The Uptick Market Evaluation – April Showers Bring Market Powers
For the week ending on May 1
Hope (and Remdesivir) wins again
Despite all of the negative headlines and dismal economic data, the month of April was actually very positive for the markets. Indexes for the month closed significantly higher – the Dow gained 11%, the S&P almost 13% and the Nasdaq 15%. Historic level monthly gains.
It is hard to make sense of why, given all that we read. Stocks did incredibly well at a time when over 30 million Americans lost jobs? And while consumer confidence (see below for Term of the Week) experienced the biggest plunge in decades? And household spending (70% of GDP) – a major driver of the U.S. economy – suffered its sharpest decline since 1959?
Yes, things are so bad that Fed Chairman Jerome Powell said that “we are going to see economic data for the second quarter that is worse than any data we have seen for the economy.” In other words, we may be looking at the worst economy ever.
The most simple explanation for investors’ positive response to the stock market: Hope. First there is an expectation that the economy will quickly get back on track and that more states will continue to open businesses. Next is great optimism surrounding Gilead’s (ticker: GILD) drug Remdesivir, just approved by the FDA to allow the sickest Covid-19 patients to recover more quickly (and perhaps improve mortality rates – the drug even got a statement of promise from Dr. Anthony Fauci). And last, we continue to see the government and the Fed step in to help Americans and American businesses with stimulus and relief.
Corporate earnings also took center stage this week – and overall, things looked a bit better than expected, particularly in the world of technology. Some of the largest tech companies including Alphabet, Apple, Amazon, Facebook, Microsoft, Qualcomm and Twitter all reported – and while not all rosy, there were bright spots, with some even commenting that they were beginning to see signs of stabilization in April.
So yes, April was all about hope, hope that the worst is behind us.
As for May, the first trading day of the month started off on negative note, unsurprising following the best month in 30 years. The decline was partly fueled by renewed concerns about a trade war with China and growing worries over the strength of the states re-opening plans. How fast can it really happen, and more importantly, safely happen? Time will tell, but the market on Friday projected that we will be living a new normal for quite some time.
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