Stocks Cap Final Session of Week with Gains

U.S. equities finished out a bumpy week on an up note, but snapped a two-week winning streak, as investors weighed a ramp up in Q1 earnings season and continued uncertainty surrounding the timing and implications of the reopening of the U.S. economy. Moreover, Congress passed another bill this week to aid small businesses and the healthcare system to combat the severe disruption from the COVID-19 (coronavirus) pandemic. However, the economic calendar continued to provide more dismal data to keep sentiment in check, as U.S. consumer sentiment fell to lows not seen since 2011 and durable goods orders dropped more than expected, even though the internal components of the report were not as bad as feared. On the earnings front, Dow member Intel topped quarterly forecasts but withdrew its annual revenue guidance, while fellow Dow components American Express and Verizon Communications offered mixed results. Treasury yields finished slightly lower amid an uptick in bond prices, as did the U.S. dollar, while gold lost ground and crude oil prices were higher. Markets in Europe and Asia finished mostly lower.

The Dow Jones Industrial Average rose 260 points (1.1%) to 23,775, the S&P 500 Index increased 39 points (1.4%) to 2,837 and the Nasdaq Composite advanced 140 points (1.7%) to 8,635. In moderately heavy volume, 1.1 billion shares were traded on the NYSE and 3.6 billion shares changed hands on the NASDAQ. WTI crude oil gained $0.44 to $16.94 per barrel and wholesale gasoline added $0.02 to $0.70 per gallon. Elsewhere, the Bloomberg gold spot price was $5.32 lower at $1,725.19 per ounce, while the Dollar Index—a comparison of the U.S. dollar to six major world currencies—lost 0.1% to 100.30. Markets were lower for the week, as the DJIA declined 1.9%, the S&P 500 fell 1.3% and the Nasdaq Composite shed 0.2%.

Dow member Intel Corporation (INTC $59) reported Q1 earnings-per-share (EPS) of $1.31, or $1.45 ex-items, versus the $1.28 FactSet estimate, and compared to the $0.89 posted a year ago. Revenues rose 23.0% year-over-year (y/y) to $19.8 billion, above the Street's forecast of $18.7 billion. The chip company's data-centric revenue rose 34.0% y/y, as it maintained essential factory operations with greater than 90% on-time delivery while supporting employees, customers and communities in response to the COVID-19 pandemic. PC-centric revenue rose 14.0% on improved CPU supply and demand strength as consumers and businesses are relying on PCs for working and learning at home. INTC issued a Q2 EPS projection of $1.10, compared to the estimated $1.20, and a revenue forecast of $18.5 billion, versus the expected $17.8 billion. However, the company withdrew its annual revenue forecast due to "significant economic uncertainty." Shares gained slight ground.

Dow component Verizon Communications Inc. (VZ $58) posted Q1 earnings of $1.00 per share, or $1.26 ex-items, compared to $1.20 a year ago, and versus the projected $1.22. Revenues declined 1.6% y/y to $31.6 billion, south of the estimated $32.4 billion. VZ lowered its 2020 EPS outlook, assuming significant headwinds prevailing through Q2, while it withdrew its revenue forecast. VZ said it began 2020 with strong operational performance, while in an unprecedented time it took decisive and balanced actions. Shares were higher.

Dow member American Express Company (AXP $83) announced Q1 EPS of $0.41, or $1.98 ex-items, compared to the $1.80 a year ago, and versus the forecasted $1.46. Revenues dipped 0.5% y/y to $10.3 billion, south of the projected $10.7 billion. AXP noted that the evolving COVID-19 situation had significantly negative impacts on Q1 results and it raised its provisions for loan losses to $2.6 billion, up from $809 million a year ago. The company noted that the deterioration in the economy due to COVID-19 impacts that began in Q1 and accelerated in April has dramatically impacted its volumes. Shares moved higher.

For a look at earnings season, Schwab's Chief Investment Strategist Liz Ann Sonders offers her latest article, Loss, Strain & Butterflies: Earnings Plunging, Stocks Ignoring, noting how stocks and earnings don't always travel in the same direction. However, she adds that net earnings revisions do tend to track more consistently with how stocks are performing; and her best guess is that there are more downward earnings revisions to come. Liz Ann concludes that perhaps she is being naïve, but she would think the ride will remain quite bumpy—at least throughout the remainder of earnings season.

