Market Update: Mon, May 18, 2020 | LPL Financial Research


Stocks getting back a big chunk. Stocks opened sharply higher in the United States, while European stocks were up even more in midday trading, and most Asian markets ended higher. Tensions between Beijing and Washington continued to ratchet higher over the weekend and will remain in focus for markets this week. Meanwhile, vaccine developments and Federal Reserve Chair Jerome Powell’s assertion that the central bank has a lot of ammunition left are also lifting sentiment this morning.

Signs of a pickup. Several timely indicators have pointed to a pickup in economic activity, including higher credit and debit card spending and an increase in travelers based on TSA data. The second quarter economic contraction could exceed 30% annualized, but reopening progress globally amid massive stimulus points to a potential strong rebound in the third quarter.

Concentrated earnings decline. First quarter S&P 500 Index earnings edged lower over the past week but are still tracking to a 13% year-over-year decline. Notably, the consumer discretionary and financials sectors are driving nearly all of the index’s decline, with about 9 percentage points of it coming from financials alone.

Retailers’ results may put further downward pressure on earnings estimates. Consensus estimates for the next 12 months have been cut by about 20% since March 31, as many companies have withdrawn guidance amid heightened uncertainty around the economic recovery. More than 20 retailers are yet to report results, although several big names report this week, including Best Buy, Home Depot, Kohl’s, Lowe’s, Target, and Walmart.


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