Mon - Fri 10:00-18:00
Johannesburg, Fourways

Daily Markets: Coronavirus Uncertainty Puts Pressures On Stocks

Today’s Big Picture

Following last week’s slump in global equity markets, which included the S&P 500, falling almost 5%, investors are today seeing equity prices around the world falling again. Equities in Asia closed down, with Japan’s Nikkei shedding 3.5% while Hong Kong’s Hang Seng finished 2.2% lower, and China’s Shanghai Composite dropped 1.0%. European equities were down nearly across the board by mid-day trading, and U.S. futures point to a drop at the open.

When we closed out last week, we shared our view that investors were in the midst of a serious re-think following the stock market’s rapid rise from the lows despite the economic data that signaled a slower-than-some-expected recovery in the global economy and corporate earnings. Adding to the outlook complexity, we are seeing a fresh COVID-19 outbreak in China, what appears to be a second wave of U.S. coronavirus cases, and protests in the U.S. that make complex pandemic modeling even more challenging.

In our view, the probability of expectations moving higher is extremely low and more likely, growth expectations will be adjusted lower. There is also the hotly-debated Dave Portnoy and Robinhood effect. The recent market moves have been unhinged from the economic data and even corporate guidance – or lack thereof. If, as some argue, the Robinhood traders have affected share prices, when they head back to work or job search, the upward pressure on prices they provided will dissipate.

We suspect investors will be focused on what Federal Reserve Chair Jerome Powell says in his two-day testimony before the U.S. Congress that starts tomorrow, as well as tomorrow’s May Retail Sales data, and any hint of more fiscal stimulus after that last monthly employment report poured cold water on hopes for another round.

Data Download

International Economy

While last week saw Industrial Production across most of Europe contracting at record rates, China’s IP rose 4.4% YoY in May, below expectations for a 5% increase but better than the prior 3.9% increase. Retail sales in China fell 2.8% YoY in May, worse than the 2% expected contraction following the 7.5% contraction in April. Retail sales have now been in contraction for five consecutive months. China’s unemployment rate continues to improve after peaking at 6.2% in February. It fell to 5.9% in May.

For a nation grappling with painfully high levels of sovereign debt, Italian inflation remains well below the European Central Banks 2% target, falling to -0.2% YoY in May.

Domestic Economy

Later today in the U.S., we will see the June Empire Manufacturing Index as well as data on Foreign Bond Investment levels for April, long-term TIC flows, and overall net capital flows. 


Last Friday reversed some of Thursday’s selloff with the S&P 500 gaining 1.3%, the Dow 1.9%, and the Nasdaq Composite 1.0%. The biggest winner of the day was United Airlines, which rose 19.0%. Overall, last week was the worst week for the markets since March and saw the Nasdaq Composite fall 2.3%, the S&P 500 4.8%, the Dow down 5.6%, and the broader NYSE Composite losing 6.1%. The small-cap Russell 2000 was harder hit, falling 9.7%, and the S&P 600 fell 9.6% while the CBOE S&P 500 Volatility Index rose 47.2%.

Year-to-date, the tech-heavy Nasdaq 100 and Nasdaq Composite have performed the best, by a material margin, up 10.7% and 6.9% respectively, versus the S&P 500 down 5.9%, the Dow down 10.3%, the NYSE Composite down 14.7% and the Russell 2000 down 16.8%. While the Russell 2000 failed to hold above its 200-day moving average and is falling towards its 50-day, the Nasdaq 100 50-day and 200-day moving averages remain in up-trends. Outside the U.S. markets, we saw similar pullbacks with the pan-European Stoxx 600 falling 5.7% on the week, and Germany’s DAX lost 7%. Stocks in APAC remain closest to their recent highs, including Taiwanese and Korean shares. 

This pullback was unsurprising given that a week ago, every major global index was more than one standard deviation above its 50-day moving average at a time when there is an extraordinary level of uncertainty. We are living through an unprecedented health crisis, which has generated an equally unprecedented economic crisis.  

On the pandemic side, we still don’t have consensus around the effectiveness of something as simple as a face mask, nor around the effectiveness of various treatments, nor concerning the likelihood of a vaccine before year’s end. On the economic side, never before have we seen so many metrics fall so hard so fast. Even the experts don’t agree. After its 2-day meeting last week, the Fed released its Summary of Economic Projections for GDP, unemployment, inflation, and interest rates. While the median expectations for 2020 GDP was a 6.5% contraction, the range of estimates ran from -10% to -4.2%.

