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The five powerhouses benefited in singular ways from the “work at home” trade theme.
However, the analyst community has prepped us for a brutal tech earning season overall. A usually strong Info Tech growth sector barely outperforms the broad S&P 500, inside a deflated Q1 coronavirus context.
As of April 24th, I see a +0.8% y/y Info Tech sector earnings growth rate for Q1, along with +3.0% revenue growth The broad S&P 500 earnings decline is -15.8%. Revenue growth is +0.1% y/y
Tying it up for all large-cap U.S. stocks, traders get a maximum week of 160 S&P 500 companies reporting earnings.
Monday has 12. I would pay attention to: NOV, NVR, PKG and UHS
Tuesday has 40. I would pay attention to: AKAM, AMD, CAT, F, GLW, GOOGL and HOG
Wednesday has 37. I would pay attention to: ADP, BA, CME, FB, GE, MSFT, QCOM and URI
Thursday has 54. I would pay attention to: AAL, AAPL, AMZN, AMGN, GILD, HP, MCD, PRGO, TWTR, V and WDC
Friday has 17. I would pay attention to: ABBV, BRK.B, JCI and XOM
Next are Reuters’ five world market themes. I ranked them for equities, as usual. Interestingly, their lowest ranks were my highest this time around.
(1) Oil markets likely to make it a Bear or Bull week
Surely oil markets can’t have another week like the one just gone. Sub-zero WTI and Brent prices swinging 25% a day is not good for anybody’s stress levels, but might there be a silver lining?
It could offer a springboard for recovery when coronavirus lockdowns finally end. Cheap oil lowers energy, transport and manufacturing costs, puts money in consumers’ pockets and saves oil-importing countries cash, too, which can then be spent on more useful things.
So next week’s test will be whether markets can settle a bit. The price gyrations and the fact oil storage facilities are nearly full have spooked traders and caused many to pull back temporarily.
The volume of futures contracts still open for delivery in June has fallen by the equivalent of 217 million barrels, more than a third, since Monday. In fact, the number of open contracts is falling across the next four months — decreasing open interest for June is not being fully offset by increased interest in the July, August and September contracts.
(2) Is China able to lead a global recovery with its own banking issues?
China’s top banks are set to show the scars of a historical contraction in the world’s second-largest economy in coming days when reporting quarterly results. The signals are pointing towards tough times lenders face in the coming quarters: loan defaults, repayment delays and bad loans all rose in the first quarter as the new coronavirus outbreak triggered unprecedented economic challenges.
And the pace of accumulation of soured debt is expected to continue. The banking sector’s non-performing loan (NPL) ratio climbed in the first quarter to 2.04% — highest since the global financial crisis. Brokerage firm Jefferies expects a 2.3%-5.6% net NPL formation ratio in 2020-2021 for its covered banks.
That might not spell major trouble for the well-capitalized big-four banks, but the focus will shift on the hit to the large number of systematically important provincial banks already reeling from thin capital buffers and fast running out of options to replenish balance sheets.
China this week decided to lower the bad loan provision requirement for these provincial banks temporarily to free up capital for lending to struggling smaller and medium enterprises, but that may end up creating more challenges in the medium to long term.
(3) Central banks weigh in
The Bank of Japan is kicking off a hefty central banking week on Monday. Analysts expect that the coronavirus may offer policy makers in Tokyo a justification to scrap what has become an obsolete, largely symbolic bond-buying target as it takes stronger action to cushion the economic blow from the pandemic.
Though they also predict that the BOJ will move closer to debt monetization, or direct underwriting of government debt, as Japan joins other countries in deploying unprecedented spending to combat the widening fallout of the health crisis.
Meanwhile, on Wednesday, the focus will shift to the U.S. Federal Reserve’s monetary policy meeting. In recent months, the Fed has slashed rates to near zero, restarted bond purchases and rolled out an unprecedented range of programs to keep credit flowing and shore up business and household confidence, bulging its balance sheet to a record $6.42 trillion.
While the meeting is expected to be less dramatic than the emergency one in March, investors expect to get more details on the Fed’s special lending programs, its asset-purchase program and the forward guidance on the target range for the federal funds rate, analysts said.
(4) What will ultimately be size of the European Central Bank (ECB) asset-buying plan?
The European Central Bank is set to spend just over a trillion euros on asset purchases this year alone, has eased its rules on what it can buy and when, and has stepped up supportive measures for banks to prevent the coronavirus crisis from hammering the economy.
But is it enough? That’s the question ECB President Christine Lagarde is sure to face after Thursday’s central bank meeting in the news conference to be held via a conference call.
Analysts estimate that at the current daily pace, the ECB’s 750 billion euros of emergency bond purchases will be exhausted by October. Some say the ECB will be left with no option but to top up its scheme by a further 500 billion euros soon — perhaps as early as Thursday.
