U.S. equities finished higher to recoup most of yesterday's losses, as investor optimism surrounding the progress in reopening the global economy persisted, while another potential breakthrough out of the healthcare sector regarding results of a possible COVID-19 vaccine also boosted sentiment. Results from the retail sector again headlined the earnings front, with Target showing a surge in digital sales, while Lowe's Companies topped Q1 expectations. Treasury yields moved lower amid a rise in bond prices and the U.S. dollar lost ground following the release of the minutes from the Federal Reserve's April monetary policy meeting that showed palpable worry by Committee members. In other economic news, mortgage applications declined even as interest rates dipped. Gold and crude oil prices traded higher. Markets in Europe and Asia finished in the green.
The Dow Jones Industrial Average rose 369 points (1.5%) to 24,576, the S&P 500 Index increased 49 points (1.7%) to 2,972, and the Nasdaq Composite jumped 191 points (2.1%) to 9,376. In moderately heavy volume, 921 million shares were traded on the NYSE and 4.3 billion shares changed hands on the NASDAQ. WTI crude oil moved $1.53 higher to $33.49 per barrel, but wholesale gasoline lost $0.01 to $1.04 per gallon. Elsewhere, the Bloomberg gold spot price increased $3.98 to $1,749.03 per ounce, while the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.2% to 99.16.
Target Corporation (TGT $120) reported Q1 earnings-per-share (EPS) of $0.56, or $0.59 ex-items, compared to $1.53 a year ago, and versus the $0.44 FactSet estimate. Revenues grew 11.3% year-over-year (y/y) to $19.4 billion, above the Street's forecast of $19.0 billion. Q1 same-store sales rose 10.8% y/y, versus the expected 8.1% gain, as digital sales surged 141%, accounting for 9.9 percentage points of the growth. The company said it saw healthy market-share gains across all five of its core merchandise categories. TGT said as a result of the continued uncertainty regarding the COVID-19 pandemic's impact on consumer shopping patterns and government policies it did not provide Q2 and full-year guidance. TGT finished lower.
Lowe's Companies Inc. (LOW $117) posted Q1 EPS of $1.76, or $1.77 ex-items, versus the $1.22 a year ago, and compared to the Street's forecast of $1.32. Revenues increased 10.9% y/y to $19.7 billion, exceeding the forecasted $18.3 billion. Q1 same-store sales rose 11.2% y/y, well above the projected 3.3% rise, as sales in the U.S. home improvement business jumped 12.3%. LOW said its strong Q1 performance, which continues into May, also reflected the benefits of its retail fundamentals strategy, the improvement in its execution, and the resiliency of its home improvement business model. The company also noted its ability to pivot to serve increased online demand with Lowes.com sales increasing 80%. LOW withdrew its full-year guidance due to limited visibility into future business trends in this unprecedented operating environment, which results in an unusually wide range of potential outcomes for 2020. Shares traded higher.
Inovio Pharmaceuticals Inc. (INO $16) finished higher after the company announced that its experimental COVID-19 vaccine produced robust neutralizing antibodies and immune system responses in mice and guinea pigs. INO said it expects preliminary safety and immune responses data for a Phase 1 clinical trial that began in April with 40 healthy patients is expected in June, while a Phase 2/3 efficacy trial is planned for a July/August start, pending regulatory approval.
Penn National Gaming Inc. (PENN $27) rallied over 10% after the company announced that it "successfully" reopened its five casino properties in Louisiana and it plans to reopen its five casinos in Mississippi on Thursday. The company said, "Penn National is very well-positioned to resume its positive momentum that was cut short in mid-March by the COVID-19 pandemic. Our geographic diversification across 19 states—with no more than 15% of our revenues being derived from any single state—should be a significant benefit as states begin to open casinos on a sequential basis."
Our latest Schwab Market Perspective: Riding the Liquidity Wave, discusses the several reasons for the sharp gains for the U.S. stock markets in April and early May, including the massive injection of liquidity from both the Federal Reserve and Congress, the historically common trait of stocks rebounding in advance of the trough in economic activity and as the globe gets past the peak in lockdowns. Market volatility underscores the importance of having a portfolio that contains a variety of asset classes, including stocks and bonds, balanced in a way that reflects your risk tolerance and investment timeline. It's also a good idea to rebalance your portfolio periodically to bring it back to your original asset allocation targets.
For timely news and analysis follow Schwab experts from the Schwab Center for Financial Research (SCFR) on Twitter at @SchwabResearch, and investors can stay up-to-date on all the content that Schwab offers on the unparalleled market action at www.schwab.com/volatility.
Mortgage applications decline, Fed minutes show Committee's angst
The MBA Mortgage Application Index declined 2.6% last week, following the prior week's 0.3% gain. The decrease came as a 6.3% drop in the Refinance Index offset a 6.4% rise for the Purchase Index. The average 30-year mortgage rate declined 2 basis points (bps) to 3.41%.
In afternoon action the Federal Reserve released the minutes from its April monetary policy meeting, where it kept its policy stance unchanged. The report showed Committee members commented that, "In addition to weighing heavily on economic activity in the near term, the economic effects of the pandemic created an extraordinary amount of uncertainty and considerable risks to economic activity in the medium term." One area of concern in particular was what may happen in the event of a surge in infections later in the year, noting, "A second wave of the coronavirus outbreak, with another round of strict restrictions on social interactions and business operations, was assumed to begin around year-end, inducing a decrease in real GDP, a jump in the unemployment rate, and renewed downward pressure on inflation next year." As well, the Fed restated its commitment to use its full range of tools to support the virus-crippled economy and keep markets functioning smoothly. You can also read more about the Fed's decision from Schwab's Chief Investment Strategist Liz Ann Sonders in her article, Fed Aims to Help Nurse the Economy Back to Health.