For 2021 GDP, the median is an increase of 5%, but the range is from -1% to +7%, which is to say estimates run from a continuation of the recession to the fastest 1-year growth rate since 1984. Unemployment and inflation have similarly wide ranges. When the people sitting smack dab in the middle of an abundance of data have that wide a range of expectations, uncertainty is clearly quite high, yet the market moved towards exceptionally high valuations based on EPS estimates for which confidence clearly can’t be all that high.


There are now over 8 million confirmed cases of the coronavirus worldwide. Global daily new case counts are continuing to rise, with last Friday seeing the highest new daily case count yet at over 142,000 cases, and the 7-day average of new daily cases hits a new all-time high every single day for over a month. May 13 was the last day the 7-day average was lower than the prior day’s. 

The good news is that daily death peaked at just under 7,000 on April 18 and has remained well below that despite the steady increase in new cases. May 31st daily deaths bottomed out at just over 3,900 and has been fluctuating between 4,200 and 4,400 since then.

The U.S. has about 4.7% of the world’s population, but 27% of the world’s coronavirus cases, with over 2.16 million cases and nearly 118,000 lives lost. While Italy now has less than 1/4th of the total active cases today that it had at the peak on April 20, total active cases in the U.S. remain just about where they were at the peak on May 30. The number of tests performed daily in the U.S. has been increasing steadily over the past two months, and the percent of tests that are positive has bottomed out and is sitting around 5% on a national level.

The number of new daily cases has remained stubbornly around 22,000 but saw over 25,000 new cases reported on Saturday, the highest daily count since May 2. In aggregate across the U.S. hospitalization rates are falling, but are rising in Arkansas (new record highs), Arizona (new record highs), North Carolina (new record highs), Oklahoma (rising from lows), Oregon (rising from lows), South Carolina (new record highs), Texas (new record highs), and Utah (new record highs).

The Center for Disease control gave its first briefing in three months last Friday and warned the U.S. that social distancing measures and wearing face masks were still important and that the nation could face another round of lockdowns if cases continue rising.

Brazil is continuing to see cases rising at a brutal pace with near 870,000 confirmed cases and 44,000 deaths. Russia remains the third most-affected nation at just under 540,000 cases, and we won’t even talk about the ridiculously low number of reported deaths. India has moved up to become the fourth most affected nation with over 330,000 cases, and just under 10,000 lives lost. 

The epicenter of the virus has shifted from the East onto Europe, but is spreading rapidly in the Americas. Peru has moved up to be the eighth most-affected nation with 230,000 cases and will shortly overtake Italy, currently in seventh place with nearly double the population of Peru. Chile is also quickly moving up the most-affected list with nearly 175,000 cases and less than one-third of the population of Italy.

China, where the nightmare began, is back in the headlines after Beijing saw almost 80 new cases of the coronavirus by Sunday, all locally transmitted and linked to yet another market, Xinfadi, after 36 new cases were confirmed on Saturday. Until last Thursday, Beijing had a 56-day run without any local transmissions. Now parts of the capital city are introducing tight controls amid fears of a resurgence. 

Stocks to Watch

Perhaps no other stock epitomizes just how bizarre the current equity markets have become as well as Hertz (HTZ), which despite filing for Chapter 11 bankruptcy May 22, was granted approval Friday to sell up to $1 billion in stock. Shares had fallen over 97% from the February 20, 2020, 1-year high to then rise nearly 900% from the May 26 low. Shares are currently up 410% from the May 26 low. Last week the company appealed a delisting request by the NYSE.

iRobot (IRBT) sees its June quarter revenue in the range of $260-$270 million, well above the $182.2 million consensus. The upside reflected robust order growth for premium products, namely the Roomba® i7 Series and s9 Series, and Braava jet m Series.

3M (MMMreported it May sales fell 20% YoY to $2.2 billion. Sales declined 11% in Health Care, 12% in Consumer, 17% in Safety and Industrial, and 30% in Transportation and Electronics. On a geographic basis, sales declined 15% in Asia Pacific, 21% in the Americas, and 26% in Europe, Middle East, and Africa.