For sure, rising government borrowing costs in the periphery led by Italy means pressure to act is building once again — not least as European governments struggle to agree details of their own emergency stimulus plan.
(5) Europe’s top banks report Q1 earnings
Shareholders in European banks have had their share of nasty surprises since the coronavirus pandemic knocked global markets off record highs and quashed the value of the sector by over 45% in less than a month.
Lenders, which governments have ordered to freeze dividends and move to the front line of the worst economic crisis in living memory, have emerged as the unequivocal top stock market losers of the crash, faring even worse than travel and leisure stocks.
Now investors are bracing themselves to find out in the coming days just how many billions have European banks set aside for loan losses and the overall cost of the coronavirus crisis.
Over the past 30 days, analysts have revised their expectations for loan-loss provisions in 2020 by Europe’s most important banks upward by almost 130%, according to a Reuters analysis of Refinitiv data.
With the additional stress of the oil price crash in mind, investors are waiting for Deutsche Bank, Barclays, HSBC, UBS and Santander to unveil their impairment.
Top Zacks #1 Rank (STRONG BUY) Stocks
(1) Vertex Pharma (VRTX - Free Report) : This is a medical-biomedical stock, with a whopping $270 share price. That gives it a $70B market cap. I see a Zacks Value score of C, a Zacks Growth score of B, and a Zacks Momentum score of A.
Boston, MA-based Vertex Pharma is focused on the discovery, development, and commercialization of small molecule drugs targeting serious diseases. The company’s main area of focus is cystic fibrosis (CF).
(2) KDDI Corp. ADR (KDDIY - Free Report) : This is a wireless-non US stock. I see a $1480 share price and $69.7B market cap. There is a Zacks Value score of A, a Zacks Growth score of A, and a Zacks Momentum score of F.
KDDI is a comprehensive communications company offering both fixed-line and mobile communications services.
For individual customers, KDDI offers its mobile communications and fixed-line communications like broadband Internet/telephone services under the brand name au.
For business clients, KDDI provides all services in the Information and Communication Technology realm, from Fixed Mobile Convergence networks to data centers, applications, and security strategies.
KDDI Corporation is headquartered in Tokyo, Japan.
(3) Barrick Gold (GOLD - Free Report) : This is a $27 a share gold miner with a market cap of $48B. I see a Zacks Value score of D, a Zacks Growth score of B and a Zacks Momentum score of A.
Barrick Gold, based in Toronto, Canada, is the largest gold mining company in the world. The company has many advanced exploration and development projects located across five continents.
Key Global Macro Data
On Monday, the unemployment rate for Mexico comes out. It is targeted to be 3.7%. That is quite low, given the circumstances. I suggest taking it with a grain of salt.
The BoJ meets and concludes, all in one day, due to coronavirus. Japanese press reports indicated the Bank of Japan (BoJ) will announce that it will drop its ¥80 trillion JGB target and replace it with an open-ended program of potentially unlimited amounts.
On Tuesday, U.S. consumer confidence data comes out (90 is expected, 120 is prior).
U.S. Case-Shiller home prices come out. +3.1% y/y is the consensus. Not bad. Virus shutdown circumstances have not caught up with this key market. Yet.
Sweden’s Riksbank meets. They already have 0.0% rates. So, the Swedes can front run the U.S. Fed, without worry.
On Wednesday, the U.S. Fed returns to a more typical communications schedule. Its two-day meeting commences on Tuesday and results in a statement on Wednesday at 2pm ET. This will be followed by Chair Powell’s presser at 2:30pm ET.
The U.S. GDP should contract by -4.0% in Q1. What of Q2? It could be as bad as -40%.
On Thursday, Canada’s first quarter GDP growth rate arrives. +0.3 q/q may have occurred. But March probably contracted -9.0%.
The central bank of Columbia (BanRep) is expected to cut rates by 50 basis points to 3.25%.
An ECB meeting concludes in Europe. LaGarde will offer up her thoughts at a presser.
A Eurozone Q1 GDP growth rate comes out. A poor reading of -3.8% q/q is expected.
U.S. initial unemployment claims could add another 3.6M, down from 4.4M last week.
On Friday, the U.S. ISM for manufacturing comes out. A sharp contraction is expected (37.5 is consensus). But what can we learn from the sub-indexes?
Conclusion
There are a number of observers who think that a weak economy now should cause a weak stock market now.
The S&P 500 is not a market-weighted index. These major tech mega-cap stocks are dominant. That was pointed out last fall. It is still true today.
Think Amazon, Facebook, Netflix, Google, and Microsoft businesses are suffering through the “stay-at-home” economy? Think again.