Amid the heightened volatility in the markets, for timely news and analysis follow Schwab experts from the SCFR on Twitter at @SchwabResearch, and for helpful insight and information on the current market environment, check out our Q&A With Schwab Experts on Recent Market Volatility. Finally, investors can stay up-to-date on all the content that Schwab offers on the unparalleled market action at www.schwab.com/volatility.

April consumer sentiment revised higher, durable goods orders mixed

The April final University of Michigan Consumer Sentiment Index (chart) was revised higher to 71.8, versus expectations for a downward adjustment to 68.0 from the preliminary 71.0 reading, but below March's 89.1 level. The index posted a record monthly decline and sits at the lowest level since late 2011 as the current conditions component of the survey fell sharply and the expectations portion declined solidly. The 1-year inflation forecast dipped to 2.1% from March's 2.2% rate, but the 5-10 year inflation forecast rose to 2.5% from the prior month's 2.3% pace.

March preliminary durable goods orders (chart) fell 14.4% month-over-month (m/m), versus the Bloomberg estimate of a 12.0% fall and compared to February's downwardly-revised 1.1% gain. The headline rate drop was fueled by the impact of the turmoil in the energy sector on the manufacturing sector and the decisive drop in canceled orders for Boeing aircraft. Ex-transportation, orders declined 0.2% m/m, versus forecasts of a 6.5% decrease and versus February's negatively-adjusted 0.7% gain. Moreover, orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, ticked 0.1% higher, compared to projections of a 6.7% decrease, while the prior month's figure was revised higher to a 0.8% decline.

Treasuries were slightly higher, as the yield on the 2-year note ticked 1 basis point (bp) lower to 0.21%, the yield on the 10-year note declined 2 bps to 0.59% and the 30-year bond rate lost 4 bps to 1.16%.

With the unprecedented market action changing the landscape of the bond markets, Schwab's Chief Fixed Income Strategist Kathy Jones offers her Q2 Bond Market Outlook: Looking Beyond the Coronavirus Crisis, in which she notes that while the COVID-19 crisis is far from over, we expect central bank and government policies to be key to performance in the second quarter. Moreover, Schwab's Fixed Income Director, Cooper Howard, CFA, discusses in his latest article, Coronavirus and the Municipal Bond Market: Questions and Answers, while Fixed Income Strategist, Collin Martin, CFA, delivers a look at What Happens When a Corporate Bond is Downgraded?

Europe and Asia mostly lower to close out the week

European equities were lower to finish out the week, with the markets continuing to grapple with the uncertainty regarding the impact of the COVID-19 pandemic as illustrated by the hampered guidance for the year out of the U.S., along with some disappointing economic data on this side of the pond. Also, the markets assessed the timing of the reopening of the U.S. economy, while awaiting next week's monetary policy decision from the European Central Bank (ECB), which comes amid uncertainty regarding what sort of further stimulus measures may lie ahead for the region. Economic data has been dismal as of late, with U.S., Eurozone and U.K. manufacturing and services sector reports yesterday showing contractions in output accelerated in April. Today's data continued the theme, as U.K. March retail sales fell and German business sentiment and expectations for this month declined more than expected. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, discusses in his commentary, What Will The Recovery Look Like?, noting that this recession is the result of a shock, not the natural end result of a slow build-up of excesses. Jeff adds that this may mean the recession and bear market could be deeper, but also that the duration may be shorter. Bond yields in the region were mostly lower, the euro was higher versus the U.S. dollar and the British pound dipped.

The U.K. FTSE 100 Index and France's CAC-40 Index were down 1.3%, Germany's DAX Index dropped 1.7%, Spain's IBEX 35 Index fell 2.0%, and Italy's FTSE MIB Index declined 0.9%, while Switzerland's Swiss Market Index was flat.

