Morning Minutes 5/19/2020

Morning Minutes

Stocks Consolidate Gains as US Retailer Earnings Kick Off

May 19, 2020

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

Stock markets in the US have levelled off this morning consolidating Monday’s gains which were ignited by promising early results in a vaccine trial and Fed Chair Powell reiterating that the central bank will use all of the tools at its disposal to support the economy. Dow futures are down 49 points after the index soared 911 points or 3.8% yesterday. NASDAQ futures are up slightly as they digest yesterday’s 2.4% gain.

Crude oil also staged a big rally Monday and is consolidating gains today on what is the last day of trading on the June WTI contract. It almost seems a mirror image of last month where oil plunged into expiry, this time oil has rallied into expiry. WTI is up 1.8% this morning trading near $32.50/bbl, while Brent is up 0.3% trading just below $35.00/bbl.

Today, investor focus turns to more testimony to congress from Fed Chair Powell and Treasury Secretary Mnuchin. It’s also the first day of earnings season for US retailers whose quarters ended in April.

Walmart beat expectations on EPS ($1.18 vs street $1.12) as total sales increased by 8.6%, same store sales increased by 10.0% (well above street 7.2%), and online sales spiked up 74%. Management noted it has hired 200,000 people to clean stores and support online sales, but withdrew guidance blaming economic uncertainty.

Home Depot reported same store sales growth of 6.4% for the quarter beating the 4.4% street estimate, and overall sales growth of 7.1%. EPS, however, came in short of expectations ($2.08 vs street $2.27) as steps to keep its business going through the coronavirus pandemic increased costs.

JC Penney, Advance Auto Parts and others are scheduled to report results today with Target* and Lowes reporting tomorrow.

Today’s economic news is mixed. The Germany ZEW investor sentiment survey saw a rebound in economic sentiment (51 vs 32). US housing starts came in below expectations (891K vs street 927K and previous 1,276K). Announcements due later in the week include Fed minutes, a PBOC meeting and flash PMI reports where investors may look for signs of whether things have started to improve at all or if we are still too early in the reopening process.

*Shares of Target are held in some portfolios managed by SIA Wealth Management.


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