U.S. equities ended the final trading session of the week on a positive note, finishing solidly higher after suffering the worst day since the October 1987 crash yesterday that ended the long-standing bull market, with the markets perusing a slew of global monetary policy responses out of the U.S., Europe, the U.K., Japan, China and Australia. Also, President Trump declared a national emergency as a result of the COVID-19 outbreak, unlocking funds and initiatives at the federal and state levels to help in the combat against the virus, and to potentially ease some of the economic stress. Treasury Secretary Mnuchin vowed that liquidity will be available, and reports are suggesting U.S. lawmakers are close to responding with additional aid. However, the uncertainty remains extremely high regarding the impact of the pandemic, exacerbated by the coinciding oil crisis and subsequent strain in the Treasury markets that the Fed is combating. Treasury yields were higher and crude oil gained modest ground, while the U.S. dollar added to yesterday's rally, and gold tumbled. In economic news, consumer sentiment fell by a smaller amount than expected, and import prices declined. On the equity front, Adobe posted mixed quarterly results, Oracle topped earnings forecasts, and Broadcom missed on its revenues, while Dow member Walt Disney and Comcast both announced key theme park closures in Southern California. Europe finished with modest gains, while markets in Asia were mixed.
The Dow Jones Industrial Average soared 1,985 points (9.4%) to 23,186, the S&P 500 Index jumped 230 points (9.3%) to 2,711 and the Nasdaq Composite rallied 672 points (9.3%) to 7,874. In heavy volume, 1.9 billion shares were traded on the NYSE and 4.6 billion shares changed hands on the NASDAQ. WTI crude oil gained $0.23 to $31.73 per barrel and wholesale gasoline was flat at $0.90 per gallon. Elsewhere, the Bloomberg gold spot price sank $55.40 to $1,520.75 per ounce, while the Dollar Index—a comparison of the U.S. dollar to six major world currencies—rose 1.3% to 98.70. For the week, the Dow was down 10.4%, the S&P fell 8.8% and the NASDAQ declined 8.2%.
Adobe Inc. (ADBE $336) reported fiscal Q1 earnings-per-share (EPS) of $1.96, or $2.27 ex-items, compared to the FactSet estimate of $2.23, with revenues rising 19.0% year-over-year (y/y) to $3.1 billion, roughly in line with the Street's forecasts. The software company said its earnings results factor in an expense charge related to the cancellation of corporate events due to the COVID-19 (coronavirus) situation, while its digital media revenues exceeded estimates and its digital experience revenues came in mostly in line with expectations. ADBE issued Q2 EPS guidance that was north of forecasts, while its revenue outlook mostly matched expectations. Shares were higher.
Broadcom Inc. (AVGO $234) posted fiscal Q1 earnings of $0.74 per share, or $5.25 ex-items, compared to the expected $5.33, as revenues rose 1.0% y/y to $5.9 billion, south of the forecasted $6.0 billion. The company said the fundamental semiconductor backdrop has been improving, and it did not see any material impact on its businesses due to COVID-19 in Q1, but visibility in its global markets is lacking and demand uncertainty is intensifying. As such, AVGO said in light of the uncertainties in the global business environment arising from the effects of the coronavirus outbreak, it is withdrawing its prior annual guidance. Shares finished higher.
Oracle Corporation (ORCL $48) gained solid ground after posting fiscal Q3 EPS of $0.79, or $0.97 ex-items, versus the projected $0.96, with revenues rising 2.0% y/y to $9.8 billion, roughly in line with expectations. The company said cloud services and license support subscriptions revenues continued to grow, aiding a sequential increase in its operating margin. ORCL also announced a $15.0 billion increase of its share repurchase program.
Stocks chipped away at the recent tumble that culminated with yesterday's sharp drop of roughly 10% for the major markets, which was the worst plunge since the 1987 market crash. For a look at the recent tumble in the markets, check out the Schwab Center for Financial Research's (SCFR) commentary titled, Stocks Fall on Coronavirus, Oil-Price Fears. Uncertainty remains extremely elevated regarding the economic and earnings impact of the coronavirus outbreak, which has been categorized as a pandemic and has disrupted all aspects of global human life, as schools and major sporting events and seasons have been suspended or canceled, while the corporate world has implemented crisis procedures leading many to telecommute for work or being told to stay at home. Late yesterday, Dow member Walt Disney Company (DIS $103) announced that it will close Disneyland and other theme parks in Southern California through the end of the month, while Comcast Corporation (CMCSA $39) followed suit, closing its Universal Studios park on Southern California, with an estimated reopening on March 28th.