Stocks in Asia finished mostly lower, with the global markets digesting a slew of earnings reports as Q1 season ramps up, with Intel's report in the U.S. weighing on the chip sector, while uncertainty remains regarding the timing of the reopening of the U.S. economy. Japan's Nikkei 225 Index declined 0.9%, with the yen relatively stable, while the nation reported in line inflation figures for March but an accelerated drop in department store sales for last month. China's Shanghai Composite Index declined 1.1% and the Hong Kong Hang Seng Index decreased 0.6%. South Korea's Kospi Index fell 1.3% and India's S&P BSE Sensex 30 Index dropped 1.7%. However, Australia's S&P/ASX 200 Index advanced 0.5% with the energy sector rising as oil prices have rebounded from an early week tumble on the heavy demand and supply shocks that got exacerbated by the technical anomaly in the futures markets as discussed by Managing Director and Senior Investment Strategist with Charles Schwab Investment Advisory, Inc., David Kastner, CFA, in his commentary, Oil Prices Fall Below Zero.

Stocks give back some of a recent run but remain off March lows

The equity markets came into the week riding a sharp back-to-back rally amid the backdrop of confidence that the trillions of dollars in fiscal and monetary policy was working its way through the financial markets and buoying the severe economic disruption of the COVID-19 crisis. However, the upward momentum was stymied by a flare-up in the oil markets that saw a technical anomaly drive the front month May futures price of WTI crude oil decisively into negative territory for the first time in at least 155 years. Schwab's David Kastner discusses the disorder that ensued in the oil markets in the aforementioned articleand he provides analysis of the energy sector that has been beaten down by both supply and demand shocks in the latest Schwab Sector Views: Energy Sector Blues. Q1 earnings season continued to heat up and with the backward-looking results taking a backseat to another plethora of companies withdrawing guidance, and commentary that suggested the damage that was seen toward the end of the quarter will persist and could escalate. Of the 123 S&P 500 companies that have reported results thus far, sales growth has decelerated to a 1.8% y/y pace and earnings are tracking at a 17.6% decline from the prior year, per data compiled by Bloomberg.

Markit's Composite PMconsumer sentimentnew homes salesweekly initial jobless claims

The economic calendar offered little in terms of relief, as for this month. Moreover, March existing and , although decelerating, continued to spike as another near 4.4 million people filed for unemployment insurance. Finally, reports that dampened some of the enthusiasm regarding coronavirus treatments throughout the week also weighed somewhat on conviction, but stocks remained comfortably north of the March 23rd lows.I—an index combining manufacturing and services sector output—posted a record rate of contraction for April, joining Friday's m/m drop for both fell and

Ten of the eleven major markets sectors traded lower on the week, led by real estate, utilities, financials and consumer staples. However, somewhat counterintuitively, the energy sector was the lone group that gained ground as oil prices further out on the futures curve—which energy companies historically have a closer relationship with—traded higher than the current price for oil but remained severely depressed. The U.S. dollar extended a recent run, along with gold prices, while the Treasury yield curve flattened.

Next week, earnings season will continue to ramp up and likely take top billing in terms of market attention on financial data, but the economic calendar is chock full of key reports and events that could compete for focus. Consumer Confidence for April will get the ball rolling, and be followed by the first look (of three) at Q1 GDP and March personal income and spending, while culminating with the April release of the ISM Manufacturing Index. However, the economic event that could carry the most weight might come in the form of the Federal Open Market Committee's (FOMC) monetary policy decision. After taking the target for the fed funds rate to a lower band of 0.00% in an emergency March meeting that set off a series of unprecedented crisis-combating monetary policy actions, the FOMC is not expected to announce any major new measures. However, the FOMC statement and customary press conference from Chairman Jerome Powell could bring some market-moving moments. The bulk of the attention will likely be on commentary regarding how the Fed is managing its record high expansion of its balance sheet and coinciding growth in its inventory of purchases of an historic expanded range of financial assets.

Our latest Schwab Market Perspective: Waiting for the Coronavirus Peak, notes that the COVID-19 pandemic has severely affected the U.S. economy, with containment efforts leading to widespread business closings and surging unemployment—and stock market volatility. The article addresses the key questions of when can the economy reopen, and what happens when it does?

The international economic calendar is poised to potentially have some say in the markets direction for next week as reports worth noting include: Australia—Manufacturing PMI. China—Manufacturing and non-Manufacturing PMIs, and industrial profits. Japan—Bank of Japan monetary policy meeting, retail sales, industrial production. Eurozone—ECB monetary policy decision, Q1 GDP, economic confidence, and consumer price inflation figures, along with German retail sales and unemployment change. U.K.—retail sales.

Important Disclosures

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

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Stocks Cap Final Session of Week with Gains

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