Stocks rose considerably Friday, as Gilead Sciences (GILD) - Get Report continues moving forward with its coronavirus treatment and President Trump indicates national lockdowns may soon ease. But many Wall Street shops are nervous that first quarter earnings reports could catalyze the next wave of selling.
All the major U.S. indices rose, with the S&P 500 up 2.6%. Risk-on sentiment was found everywhere in the market, country to most of the 30% rally on the S&P 500 since March 23. The 10 year treasury yield rose to 0.65% Friday, although it’s still down from 0.8% March 23.
Cyclical sectors like consumer discretionary, industrials and banking all outperformed, with Nike (NIKE) , Caterpillar (CAT) - Get Report and JPMorgan (JPM) - Get Report all up 4.1%, 3.6% and 9%, respectively.
Gilead Sciences shares rose 9.7%.
President Trump gave a 3-step guideline to governors for the gradual move back towards normalcy, wit lockdowns potentially set to ease soon, although the extent to which that happens is becoming a multi-year question market. The increase in coronavirus cases is decelerating in some parts of the country and the spread curve has flattened in New York, although it has ticked up in the past several days.
Meanwhile, the market is looking past the next few quarters and pricing in 2021 earnings, sending the forward one-year earnings multiple on the S&P 500 to 19 times, rich even for a healthy economy environment.
Here’s what Wall Street is saying:
Matthew Harrison, Head of Biotech Research, Morgan Stanley:
“We believe only three states may qualify for the Phase 1 reopening at this point: Alaska, Vermont and Wyoming, each of which has single digit increase in daily cases. These states represent a very lousing digit percentage of U.S. GDP. Further, there is a downward trajectory in cases in Florida, Hawaii, Idaho, Louisiana and Montana. The rest of the U.S. remains mixed.”
Mike Loewnegart, Head, Investment Strategy, E*Trade:
"The market is fueled by hope and optimism this morning—hope for a vaccination and optimism around reopening the economy. That said, these are relatively fragile indicators as testing remains underway and areas hard hit like New York and New Jersey continue to operate under strict stay-at-home orders. The market is also buoyed by the Fed’s support of high-yield bonds and corporations are taking advantage of the Fed’s stance by issuing debt to shore up liquidity. Not to mention, the large amount of cash sitting on the sidelines as investors cautiously look for opportunities. There is still plenty of uncertainty in the near-term which could cause the markets to do an about face. If there is one thing investors should remember it’s: Take the market’s moves in stride, investing is all about the long game.”
Scott Knapp, Chief Market Strategist, CUNA Mutual Group:
"Earnings season is upon us, and we are likely going to see some fairly negative reports from a lot of companies. Many have withdrawn guidance. As always, a disconnect between expectations and actual results move markets. If earnings come in even lower than already reduced expectations, downward pressure on the markets.”
Lindsey Bell, Chief Investment Strategist for Ally Invest:
"Stocks are staging an impressive rally thanks to proactive policy measures, hope for a quick economic restart, and work on coronavirus drug development. Potentially threatening the recent move is the start of first-quarter earnings season, which could be the S&P 500 Index’s worst in 11 years. Even as investors continue to look past a stretch of negative economic headlines, there are early indications that this particular earnings season may be tough for the bulls to swallow. The big banks set the stage for disappointment as profit estimates were missed across the board.”
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