ADAM SAMSON in London, and DANIEL SHANE in Hong Kong US stocks lost momentum after their biggest weekly rally since 1974 as investors braced for earnings reports that will set out how severe a blow the Covid-19 outbreak has dealt to corporate America.
The S&P 500 was down roughly 2 per cent in early afternoon trading on Monday, shaving some of the 12 per cent gain it made last week when dramatic action by the Federal Reserve promised to shore up the economy and credit markets.
“We have gotten a lot of the catalysts already to take markets higher,” said Brian Levitt, global market strategist at Invesco. “The problem now is that the next catalyst is going to come from the medical community rather than from the fiscal or monetary side.”
Gold, viewed as a safe haven, hit $1,717 per troy ounce, its highest since 2012, up 1.2 per cent on the day.
Most European markets were closed for Easter Monday. Earlier equity markets in Japan and South Korea opened the week with declines of more than 1.5 per cent. The CSI 300 index of the biggest listed companies in mainland China was down 0.4 per cent on Monday.
Market attention has begun to shift to the quarterly earnings season in the US, which will cover the period when the Covid-19 crisis was gathering pace in the first three months of 2020. It will also give analysts and investors an opportunity to query executives on their outlook for coming months.
The country’s biggest lenders, JPMorgan Chase, Bank of America, Citigroup and Wells Fargo, are all set to publish their quarterly accounts this week. They are typically considered bellwethers for the broader economy because of their central position in the financial system.
In the past three months Wall Street analysts have reduced their earnings per share estimates for 2020 for companies in the S&P 500 index by 15 per cent, according to FactSet data. Profits are now forecast to decline 8 per cent this year, which would mark the biggest fall since the financial crisis.
Investors
David Kostin, chief US equities strategist at Goldman Sachs, said worse could be on the horizon. “Concerned investors have focused on the fact that the first-quarter earnings season will inevitably lead to a wave of downward revisions to analyst estimates.”
A decline in forecast earnings would prove problematic, Mr Kostin said, because it means investors would need to accept more stretched price-to-earnings valuations, or stock prices would need to fall further.
The S&P 500 is down around 14 per cent for the year, having recovered over recent weeks from a sharper fall.
Beyond earnings, Evan Brown, head of multi-asset strategy at UBS Asset Management, said the most important determinant of where markets were headed was how long it would take for the economy to reopen.
“We’ve had the downturn, we’ve had the policy response, and now it is all about when do we reopen and what does it look like.” However, “visibility on that is not clear”.
Oil prices
In commodities oil prices zigzagged after Saudi Arabia and Russia reached a deal to make the biggest production cuts on record.
Brent crude was up 1.7 per cent at $32.02 per barrel, having earlier been as high as $33.99. The US benchmark West Texas Intermediate ticked up less than 1 per cent to $22.95.
The choppy trade came after Opec+ producers agreed to remove almost 10 million barrels per day from global supply. The cuts start from May, but will gradually diminish in size before expiring in April 2022.
“The problem is that Opec+ have taken too long to get to this point,” said Warren Patterson, head of commodities strategy at ING. “We are seeing significant levels of demand destruction right now.”
Mr Patterson added that there was “downside risk” to crude prices given a global glut was likely to last through the second quarter, but that the deal could put a floor under Brent crude of about $25 per barrel. – Copyright The Financial Times Limited 2020
