Stocks, Oil Plummet Heading Into Big Earnings Reports

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Stocks fell considerably Monday, as oil prices fell into an abyss and investors looked towards earnings reports upcoming. The past two weeks have seen strong gains in the U.S., as investors look past the virus-induced recession. 

All three major U.S. indices fell Monday, with the S&P 500 down as much as 1.9%. Crude oil fell 36%, dragging the Dow Jones Industrial Average down as much as 2%. Risk sentiment was clearly off, as investors moved into the safe 10 year treasury bond, sending the yield down to 0.61% from 0.64%. 

The S&P 500 has gained 6.4% in the past two weeks, part of a roughly 29% rally from its March 23 bear market low. The average 2020 earnings multiple on the index sits at 19 times, rich even for a healthy economic environment, as investors essentially begin pricing in 2021 earnings, which Wall street points out comes with a lot of uncertainty, as the extent of lockdown eases remains a question mark. On 2020, many think analysts forecasts are still optimistic. 

"We will see earnings fall in the next quarter or two, and the increased uncertainty about future earnings and cash flows will justify an increase in the discount rate, which will keep multiples down,” wrote Columbia Threadneedle Investments Head of Systematic Strategies Raghavendran Sivaraman in a note. 

With oil down, Exxon Mobil  (XOM) - Get Report and Chevron (CVX) - Get Report both fell 3.4% and 3.7%, respectively. 

Upcoming earnings reports in the next week include McDonalds  (MCD) - Get Report, Chipotle  (CMG) - Get Report, Starbucks  (SBUX) - Get Report, Netflix  (NFLX) - Get Report and Amazon  (AMZN) - Get Report.

"In equities, we are headed toward a week of two-sided volatility,” wrote Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank in emailed remarks to reporters. "Earnings season remain on the back of investors’ minds, even though the gradual reopening of businesses after weeks of shutdowns give some comfort to investors that the figures that we are about to see should get close to a bottom.” 

Netflix and Amazon shares rose 2% and 2.5%, respectively, as those stocks have lead the S&P 500 this year. Both companies seem largely unaffected by the coronavirus and are both still viewed as growth stocks with large total averrable markets in streaming, e-commerce and cloud computing. 

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