Strength and weakness were plentiful last week. Somehow though, the markets found room to move up.
Strength
Tuesday saw sharp gains. This came on hopes of local economies restarting. This came from a few places. First, governors formed local alliances to coordinate reopening efforts. This would pave the way to economic engines restarting. Two, the hospitalizations and infection rates slowed early in the week for epicenters.
Thursday markets rose in anticipation of the administration rolling out plans for restarting the economy. They delivered a tiered program that will be ultimately controlled by states. This is encouraging as it could lead to a slow re-establishing of economic activity by mid-quarter.
It has become increasingly common during this bear market for Fridays to be a sell day with people not wanting to hold equities into the weekend. They fear the news cycle that might occur. That did not happen this Friday. Markets rose on treatment hopes. A drug out of Gilead Sciences is showing promise in a leaked study from University of Chicago Health. In 113 cases of acute COVID-19 the study reflected a recovery for 111 patients. Markets soared on the news. Later they were supported by news that Boeing is planning to restart production.
Weakness
Profits for the first quarter are projected to contract by 14%. This is steep, but the second quarter is expected to be steeper. Earnings out of major US banks last week reflected a fall in revenue of 70% to 80%. The IMF is projecting for a 7.5% contraction in the Eurozone. The US is expected to contract by 5.9%. China GDP for the first quarter came in at -6.8%. They are expected to end the year in positive territory. This is under the assumption of there not being a second wave of COVID cases.
The European Union (EU) is in a precarious situation as debt funding is needed at the union level. Desire to fund some of the more insolvent countries is less than appealing. President Macron, of France, voiced dire concerns last week about the EU indicating that failing to complete a debt offering combatting COVID could be the beginning of the end of the EU. The Union’s failure would have vast repercussions for the global economy.
Conclusion
During bear markets, the media cycle is fast and plentiful–consistently negative as well. There was much to be encouraged by last week, however, firm data pointed to real reasons to be pessimistic. As is often the case, soft data is the leading indicator as firm data is an indication of what has already occurred.
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