Coronavirus didn’t reshape market trends, as much as it accelerated existing ones.
Have a great trading week!
Regards, John Blank
Will you retire a millionaire? One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.” Click to get it free >>
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Big Tech Calls the Tune: Global Week Ahead
In the Global Week Ahead, the S&P 500 earnings season hits a high note.
What keys get struck the hardest? Q1 earnings reports due from five tech mega-caps.
The five powerhouses benefited in singular ways from the “work at home” trade theme.
However, the analyst community has prepped us for a brutal tech earning season overall. A usually strong Info Tech growth sector barely outperforms the broad S&P 500, inside a deflated Q1 coronavirus context.
As of April 24th, I see a +0.8% y/y Info Tech sector earnings growth rate for Q1, along with +3.0% revenue growth
The broad S&P 500 earnings decline is -15.8%. Revenue growth is +0.1% y/y
Tying it up for all large-cap U.S. stocks, traders get a maximum week of 160 S&P 500 companies reporting earnings.
Next are Reuters’ five world market themes. I ranked them for equities, as usual. Interestingly, their lowest ranks were my highest this time around.
(1) Oil markets likely to make it a Bear or Bull week
Surely oil markets can’t have another week like the one just gone. Sub-zero WTI and Brent prices swinging 25% a day is not good for anybody’s stress levels, but might there be a silver lining?
It could offer a springboard for recovery when coronavirus lockdowns finally end. Cheap oil lowers energy, transport and manufacturing costs, puts money in consumers’ pockets and saves oil-importing countries cash, too, which can then be spent on more useful things.
So next week’s test will be whether markets can settle a bit. The price gyrations and the fact oil storage facilities are nearly full have spooked traders and caused many to pull back temporarily.
The volume of futures contracts still open for delivery in June has fallen by the equivalent of 217 million barrels, more than a third, since Monday. In fact, the number of open contracts is falling across the next four months — decreasing open interest for June is not being fully offset by increased interest in the July, August and September contracts.
(2) Is China able to lead a global recovery with its own banking issues?
China’s top banks are set to show the scars of a historical contraction in the world’s second-largest economy in coming days when reporting quarterly results. The signals are pointing towards tough times lenders face in the coming quarters: loan defaults, repayment delays and bad loans all rose in the first quarter as the new coronavirus outbreak triggered unprecedented economic challenges.
And the pace of accumulation of soured debt is expected to continue. The banking sector’s non-performing loan (NPL) ratio climbed in the first quarter to 2.04% — highest since the global financial crisis. Brokerage firm Jefferies expects a 2.3%-5.6% net NPL formation ratio in 2020-2021 for its covered banks.
That might not spell major trouble for the well-capitalized big-four banks, but the focus will shift on the hit to the large number of systematically important provincial banks already reeling from thin capital buffers and fast running out of options to replenish balance sheets.
China this week decided to lower the bad loan provision requirement for these provincial banks temporarily to free up capital for lending to struggling smaller and medium enterprises, but that may end up creating more challenges in the medium to long term.
(3) Central banks weigh in
The Bank of Japan is kicking off a hefty central banking week on Monday. Analysts expect that the coronavirus may offer policy makers in Tokyo a justification to scrap what has become an obsolete, largely symbolic bond-buying target as it takes stronger action to cushion the economic blow from the pandemic.
Though they also predict that the BOJ will move closer to debt monetization, or direct underwriting of government debt, as Japan joins other countries in deploying unprecedented spending to combat the widening fallout of the health crisis.
Meanwhile, on Wednesday, the focus will shift to the U.S. Federal Reserve’s monetary policy meeting. In recent months, the Fed has slashed rates to near zero, restarted bond purchases and rolled out an unprecedented range of programs to keep credit flowing and shore up business and household confidence, bulging its balance sheet to a record $6.42 trillion.
While the meeting is expected to be less dramatic than the emergency one in March, investors expect to get more details on the Fed’s special lending programs, its asset-purchase program and the forward guidance on the target range for the federal funds rate, analysts said.
(4) What will ultimately be size of the European Central Bank (ECB) asset-buying plan?
The European Central Bank is set to spend just over a trillion euros on asset purchases this year alone, has eased its rules on what it can buy and when, and has stepped up supportive measures for banks to prevent the coronavirus crisis from hammering the economy.
But is it enough? That’s the question ECB President Christine Lagarde is sure to face after Thursday’s central bank meeting in the news conference to be held via a conference call.
Analysts estimate that at the current daily pace, the ECB’s 750 billion euros of emergency bond purchases will be exhausted by October. Some say the ECB will be left with no option but to top up its scheme by a further 500 billion euros soon — perhaps as early as Thursday.
For sure, rising government borrowing costs in the periphery led by Italy means pressure to act is building once again — not least as European governments struggle to agree details of their own emergency stimulus plan.
