ND&S Weekly Market Commentary 5.4.20 – A Ray of Hope …

May 4, 2020

We hope that all of you and your families are well. The country is edging ever-so-slowly towards a cautious reopening of the economy, and we hope that people act prudently and continue to follow the Covid-19 protocols in their communities. Promising results from Gilead’s Remdesivir trial gave investors a ray of hope as the National Institute of Allergy and Infectious Diseases (NIAID) announced that “hospitalized patients with advanced COVID-19 and lung involvement who received remdesivir recovered faster than similar patients who received placebo, according to a preliminary data analysis from a randomized, controlled trial involving 1063 patients, which began on February 21.” Of course, an effective vaccine is still the ultimate goal, and dozens of trials for potential vaccines and therapeutics are underway.

In contrast to recent weeks, large-cap U.S. stocks under-performed last week as investors bid-up lagging U.S. small company stocks and foreign stocks. On the week, the S&P 500 and the DJIA gave back 0.2%. The Russell 2000 which represents small/midsized US companies bucked the trend and gained 2.22%. International markets gained ground as developed international markets (MSCI EAFE) advanced 3.1% while emerging markets (MSCI EM) jumped 4.3%. Bonds were off slightly as the Bloomberg Barclays Aggregate finished lower 0.12% on the week. The 10yr Treasury ended last week at a yield of 0.64%. Gold prices declined 3.1% on the week while oil prices leapt 23.3% to $19.78 per barrel. Even after last week’s surge, oil prices are down 68% year-to-date.

The first quarter earnings season is underway with nearly 67% of S&P 500 companies reporting better-than-expected earnings (albeit from lowered expectations due to the economic shutdown). So far, earnings growth is down 16.75% year-over-year while revenues are up 1.49%. Most large-cap technology companies reported in-line to slightly-better top and bottom line results last week. As one would expect, over 160 companies in the S&P 500 have either withdrawn or suspended forward guidance as the outlook for the economy remains cloudy.

The S&P 500 finished last week 27% higher than the lows experienced in March. After such a powerful set of relief rallies, we suspect that markets are ahead of themselves. Worldwide economies will not return to anything close to normal for quite some time, and we would not be surprised if markets pulled back a bit until the path forward becomes clearer.

This time is not different … we will get through this crisis just like we have gotten through every other crisis. Warren Buffett, at his virtual annual meeting this past weekend, summed it up well – “We’ve faced tougher problems, and the American miracle, the American magic, has always prevailed.”