The Federal Reserve has responded with a $1.5 trillion liquidity injection campaign aimed at helping ease strained conditions in the capital markets, which followed yesterday's expansion of quantitative easing measures from the European Central Bank (ECB).
Schwab's Chief Investment Strategist Liz Ann Sonders provides a look at the recent turbulence in the markets in her article, Panic is Not an Investment Strategy, noting that why sometimes doing nothing may be the best response in the midst of rampant market volatility. She admits that the development of a long-term strategic asset allocation plan isn't the hard part—it's sticking to it that often becomes the real challenge. Concluding that that can be especially difficult when markets are volatile, but if we learn from our mistakes, use our brains over our hearts and look to our portfolios as rebalancing guides, we can expect a more successful investing future and maybe even get a free lunch along the way.
Consumer sentiment falls by smaller amount than expected, import prices decline
The March preliminary University of Michigan Consumer Sentiment Index (chart) declined to 95.9 versus the Bloomberg expectation of a drop to 95.0 from February's 101.0 reading. The index fell from the highest level since March 2018, as both the current conditions portion and the expectations component deteriorated. The 1-year inflation forecast dipped to 2.3% from February's 2.4% rate, but the 5-10 year inflation forecast remained at the prior month's 2.3% level.
The Import Price Index (chart) dipped 0.5% month-over-month (m/m) for February, compared to expectations of a 1.0% drop, and following January's upwardly-revised 0.1% gain. Compared to last year, prices were down 1.2%, compared to forecasts of a 1.5% fall and versus January's unrevised 0.3% increase.
Treasuries gave back some of a recent rally, as the yield on the 2-year note rose 1 basis point (bp) to 0.51%, the yield on the 10-year note increased 14 bps to 0.99%, and the 30-year bond rate was up 18 bps to 1.59%. Schwab's Chief Fixed Income Strategist Kathy Jones discusses the bond yield environment in her article, After the Fall: Why You Should Hold Bonds Even When Yields Are Low, noting that historically, there has been no better hedge against an equity market decline than long-term Treasury bonds.
For our analysis of how investors can deal with wild market swings, check out the SCFR's article, Stock Market Sell-off Deepens, as well as Chief Investment Strategist for Schwab's digital advice solutions, David A. Koenig's, CFA, latest commentary,
Weathering Market Downturns: How Schwab Intelligent Portfolios Can Help. David notes that financial markets are volatile by nature, but a diversified portfolio aligned with your goals and risk tolerance—like one built and monitored by Schwab Intelligent Portfolios—can help smooth returns over time.
Europe bounces back after yesterday's sharp tumble, Asia mixed
European equities rebounded somewhat from the recent tumble in the global markets that has come from the intensified worries regarding the impact of the coronavirus pandemic. The markets were able to regain some of their footing after the sharp tumble, digesting a flood of stimulus measures from the Fed in the U.S. and ECB yesterday, which followed last week's response from the Bank of England, while a fiscal response in the U.S. appears to be in the works. Moreover, China and Japan added measures to try to stabilize the markets. The euro and British pound fell versus the U.S. dollar, and bond yields in the region rallied. Amid this volatile backdrop, the SCFR updated our outlook as discussed in our latest, Schwab Sector Views: Coronavirus Changes Our Views. We note that the coronavirus outbreak has affected global supply chains, consumer demand and interest rates. In response, we're downgrading Financials and upgrading Utilities. Also, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his commentary, Q&A on COVID-19: The Economy, Markets and What Investors Should Do, noting that rather than trying to call the bottom, a more effective way to think about investing right now is to focus more on the duration rather than the decline. He adds that markets may have further to fall, but they may not stay down for the rest of the year barring a severe pandemic.
The U.K. FTSE 100 Index was up 1.7%, France's CAC-40 Index gained 1.8%, Spain's IBEX 35 Index jumped 3.7%, Germany's DAX Index moved 0.8% higher, Italy's FTSE MIB Index advanced 7.1%, and Switzerland's Swiss Market Index rose 1.2%.
