Coronavirus-related developments will continue to remain top of mind for investors in a busy week ahead.
Despite the lack of containment of COVID-19, markets have been rallying. All three of the major indices logged their first back-to-back week of gains since the week ending February 14, before the coronavirus-related selloff began. The S&P 500 (^GSPC) closed above its 50-day moving average for the first time since Feb. 21.
Nevertheless, strategists warn that there could be more volatility ahead until meaningful progress is made in containing coronavirus or a vaccine is found.
“Investor focus is now shifting toward restarting the economy, as President Trump has released guidelines for reopening the country,” Raymond James Chief Investment Officer Larry Adam said in a note April 17. “With so much uncertainty remaining, we would not be surprised to at least see the market ‘cool off’ from current levels (18x P/E vs 13.8x at the low). In assessing previous recessionary bear markets, it would be very unusual for the S&P 500 to just glide back to the previous highs. On the other hand, it is very common for exhaustive selloffs to be followed by sharp bounces, and then a ‘grind it out’ pattern with potential ‘retests’ as more information surrounding the issues of the day are gained (and the market has time to digest its sharp pullback).”
As of Sunday afternoon, there were nearly 2.4 million confirmed cases and 164,000 deaths globally, according to Johns Hopkins University data. In the U.S., there were more than 755,000 cases and 40,000 deaths.
Earnings season is underway, and while several heavyweights will be reporting results this week, investors will be closely watching Netflix (NFLX) after the closing bell Tuesday.
The streaming giant has been holding up amid the market volatility caused by the coronavirus. Social distancing encouragements and “shelter-in-place” mandates across the world have locked people indoors, and Netflix was among a handful of companies that have gotten a boost over the past couple months.
“Netflix shares have performed well since the start of 2020 and are up ~28% YTD despite the significant consumer disruption caused by COVID-19. With consumers staying home and limiting their time outside, Netflix usage has risen over the last several weeks since stay-at-home orders were introduced, according to Chief Content Officer Ted Sarandos,” Cowen analyst John Blackledge said in a note April 15.
Blackledge also alluded to the spike in Google searches for the term “Netflix” in the final three weeks of the first quarter.
Furthermore, Loop Capital analyst Rob Sanderson pointed out that Netflix could be close to free cash-flow positive this year due to the massive industry-wide production halts due to the COVID-19 outbreak.
“Given the industry production shutdown, we estimate NFLX will spend $2.5B less this year, and be close to free cash flow positive. With the largest library and the entire industry shut down, we think NFLX will spend less while expanding its competitive edge,” Sanderson said in a note April 17.
Netflix is expected to report adjusted earnings of $1.87 per share on $5.74 billion in revenue during its first quarter, according to analysts surveyed by Bloomberg. Wall Street estimates 7.69 million global paid subscribers, representing 17% year-over-year subscriber growth.
Jobless claims, new home sales
COVID-19’s impact has been steadily been reflected in incoming economic data, and this week’s data will likely illustrate the continued damage being done to the U.S. economy.
Thursday morning, market participants will be keeping a close eye on initial jobless claims for the week ending April 18 and March new home sales.
After three consecutive weeks of jobless claims topping five million, another 4.5 million Americans are expected to have filed for unemployment benefits last week. While the figure will likely stay elevated for some time, many economists believe that the claims have passed the peak and will slowly decline in the coming weeks.
“While the labor market remains under severe strain, states that imposed lockdowns relatively early are seeing claims activity improve somewhat,” Nomura economist Lewis Alexander wrote in a note April 17. “In addition, certain provisions in the recently-passed CARES Act will likely encourage some businesses to refrain from letting go of workers. That said, with roughly 20mn initial jobless claims filed over the past four weeks, we continue to expect a decline of 20mn or more in April nonfarm payroll employment and the unemployment rate to approach 20% over the next two months.”
Meanwhile, on the heels of a record drop in March’s NAHB homebuilder sentiment index, market watchers will get an updated check on the U.S. housing market with the release of new home sales for the month of March.
“We expect significant declines in home sales in March as states instituted lockdown measures. New home sales are likely to drop more than existing sales due to the difference in measurement methodology, but both are due to fall even more come April,” Credit Suisse economist James Sweeney said in a note April 16. “The housing market was on a solid footing before March and with historically low mortgage rates sales should rebound vigorously if the economy can reopen quickly. However, the prospect of a more-gradual reopening and the physical nature of home buying suggest a more mild recovery is likely.”
Thursday: Blackstone (BX), Eli Lilly (LLY), Hershey (HSY), Southwest Airlines (LUV), JetBlue Airways (JBLU), PulteGroup (PHM), Domino’s Pizza (DPZ), Union Pacific (UNP) before market open; Intel (INTC) after market close
Monday: Chicago Fed National Activity Index, March (-3 expected, 0.2 in February)
Tuesday: Existing Home Sales, March (5.28 million expected, 5.77 million in February); Existing Home Sales month-on-month, March (-6.8% expected, +6.5% in February)
Wednesday: MBA Mortgage Applications, week ended April 17 (7.3% prior); FHFA House Price Index month-on-month, February (+0.4% expected, +0.3% in January)
Thursday: Initial Jobless Claims, week ended April 18 (4.5 million expected, 5.245 million prior); Continuing Claims, week ended April 11 (17.271 million expected, 11.976 million prior); Bloomberg Consumer Comfort, week ended April 19 (44.5 prior); Markit US Manufacturing PMI, March preliminary (38.5 expected, 48.5 in February); Markit US Services PMI, March preliminary (32.5 expected, 39.8 in February); Markit US Composite PMI, March preliminary (40.9 prior); New Home Sales, March (650,000 expected, 756,000 in February); New Home Sales month-on-month, March (-15% expected, -4.4% in February)
Friday: Durable Goods Orders, March preliminary (-11.3% expected, +1.2% in February); Durable Goods excluding Transportation, March preliminary (-5.1% expected, -0.6% in February); Capital Goods Orders Nondefense excluding Air, March preliminary (-3.3% expected, -0.9% in February); Capital Goods Ship Nondefense excluding Air, March preliminary (-0.8% in February); University of Michigan Sentiment, April final (68.5 expected, 71.0 prior)
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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