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US Stocks Drop, But Hold Weekly Gains 03/27 16:39
Wall Street closed lower Friday but still notched big gains for the week as
investors held out hope that a $2 trillion rescue package will cushion
businesses and households from the economic devastation being caused by the
coronavirus.
(AP) -- Wall Street closed lower Friday but still notched big gains for the
week as investors held out hope that a $2 trillion rescue package will cushion
businesses and households from the economic devastation being caused by the
coronavirus.
The S&P 500 closed 3.4% lower, but still climbed 10.3% for the week, its
biggest gain since March 2009. That follows two weeks of relentless selling.
The Dow Jones Industrial Average's 12.8% weekly gain was its biggest since
1938, thanks largely to Boeing, which climbed 70.5% this week.
Stocks had soared over the previous three days as the relief bill moved
closer to becoming law. It passed the House Friday afternoon and President
Donald Trump signed it later in the day. The bill includes direct payments to
households, aid to hard-hit industries like airlines and support for small
businesses. Despite the help, analysts expect markets to remain turbulent until
the outbreak begins to wane.
Even after the rally this week the market is still down 25% from the peak it
reached a month ago. The outbreak has forced widespread shutdowns that has
ground much of the U.S. economy to a halt. This week more than 3 million people
filed for unemployment benefits, shattering previous records. It's the first of
what is sure to be many grim signs of the toll the virus is taking on the
economy.
"The key at this point is getting a handle on the spread of the virus so
that then we can start to think about what (economic) growth looks like for the
remainder of the year," said Willie Delwiche, investment strategist at Baird.
The push to deliver financial relief is taking on more urgency as the
outbreak continues to widen. The number of cases in the U.S. has now surpassed
those in China and Italy, climbing to more than 86,000 known cases, according
to Johns Hopkins University. The worldwide total has topped 550,000, and the
death toll has climbed to more than 25,000, while more than 127,000 have
recovered.
For most people, the new coronavirus causes mild or moderate symptoms, such
as fever and cough that clear up in two to three weeks. For some, especially
older adults and people with existing health problems, it can cause more severe
illness, including pneumonia, or death.
Investors have yet to get a clear picture of exactly how badly the crisis
has hurt corporate profits, the ultimate driver of stock prices. Very few
companies have dared to issue forecasts capturing the damage, though traders
are girding for discouraging results in the next few weeks as earnings
reporting season begins. Many companies have simply withdrawn their profit
forecasts altogether.
At the start of this year, analysts expected S&P 500 companies' earnings
would grow 4.4% in the January-March quarter. They now expect earnings will be
down 4.1%, according to FactSet.
Earnings for airlines, which have been hit by lost bookings as businesses
and individuals canceled travel plans to minimize their risk of contracting the
virus, are expected to be catastrophically bad. Delta went from an expected
2.2% decline to a 108% plunge.
Even the current forecasts may not yet reflect the size of the potential
earnings declines this year, with only 15% of analysts having adjusted their
estimates within the past couple of weeks, according to a report by Credit
Suisse.
The latest bout of selling left the S&P 500 down 88.60 points, or 3.4%, to
2,541.47. The Dow slid 915.39 points, or 4.1%, to 21,636.78. The Nasdaq lost
295.16 points, or 3.8%, to 7,502.38. The Russell 2000 index of smaller company
stocks fell 48.33 points, or 4.1%, to 1,131.99.
Cruise operators Norwegian Cruise Line and Carnival led the decliners in the
S&P 500 Friday. The industry has been among the hardest hit by the economic
fallout from the coronavirus. The companies are down more than 70% so far this
year.
The price of crude oil slid 4.8% to close at $21.51 a barrel. Goldman Sachs
has forecast that it will fall well below $20 a barrel in the next two months
because storage will be filled to the brim and wells will have to be shut in.
That's sure to cause even more trouble for energy companies, which are
lagging far behind the rest of the market. The price of oil has plunged
recently, in part due to a price war that broke out early this month between
Saudi Arabia and Russia. The energy sector of the S&P 500 has lost half its
value this year.
The yield on the 10-year Treasury fell to 0.68% from 0.81% late Thursday.
Lower yields reflect dimmer expectations for economic growth and greater demand
for low-risk assets.
The overall downturn in the markets in recent weeks is creating good
opportunities for investors to buy into sectors of the market that will be
"prevalent" for the next decade, including e-commerce and technology companies
that focus on things like gene therapies, said Solita Marcelli, deputy chief
investment officer, Americas, at UBS Global Wealth Management.
The strong rallies this week have prompted some analysts to suggest the
worst of the selling could be over. But most expect stocks to touch on recent
lows again until there have been enough sustained gains in the market, and
progress in fighting the pandemic, to ease investors' fear of further declines.
"The takeaway from this week is the initial down phase has probably run its
course," Delwiche said. "Investors can get out of the duck-and-cover mode and
start to figure out what they need to do. It doesn't mean that we've gotten an
all-clear signal."
(CZ)
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