(5) Europe’s top banks report Q1 earnings
Shareholders in European banks have had their share of nasty surprises since the coronavirus pandemic knocked global markets off record highs and quashed the value of the sector by over 45% in less than a month.
Lenders, which governments have ordered to freeze dividends and move to the front line of the worst economic crisis in living memory, have emerged as the unequivocal top stock market losers of the crash, faring even worse than travel and leisure stocks.
Now investors are bracing themselves to find out in the coming days just how many billions have European banks set aside for loan losses and the overall cost of the coronavirus crisis.
Over the past 30 days, analysts have revised their expectations for loan-loss provisions in 2020 by Europe’s most important banks upward by almost 130%, according to a Reuters analysis of Refinitiv data.
With the additional stress of the oil price crash in mind, investors are waiting for Deutsche Bank, Barclays, HSBC, UBS and Santander to unveil their impairment.
Top Zacks #1 Rank (STRONG BUY) Stocks
(1) Vertex Pharma (VRTX - Free Report) : This is a medical-biomedical stock, with a whopping $270 share price. That gives it a $70B market cap. I see a Zacks Value score of C, a Zacks Growth score of B, and a Zacks Momentum score of A.
Boston, MA-based Vertex Pharma is focused on the discovery, development, and commercialization of small molecule drugs targeting serious diseases. The company’s main area of focus is cystic fibrosis (CF).
(2) KDDI Corp. ADR (KDDIY - Free Report) : This is a wireless-non US stock. I see a $1480 share price and $69.7B market cap. There is a Zacks Value score of A, a Zacks Growth score of A, and a Zacks Momentum score of F.
KDDI is a comprehensive communications company offering both fixed-line and mobile communications services.
For individual customers, KDDI offers its mobile communications and fixed-line communications like broadband Internet/telephone services under the brand name au.
For business clients, KDDI provides all services in the Information and Communication Technology realm, from Fixed Mobile Convergence networks to data centers, applications, and security strategies.
KDDI Corporation is headquartered in Tokyo, Japan.
(3) Barrick Gold (GOLD - Free Report) : This is a $27 a share gold miner with a market cap of $48B. I see a Zacks Value score of D, a Zacks Growth score of B and a Zacks Momentum score of A.
Barrick Gold, based in Toronto, Canada, is the largest gold mining company in the world. The company has many advanced exploration and development projects located across five continents.
Key Global Macro Data
On Monday, the unemployment rate for Mexico comes out. It is targeted to be 3.7%. That is quite low, given the circumstances. I suggest taking it with a grain of salt.
The BoJ meets and concludes, all in one day, due to coronavirus. Japanese press reports indicated the Bank of Japan (BoJ) will announce that it will drop its ¥80 trillion JGB target and replace it with an open-ended program of potentially unlimited amounts.
On Tuesday, U.S. consumer confidence data comes out (90 is expected, 120 is prior).
U.S. Case-Shiller home prices come out. +3.1% y/y is the consensus. Not bad. Virus shutdown circumstances have not caught up with this key market. Yet.
Sweden’s Riksbank meets. They already have 0.0% rates. So, the Swedes can front run the U.S. Fed, without worry.
On Wednesday, the U.S. Fed returns to a more typical communications schedule. Its two-day meeting commences on Tuesday and results in a statement on Wednesday at 2pm ET. This will be followed by Chair Powell’s presser at 2:30pm ET.
The U.S. GDP should contract by -4.0% in Q1. What of Q2? It could be as bad as -40%.
On Thursday, Canada’s first quarter GDP growth rate arrives. +0.3 q/q may have occurred. But March probably contracted -9.0%.
The central bank of Columbia (BanRep) is expected to cut rates by 50 basis points to 3.25%.
An ECB meeting concludes in Europe. LaGarde will offer up her thoughts at a presser.
A Eurozone Q1 GDP growth rate comes out. A poor reading of -3.8% q/q is expected.
U.S. initial unemployment claims could add another 3.6M, down from 4.4M last week.
On Friday, the U.S. ISM for manufacturing comes out. A sharp contraction is expected (37.5 is consensus). But what can we learn from the sub-indexes?
Conclusion
There are a number of observers who think that a weak economy now should cause a weak stock market now.
The S&P 500 is not a market-weighted index. These major tech mega-cap stocks are dominant. That was pointed out last fall. It is still true today.
Think Amazon, Facebook, Netflix, Google, and Microsoft businesses are suffering through the “stay-at-home” economy? Think again.
Coronavirus didn’t reshape market trends, as much as it accelerated existing ones.
Have a great trading week!
Regards,
John Blank
Will you retire a millionaire?
One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.”
Click to get it free >>