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North American markets today, Monday, viewed several hours before opening at 9:30 a.m. EST, appear poised to start negative with all major indices in the red at the time of writing. However, the NASDAQ and S&P 500 are improving and it is possible – though not a given – that they will turn green in the coming hours. Canadian markets look slightly lower but could improve.
The safe havens of gold and silver are in the green at time of writing. The Canadian dollar, British pound and Euro are up. While the Euro is positive, its strength is limited, according to Jeremy Thomas-Cook, Chief Economist at London-based Equals Money, an international business payments specialist. “The Euro enters this week off the back of two strong weekly performances although the single currency has a slightly softer tone this morning,” Thomas-Cook says. “Tensions between the US and China and the US and Russia (have) elevated the need for a haven currency, a characteristic that the Euro is not fulfilling currently.”
European markets are open at time of writing and are mixed, with the FTSE100 and CAC 40 in the green while the DAX is in the red. It is no surprise that the British pound sterling and FTSE 100 are in the green as Britons enjoy the easing of lockdowns there. “With UK shops and restaurants open for a week, real time data is clearly showing that UK citizens have loved nothing more than hitting the shops, or a beer garden for a taste of normality. Similarly, road traffic, the number of people travelling to workplaces and job postings suggest that the combination of stronger spending and the vaccine effort should support sterling in the coming weeks,” Thomas-Cook explains.
That follows Friday’s trading which saw the S&P 500 and DOW setting new closing records as investors took cues from optimistic economic data, bank earnings and spending driven by stimulus checks.
Some analysts see continued growth at least for the time being. “Until we see that significant inflation growth and the Fed starts talking about raising interest rates, I think it’s going to be goldilocks, and any disruptions in the market will be opportunities to clean up your risk book,” says George Catrambone, head of Americas trading at DWS Group in a Reuters report. Put more simply, as long as the easy money continues, so too, will market growth. The rejoinder, however, is that the easy money can’t continue indefinitely.
Friday’s earnings included another piece of the Archegos Capital puzzle as Morgan Stanley revealed that it had taken a loss of $911 million in the hedge fund’s collapse. Still, the bank posted a 150% increase in first quarter profit.
Not surprisingly Morgan Stanley shares dropped $2.24 to end the day at $78.58 (In fact, the shares had been as low as $77.76 during the trading day.) Still, Morgan Stanley pulled in $5.8 billion trading stocks and bonds, notwithstanding the Archegos fiasco. The good news about the fiasco – and there is good news – is that it did not materially increase the volatility of the stock market. Some analysts read that as meaning that the financial system is more stable and safer overall than during and after the 2008 financial crash, a difference they credit to regulations that followed the crisis.
Several iconic names report this week, starting with the Coca-Cola Co. and its first quarter report today. Investors will be looking for an indication of company prospects for the recovery. Coca-Cola is a quirky example of a company that suffered due to the pandemic while being poised to benefit from the recovery. The main reasons for its potential increase in 2021 and 2022 are the same as the reasons for its decline in 2020: sales in dining venues, theaters, bars and events.
International Business Machines also reports first-quarter results today.
Johnson & Johnson reports first quarter results tomorrow though figures may not reflect the recommendation of a pause in the use of its vaccine by U. S. health authorities. Investors will want an update on the company’s response to the recommendations and its plans for vaccine production.
Also, tomorrow, NetFlix – a prime beneficiary of the pandemic and the stay-at-home trend reports first quarter results. At the same time, AT&T Inc. reports first quarter results on Thursday and one of its bright spots could be its WarnerMedia unit which is competing head-on with NetFlix and Disney+.
United Airlines Holdings Inc. reports first quarter results today while Southwest Airlines Co. and American Airlines Group Inc. report on Thursday. All three are likely to report a large drop in earnings due to the pandemic.
Procter & Gamble reports third quarter results tomorrow with expectations for a pandemic-driven boost in demand and profit.
And motorcycle legend Harley Davidson Inc. also reports tomorrow, and investors will be looking for an update on its turnaround. The American Express Co. reports first quarter results on Friday.
While this week’s results will be mixed, the broader economy has a fair number of positive signs. In fact, American non-farm payrolls increased by almost one million workers last month and have reversed much of the decline since the beginning of the pandemic. According to an analysis by the Qatar National Bank, American employment is reversing back to pre-Covid-19 levels 5 times faster than after the last two recessions. That, says the report, ‘is a strong signal that the US economy is moving away from the COVID-19 recession in a much better shape than it was in after the global financial crisis or the tech bust recession of the early 2000’s’ The report also stresses that the breadth of the recovery has been strong, with employment increases in most major sectors, a trend it says should increase in the Summer months and that consumers will open their wallets wide when the economy fully re-opens.
The QNB report says that in the absence of a major shock, the United States economy will lead other countries into a period of higher growth in gross domestic product. This assumes, however, getting control of the virus and successful vaccination programs. To a point, that in turn depends on resolution of issues such as the review of the Johnson & Johnson vaccine.
So, while this week’s reports will be very mixed, and while the ‘goldilocks’ analogy might be overstating the case, and while we are in the second year of the pandemic, with surges in numbers and vaccine issues, and while it is much too early to declare victory over COVID 19, the view over the horizon is very promising.