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Weekly Preview: Where Are Stocks Heading With Q2 Earnings Imminent?

Corporate earnings from some of the nations’s largest companies is roughly a week away. In six trading days, in fact, investors will start hearing financial results from retail names like Pepsi (PEP), healthcare giant UnitedHealth (UNH) and large banks like JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C). 

In the days that follow, we’ll also get results from heavy hitters such as Bank of America (BAC), Citigroup (JNJ), Domino’s Pizza (DPZ) and Abbott Labs (ABT). In other words, the market is certain to get a great read on not only where the U.S. economy is, but more importantly where it is likely heading in the second half of the year. The question is, given that coronavirus cases continue to rise in many states, how much weight should these earnings numbers carry, good or bad? 

Stocks had been surging since its March lows in anticipation that things wouldn’t be as bad as feared. On Thursday the market, which is often a leading indicator, received the sort of jobs data that it had already reacted to. The U.S. added back 4.8 million jobs in June, according to the Department of Labor. This compares to economists’ expectations for a rise of 3.7 million. The upbeat number also lowered the unemployment rate to 11.1%, dropping it for the second straight month.

During a briefing at the White House Thursday morning, President Donald Trump referred to the employment data as “spectacular news.” Adding, “Today’s announcement proves that our economy is roaring back from the impact of the coronavirus pandemic.” The devastation the coronavirus pandemic has caused on economic activity has been historic. More than 22 million jobs were lost during the height of the pandemic. 

While states have begun to re-open, only about one-third (7.5 million) of those lost jobs have been restored, meaning the U.S. economy isn’t back to normal and more than 14 million Americans have yet to return to work. Nevertheless, the market seemingly took it in stride, posting a gain for the holiday-shortened trading session with the Dow Jones Industrial Average closing higher by 92.39 points to end at 25,827.36. The S&P 500 Index added 14.15 points, or 0.5%, to reach 3,130.01, while the Nasdaq Composite Index added 53 points, or 0.5%, close at 10,207.63.

For the week, the tech-heavy Nasdaq was the biggest gainer, adding 4.6%, driven by Tesla (TSLA) which soared to all-time high thanks to better-than-expected deliveries. The S&P 500 added a 4% weekly return, while the Dow closed up 3.3%. On a year to date basis, while all three major averages have mounted impressive rebounds from the March lows, only the Nasdaq is positive for the year, rising 13.76% through Thursday, while the Dow and S&P 500 are down 9.5% and 3.12%, respectively.

The question is, what kind of market can investors expect in the next six months of the year? Will it contain the volatility that we experienced in February and March? Or will it be like the month of June when the S&P traded flat, seemingly with little direction? Those answers, of course, will depend largely on the type of headlines that tend to dictate the market’s course. For example, on Thursday the state of Florida reported over 10,000 new coronavirus cases, marking the biggest one-day spike the state has seen since the pandemic began. But even that was followed by another record spike for Florida (11,445 on Saturday) and Texas (8,258 cases). Clearly, those states have yet to get their coronavirus outbreaks under control.

The news surrounding rising cases, combined with a report from healthcare publication STAT News, suggesting that Moderna’s (MRNA) coronavirus vaccine candidate was delayed, seemingly eroded investor optimism from the strong jobs report. “My understanding was that they wanted to get the first vaccines given in July, and they say they’re still committed to do that,” one investigator told STAT News, according to CNBC. “As best I can tell, they’re close to being on target for that.”

The report erased 1.4% from the Dow which was as high as 26,204.41 earlier in Thursday’s session. Moderna’s vaccine candidate is in a final-stage trial of development. Moderna CEO Stephane Bancel responded to STAT’s report, telling CNBC’s Meg Tirrell, “we have always said July. And I confirm July.” The response helped Moderna stock — down more than 9% at one point — recover some losses, the shares still ended 5% lower for the day. As such, it will be these type of headlines that will dictate where stocks go from here.

In other words, while corporate earnings reports and the guidance companies provide can sway investor sentiment, until there is a vaccine, optimism about a V-shaped economic recovery will be balanced with the lack of visibility as to when businesses can effectively reopen (and stay open). The market, meanwhile, will continue to rely on policy makers and the Fed to inject more stimulus into the U.S. economy to avert further damage caused by the coronavirus.

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

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