Liz Ann Sonders provides her latest article, Every Picture Tells a Story: "Chartbook" Look at Economy/Market, offering a visual look at the latest trends and statistics across the spectrum of the economy, policy and the stock market. Moreover, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, discusses in his latest article, What's the Future Payback for the Stimulus. Jeff notes that it is becoming increasingly clear that the massive global stimulus is being financed by a rise in money, not debt and the biggest difference between a one-time rise in money compared to a rise in debt is a potentially brighter economic outlook. He adds that the biggest risk may be that this isn't a one-time event and in the future, governments might be more inclined to keep on running big budget deficits financed by central bank money potentially leading to slower growth, weaker currencies, unwanted inflation, and central bank insolvency.
Treasuries were higher, as the yield on the 2-year note was flat at 0.17%, while the yield on the 10-year note lost 2 bps to 0.68%, and the 30-year bond rate moved 3 bps lower to 1.41%.
With the Fed ramping up purchases of Treasuries and mortgage-backed securities, as well as lending support to some areas of the corporate and municipal debt markets, Schwab's Chief Fixed Income Strategist Kathy Jones offers insight into how to invest in the bond markets during this unprecedented time in her Q2 Bond Market Outlook: Looking Beyond the Coronavirus Crisis. Also, Schwab's Fixed Income Director, Cooper Howard, CFA, discusses the heightened focus on the municipal bond markets in his article, Coronavirus and the Municipal Bond Market: Questions and Answers, while Fixed Income Strategist, Collin Martin, CFA, delivers a look at What Happens When a Corporate Bond is Downgraded?
Tomorrow's economic calendar will be robust, with reports on tap to include weekly initial jobless claims for the week ended May 16, forecasted to show 2.4 million new applications for unemployment were filed. After the opening bell, the preliminary reads on Markit's Manufacturing and Services PMIs for May will be released, with economists projecting the former to post a reading of 39.5, up from April's 36.1, and the latter to indicate a level of 32.3, also an increase from the prior month's 26.7. Existing home sales will come later in the morning, expected to have moved 19.7% lower month-over-month (m/m) during April to an annual level of 4.23 million units, followed by the Index of Leading Economic Indicators (LEI) for April, anticipated to show a 5.5% m/m decline, but above the prior month's 6.7% m/m shortfall. The Philly Fed Business Outlook Survey will round out the docket.
Europe and Asia higher as markets eyed progress on economic re-openings
European equities were higher, following in the footsteps of the U.S. markets, and amid another dose of retail sector earnings reports, while the global markets remained focused on the progress of economic re-openings across the globe. The markets also grappled with mixed headlines regarding breakthroughs out of the healthcare sector regarding treatment for the COVID-19 pandemic. Schwab's Jeffrey Kleintop discusses the progress of global economic re-openings in his commentary, Dashboards: Measuring Recovery In Real Time, of which he provides weekly updates of the dashboard data under the Twitter handle: @jeffreykleintop. Earnings from the retail sector out of the U.S. continue to pour in, illustrating the impact of the COVID-19 pandemic. The euro was higher versus the U.S. dollar, but the British pound lost ground, following some subdued inflation figures out of the Eurozone and U.K. for April. Bond yields in the region were mixed.
The U.K. FTSE 100 Index, Spain's IBEX 35 Index and Italy's FTSE MIB Index were up 1.1%, Germany's DAX Index increased 1.3%, France's CAC-40 Index rose 0.8%, and Switzerland's Swiss Market Index was 0.3% higher.
Stocks in Asia finished mostly higher even as the U.S. markets posted a late-day drop yesterday. The markets continue to focus on the progress of global economic re-openings from the severe disruption of the COVID-19 pandemic and assess the developments out of the healthcare sector on providing an answer to combating the virus. Schwab's Jeffrey Kleintop provides a look at What Will The Recovery Look Like?, noting how early signs in Asia of a V-shaped rebound are encouraging, but may instead look more like a square root, flattening out as weaker global growth saps Asian economic momentum in the second quarter. Jeff concludes with noting that emerging markets, led by China and South Korea, are leading the recovery in the economy and markets as they did during the global recessions of 2000-02 and 2008-09.
Japan's Nikkei 225 Index rose 0.8%, despite some strength late in the session for the yen, while the nation reported a much smaller-than-expected decline in March core machine orders—a gauge of capital investment. The Hong Kong Hang Seng Index ticked 0.1% higher and South Korea's Kospi Index moved 0.5% to the upside. Australia's S&P/ASX 200 Index gained 0.2% and India's S&P BSE Sensex 30 Index rallied 2.1%. However, China's Shanghai Composite Index declined 0.5%, with the country leaving its 1-year and 5-year loan prime rates unchanged.
The Markit Manufacturing and Services PMIs from across the globe will dominate tomorrow's international economic calendar, with the only other report slated for release to include trade data from Japan.
©2020 Charles Schwab & Co., Inc., Member SIPC. All rights reserved.
Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.
Brokerage Products: Not FDIC Insured • No Bank Guarantee • May Lose Value
The Charles Schwab Corporation provides a full range of brokerage, banking and financial advisory services through its operating subsidiaries. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC), offers investment services and products, including Schwab brokerage accounts. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides deposit and lending services and products. Access to Electronic Services may be limited or unavailable during periods of peak demand, market volatility, systems upgrade, maintenance, or for other reasons.
This site is designed for U.S. residents. Non-U.S. residents are subject to country-specific restrictions. Learn more about our services for non-U.S. residents.
© 2020 Charles Schwab & Co., Inc, All rights reserved. Member SIPC. Unauthorized access is prohibited. Usage will be monitored.