Stocks Rise on Mixed Signals — Here’s What You Need to Know

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Stocks rose Friday, as Gilead Sciences  (GILD) - Get Report said its remdesivir Coronavirus vaccine may have hope and House of Representatives passed a $480 billion stimulus bill with more than $300 billion appropriated for small business relief. Still, the earnings picture looks shaky as first quarter results roll in. 

All three major U.S. indices rose, with the S&P 500 up as much as 0.9%, before that gain faded to 0.4%. The market was mostly risk-on, with the 10 year treasury yield rising marginally to 0.62% and cyclical sectors like energy and banking leading the way. 

Thursday, the market lost steam and fell into the red before futures in the evening pointed to a loss on Friday. That was after Gilead’s remdesivir showed disappointing results in its human testing stage according to reports. The company later said the sample size was too small, indicating the drug may still have hope. 

Gilled shares initially rose 1%, beating the S&P 500, but then fell 0.8%. 

Negatively, President Trump said social distancing guidelines may stay in place for longer than initially expected. Investors seem to be focusing on the good news on the lockdown and virus front. 

The stimulus bill was passed fairly quickly, much to investors’ delight, as small businesses need liquidity as soon as possible. Still, some are concerned that the velocity of the fall in economic demand makes the amount set aside for small businesses too small. The Small Business Administration burned trough the first batch of just over $360 billion. 

Earnings for the first quarter have been rolling in. Many companies are pulling guidance and investors are looking past a rough first and second quarter, pricing in a strong 2021 rebound in earnings growth. As of Friday, 21% of S&P 500 companies reported earnings and analysts have now walked back their 2020 earnings estimates by 24% for the year. 

But the 2021 earnings rebound may not be as strong as some analysts think. "2021 EPS growth expectations are still aggressive,” wrote RBC Capital Markets Head of U.S. Equity Strategy Lori Calvasina in a note. 

She said while analysts see EPS for 2021 coming in at $170, buyside expectations, according to her surveys, are for $158, leaving the index’s multiple on 2021 quite rich at 17 times. She also said many company executives have noted there will be a bumpy road to recovery. 

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