Stocks in Asia finished mixed on the heels of the dramatic tumble in the U.S. markets yesterday, that ended the bull market for the world's largest economy that lasted over a decade. Fears of the coronavirus pandemic that has disrupted the world's standard of living and claimed many lives, continued to foster heightened economic and earnings uncertainty, exacerbated by the crisis in the oil markets amid an all-out price war between Saudi Arabia and Russia. Global central banks have responded, with the U.S. deploying a $1.5 trillion liquidity injection plan and Europe has seen ramped-up stimulus measures over the past two weeks, while some sort of fiscal stimulus response appears to be in the offing out of the U.S. Also, China announced measures to help the banking sector and the Bank of Japan announced liquidity measures as well. Japan's Nikkei 225 Index plunged 6.1% and South Korea's Kospi Index fell 3.4%, while China's Shanghai Composite Index traded 1.2% lower and the Hong Kong Hang Seng Index dropped 1.1%. However, Australia's S&P/ASX 200 Index rebounded 4.4%, with the Reserve Bank of Australia injecting billions of dollars into the financial sector, and India's S&P BSE Sensex 30 Index bounced 4.0%. For guidance on investing in a volatile market environment, check out the Schwab Center for Financial Research's article, When You Have to Sell in a Down Market: How to Make the Best of a Bad Situation
Stocks post another week reminiscent of the financial crisis
The global markets continued to tumble, and U.S. stocks posted the worst week since the financial crisis in 2008, culminating with Thursday's plunge that was the largest percentage point drop since October 1987. All the major stock market sectors fell decisively as conviction was eviscerated by a triple whammy of downside catalysts that caused the Street to head for safety amid heavy economic and earnings uncertainty. The coronavirus continued to spread, leading Italy to take drastic measures, and exacerbate the containment efforts in the U.S. As such, the World Health Organization (WHO) declared the COVID-19 outbreak a pandemic. Also, the oil markets crashed to further pummel the energy sector as festering demand concerns were met with an all-out price war between Russia and Saudi Arabia. Making matters worse, the Treasury markets began to show signs of stress amid the ramped-up flight to safety that took the entire yield curve below 1.0% for the first time and prompted the Federal Reserve to respond with a $1.5 trillion liquidity campaign. The Fed's latest move came after last week's surprising 50 bps rate cut and in conjunction with this week's host of global monetary policy responses. The U.S. dollar managed to rebound late in the week off of Monday's drop to a level not seen since the beginning of Fall 2018. The panic in the markets led to a counter-intuitive drop for gold, which retreated sharply after hitting a multi-year high north of $1,700 on Monday, as forced selling and a rush to cash ensued. The extreme movements in the markets continued to overshadow another dose of upbeat economic data, with small business optimism improving for February and weekly initial jobless claims unexpectedly dipping.
Next week, the markets are likely to remain volatile amid the heightened uncertainty regarding the pandemic, as the energy sector deals with the fallout from the crash in oil prices and the Fed continues operations to keep the plumbing of the Treasury markets functioning properly. The economic calendar will likely once again take a back seat to the aforementioned catalysts, but the midweek monetary policy decision from the Federal Open Market Committee (FOMC), along with the subsequent press conference by Chairman Jerome Powell, are likely to garner heavy attention, with expectations elevated that the Central Bank could take its target for the fed funds rate lower and some probability that a move to zero could result. The markets will also be seeing if the FOMC announces further measures to combat the turmoil in the markets. Other reports on next week's economic docket that deserve a mention include, February retail sales, February industrial production, February
housing starts and building permits, existing home sales for last month, and the February Leading Index. However, March reads on homebuilder sentiment and
regional manufacturing activity out of New York and Philadelphia, along with jobless claims for the week ending March 14th, could gain some attention as these data points may shine some light on the early impact of the coronavirus disruption.
The international economic calendar will also come into focus, with reports and events worth noting including: Australia—employment change. China—retail sales, industrial production and 1-year and 5-year prime loan rate decisions. Japan—February trade balance and the Bank of Japan monetary policy decision. Eurozone—February consumer price inflation and investors sentiment.
As noted in our latest Schwab Market Perspective: Coronavirus Hits Markets Hard, there is no one-size-fits-all answer for how to respond to an event such as coronavirus. If you're a younger investor who is saving and investing for a distant goal, such as retirement, the best action to take may be no action at all. If you've built a portfolio that matches your time horizon and risk tolerance, and you don't expect to need money from it anytime soon, it's usually best to stick to the investing plan you developed when markets were calm.
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