Swedish retailer H&M (HNNMY) reported its May quarter net sales fell 50% YoY to 28.7 billion crowns, ahead of the consensus forecast of 27.5 billion crowns. By comparison, the company’s online sales jumped 36% during the quarter, mimicking the trend reported by a growing number of retailers.

Capital One (COF) reported its May credit card net charge off rate fell to 4.49% from 4.93% in April, and its delinquency rate fell to 3.15% in May vs. 3.58% the prior month. 

Nokia (NOK) announced it has partnered with Broadcom (AVGO) to develop chips for its 5G equipment. This follows similar announcements of Nokia’s partnering with Intel (INTC) and Marvell (MRVL). By the end of this year, Nokia aims to have custom chips in more than 35% of its 5G shipments and 100% by the end of 2022.

American Express’s (AXP) joint-venture in mainland China, Express (Hangzhou) Technology Services Company Limited, received approval from the People’s Bank of China (PBOC) for a network clearing license. This allows American Express to become the first foreign payments network to be licensed to clear RMB transactions in mainland China.

Accenture (ACN) announced it will acquire Sentelis, an independent data consulting and engineering company that specializes in designing and scaling data and artificial intelligence capabilities.  

Dr. Reddy’s Laboratories (RDY) entered into a non-exclusive Licensing Agreement with Gilead Sciences (GILDthat will grant it the right to register, manufacture and sell Gilead’s Remdesivir, a potential treatment for COVID-19, in 127 countries including India.

Global energy company BP plc (BP) said it will take up to $17.5 billion in impairments and write-downs in the second quarter, after reviewing its plans to become net-zero in carbon emissions by 2050 and on COVID-19 having an enduring impact on the global economy. BP’s revised investment appraisal long-term price assumptions are now an average of around $55 per barrel for Brent crude, down from its previous target of $70.

The Financial Times reports branded lifestyle apparel company VF Corp. (VFC) “is on the lookout for further acquisitions despite coronavirus uncertainty, saying it could be a good time to expand its collection of clothing, footwear and accessories brands.” The article cites analysts saying Canada Goose (GOOS)Gap’s (GPS) Athleta, and Columbia Sportswear (COLM) are likely targets.  

Nasdaq (NDAQannounced that DocuSign (DOCU) will become a component of the Nasdaq-100 Index (NDX), the Nasdaq-100 Equal Weighted Index (NDXE), and the Nasdaq-100 Technology Sector Index (NDXTbefore market open on Monday, June 22. DocuSign will replace United Airlines (UAL) in the NASDAQ-100 Index and the Nasdaq-100 Equal Weighted Index. United Airlines will be also be removed from the Nasdaq-100 Ex-Tech Sector Index (NDXX) before the market opens on Monday, June 22.

After today’s market close, there are no expected corporate earnings reports to be had. Investors that want to get a jump on the corporate earnings reports coming at us this week, including those from Oracle (ORCL), Kroger (KR), and Smith & Wesson Brands (SWBI), should visit Nasdaq’s earnings calendar page.

On the Horizon

  • Dates to mark:
      • June 16: May US Retail Sales, May US Industrial Production, Capacity Utilization, Business Inventories
      • June 16-17: Federal Reserve Chair Jerome Powell testifies before the US Congress 
      • June 17: May US Housing Starts, Building Permits
      • June 18: Philly Fed Outlook
      • June 19: Options Expiration
      • June 22: Chicago Fed Activity, Existing Home Sales
      • June 22: Apple’s (AAPL) WWDC Keynote
      • June 23: Preliminary Markit PMIs, New Home Sales, Richmond Fed Manufacturing
      • June 25: Wholesale Inventories, GDP, Durable Goods, Kansas City Fed Activity
      • June 26: Personal Income, Personal Spending, PCE, Univ of Michigan Consumer Sentiment
      • June 29: Pending Home Sales, Dallas Fed Manufacturing
      • June 30: Case-Shiller Home Prices, MNI Chicago PMI, Consumer Confidence
      • July 1: ADP Employment Report, Markit Manufacturing PMI, Construction Spending, ISM Manufacturing, Wards Vehicle Sales
      • July 2: Nonfarm Payrolls, Unemployment Rate, Durable Goods, Capital Goods, Factory Orders

Thought for the Day

“One is only happy in proportion as he makes others feel happy.” ~ Milton Hershey 


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Leave a Reply

Select your currency
ZAR South African rand