economies before the end of April. “The plans to reopen the country are close to being finalized,” Trump said at a press briefing on the virus in the Rose Garden. “The day will be very close because certain states as you know are in a much different condition and are in a much different place than other states. It’s going to be very very close. Maybe even before the date of May 1st,” he said. New York Gov. Andrew Cuomo’s optimistic tone about the outbreak in his state, the epicenter of the pandemic in the United States, also boosted investor sentiment. He said Tuesday deaths related to the virus in the state are leveling off. Stocks in Asia were little changed on Wednesday as the economic impact of the coronavirus pandemic continued to weigh on investor sentiment. Mainland Chinese stocks dipped on the day, with the Shanghai composite 0.57% lower to about 2,811.17 while the Shenzhen composite shed 0.532% to around 1,736.13. Hong Kong’s Hang Seng index shed 0.8%, as of its final hour of trading. In Japan, the Nikkei 225 closed 0.45% lower at 19,550.09. The Topix index ended slightly higher at 1,434.07. Markets in South Korea were closed on Wednesday as the country heads to the polls for parliamentary elections. Gold slipped on Wednesday as the dollar strengthened and some investors locked in profits from a surge in prices this month, but mounting fears of a global recession kept bullion firm above $1,700 per ounce. Spot gold was down 0.4% at $1,720.80 per ounce, as of 1203 GMT. In the previous session, it jumped as much as 1.9% to its highest level since Nov. 2012 at $1,746.50. U.S. gold futures dropped 1% to $1,751.50.