It is gearing up to be another potentially volatile week for markets as coronavirus cases continue to rise and economic data reveals the outbreak’s damage on the U.S. economy.
There are currently more than 311,000 confirmed cases of COVID-19 globally with roughly 26,700 cases in the U.S., according to John’s Hopkins. The rapid spread of the virus sent investors into a frenzy last week. The Dow (^DJI) tanked more than 17%, while the S&P 500 (^GSPC) fell more than 15% and the Nasdaq (^IXIC) sank more than 12%. All three of the major indices close at three-year lows and logged their worst week since the financial crisis. Meanwhile, crude oil (CL=F) declined more than 29% and had its worst week ever.
With the Federal Reserve doing almost everything it can to provide stimulus, all eyes are now on Washington for a fiscal response. Congress is working on a stimulus package of more than $1 trillion and is running up against a Monday deadline. White House economic adviser Larry Kudlow said that he believes the stimulus package will be worth between $1.3 trillion and $1.4 trillion. Coupled with the Fed’s actions, it would have about a $2 trillion impact on the U.S. economy, according to White House officials.
“Daily life came to a screeching halt this week as governments, businesses and consumers took drastic steps to halt the COVID-19 pandemic. U.S. equity markets fell 12% on Monday—the second worst daily loss in history—as it became clear just how much, and for how long, economic activity could be interrupted,” Wells Fargo economists wrote in a note March 20. “The situation has rapidly progressed beyond being either a ‘demand shock’ or a ‘supply shock’; it is an unprecedented interruption and reorganization of economic life.”
COVID-19 impact on economy
Most of the economic data releases this week will be backwards looking and will provide few clues of the true impact of the COVID-19 outbreak. But, initial jobless claims data released Thursday will be the most relevant and up-to-date look at how the virus in impacting the U.S. economy.
The number of Americans filing for unemployment benefits is expected to be in the millions for the week ended March 21, up from 281,000 the week prior. Though economists from major firms have varying estimates, the average estimate among economists polled by Bloomberg is for 1.5 million initial jobless claims.
Economists at Bank of America predict upwards of three million initial jobless claims for the week. “Job loss will be severe. We expect private payrolls to shed 1mn workers per month in 2Q with most of the loss suffered in April before returning gradually back to trend by 1H 2021. This will lead to a spike in the unemployment rate to 6% in 2Q 2020 and a peak at 6.3% in 3Q 2020,” economist Michelle Meyer said in a note March 20.
“The disruption to the labor market will disproportionately impact low-income hourly service workers. Industries that have and will be impacted the hardest (e.g. leisure and hospitality, transportation) employ more hourly workers than the average,” she added.
The earnings calendar will be rather light this week. Market participants will be paying close attention to shoe giant Nike’s results when it reports Tuesday after the closing bell. Nike is expected to report earnings of 58 cents per share on $9.87 billion in revenue during its fiscal third quarter.
Nike was among the first group of retailers to announce store closures in response to the COVID-19 pandemic. The Beaverton, Ore.-based company closed all 384 retail stores in the U.S. from March 16 to March 27. Despite the massive store closures, the company is expected to fare well in the long term, according to Raymond James.
“Nike has demonstrated a very impressive performance during prior recessions,” analyst Matthew McClintock said in a note March 19. “We believe a large reason for this performance has been global growth and distribution gains. However, we believe this strength is largely a testament to the idea that good product sells even in bad times, and NKE's history is filled with strong innovation launches of great product.”
McClintock also noted that there will likely be pent-up demand to surface following the coronavirus crisis. However, because Nike is a global brand, it will not be immune to the effects of the virus. “We note the company faces significant challenges related to the Coronavirus. First and foremost, the company likely has a substantial amount of global inventory that hasn't sold and needs to be cleared before new innovation can launch.”
Management’s commentary regarding COVID-19’s impact on business will be critical. Shares of the shoemaker have plunged 33% this year.
Monday: Chicago Fed National Activity Index, February (-0.29 expected, -0.25 in January)
Tuesday: Markit U.S. Manufacturing PMI, March preliminary (44.0 expected, 50.7 prior); Markit U.S. Services PMI, March preliminary (42.0 expected, 49.4 prior); Markit U.S. Composite PMI, March preliminary (49.6 prior); New Home Sales, February (750,000 expected, 764,000 in January); New Home Sales month-on-month, February (-1.8% expected, 7.9% in January); Richmond Fed Manufacturing Index, March (-10 expected, -2 in February)
Wednesday: MBA Mortgage Applications, week ended March 20 (-8.4% prior); Durable Goods Orders, February preliminary (-1.0% expected, -0.2% prior); Durable Goods excluding Transportation, February preliminary (-0.4% expected, 0.8% prior); FHFA House Price Index month-on-month, January (0.4% expected, 0.6% in December)
Thursday: Wholesale Inventories month-on-month, February preliminary (-0.4% expected, -0.4% prior); GDP Annualized quarter-on-quarter, Q4 third reading (2.1% expected, 2.1% prior); Personal Consumption, Q4 third reading (1.7% expected, 1.7% prior); GDP Price Index, Q4 third reading (1.3% expected, 1.3% prior); Core PCE quarter-on-quarter, Q4 third reading (1.2% expected, 1.2% prior); Initial Jobless Claims, week ended March 21 (1.5 million expected, 281,000 prior); Continuing Claims, week ended March 14 (1.782 million expected, 1.701 million prior); Bloomberg Consumer Comfort, week ended March 22 (63.0 prior)
Friday: Personal Income, February (0.4% expected, 0.6% in January); Personal Spending, February (0.2% expected, 0.2% in January); University of Michigan Sentiment, March final (90.0 expected, 95.9 prior)
Tuesday: Nike (NKE) after market close
Wednesday: Micron (MU) after market close
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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