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Strong April and weak quarter. What will happen to the stock market?

In April, the stock market went through a real storm. However, many important issues remain on the agenda.

The main one: do you really believe that everything will be restored as if by magic, should people only return to work?

Or do you have a different point of view, believing that the pandemic has laid bare the shaky foundation of the global economy, the recovery of which will take considerable time. If so, stock market investors rushed things.

Victories gave way to defeat

The answer is simple: logic suggests that recovery will be slow and painful. But at the same time, no one forbids hoping that you are too pessimistic.

COMPQ Weekly

The index in April grew by 12.68%, and added 11.08%, fixing the best monthly dynamics since January 1987. An increase of 15.45% was the strongest since June 2000, and jumped 15.19%, which has not happened since October 2002.

Compared to the lows of March 23, the S&P 500 recovered by almost 33% (by April 30), Dow won back 33.7%, NASDAQ added 34%, and the NASDAQ 100 rose 33%.

However, on an annualized basis, April was unprofitable for the S&P 500, Dow and NASDAQ. Only the NASDAQ 100 was able to record an increase of 3% y / y (although it lost it during the first auction in May).

Each of these indices is trading far from its February highs; moreover, the S&P 500, Dow and NASDAQ completed nine of the seventeen weeks of the current year in the red zone.

Stock Market Leaders and Outsiders

Shares of energy companies became leaders in April, but only after recovering oil prices from the abyss where they collapsed amid oversupply and battles for controlling energy prices. The May contract of West Texas Intermediate spent two days in the negative zone, which contradicts the usual logic. June futures on Friday fell below $ 20 and continued to decline at Monday’s premarket.

Energy sector ETFs up 31% in April. It sounds great until you remember that it fell almost 52% in the first quarter and is trading 40% below the start of the year.

APA 300 Minute Chart

Shares of Apache (NYSE :), one of the largest oil and gas companies, rose nearly 213% in April, while losing 84% in the first quarter.

The papers of airlines, hotels, restaurants and travel service providers collapsed. American Airlines’ market capitalization (NASDAQ 🙂 fell 57% in the first quarter, leading to delisting with the NASDAQ 100. Berkshire Hathaway (NYSE 🙂 Warren Buffett sold all of its shares to Delta Air Lines (NYSE :), Southwest Airlines (NYSE 🙂 and United Airlines (NASDAQ 🙂 (not to mention American Airlines).

The market was positively driven by technology giants and telecommunications companies, especially Microsoft (NASDAQ :), Apple (NASDAQ :), Amazon (NASDAQ 🙂 and Alphabet (NASDAQ :).

There was a place on the market for rush purchases. Tesla shares (NASDAQ 🙂 for the month rose by 47% and by April 30 were trading 86% above the level of the beginning of the year. Even CEO Elon Musk on Thursday was forced to tell analysts that the shares were overbought; on Friday they fell 10.4%.

A trio of technology giants (Microsoft, Apple, Amazon) completed the month with a capitalization of over $ 1 trillion each. The Google Alphabet holding company had a capitalization of about $ 900 billion by Friday. Over the month, Microsoft papers grew 13.6%, Apple – 15.5%, Amazon – 26.9%, and Alphabet – 16%.

Netflix (NASDAQ 🙂 added 11.8% in April. Shares of Wal-Mart (NYSE 🙂 rose 8.2%, while they updated the annual maximum at $ 133.38 at auction on April 22.

Gilead Weekly TTM

Gilead Weekly TTM

Gilead

An important point: shares of the health sector have strengthened, especially companies that have a chance of creating a vaccine against coronavirus. Gilead Sciences papers (NASDAQ 🙂 jumped 21% during the month and have grown 24% since the beginning of the year, as remdesivir proved effective in treating COVID-19 (albeit in trials).

In general, April was successful for biotechnology companies. The index grew by 15%, having won back the March losses of 13.45%; last year, it grew by 24.4% amid increased interest in drugs to combat cancer and related drugs.

April was a very stormy month. Given Friday’s drawdown and weakness in the energy sector (along with futures for US indices), the first trading week of March will be associated with high volatility. There are too many risks:

  • A flurry of bad news. This week will be released monthly and unemployment in the United States. Economists estimate that the US economy lost 21 million jobs in April (compared with 700,000) in April. can reach 16%.
  • How to restart the economy when about 30 million Americans lost their jobs and applied for unemployment benefits? The Trump administration allows states to make their own decisions about quarantine removal, and many of them may not be ready (despite protests in several states calling for an “open” economy). Evidence of failure will be the resumption of growth in the incidence and / or mortality curve. On Friday, the Mississippi authorities postponed the restart for precisely this reason.
  • Time required to resume activity. Even if you agree to the conditions for restarting the economy, its load can be no more than 90%, since it will take time to restore the confidence of consumers who have lost their jobs or their business.
  • Prospects for US-China Trade War. This may be part of Trump’s election campaign, but many Administration officials call it a measure of pressure on China in an attempt to force Beijing to plead guilty to the spread of coronavirus.
  • And generally speaking, 2020 elections may become one of the most fierce in history.

Against this background, the words of Warren Buffett from Berkshire Hathaway, who called himself optimistic at the annual meeting of shareholders (held on Saturday), are heard especially ominously, although his company lost $ 49.7 billion in the first quarter. A significant part of the dynamics is due to write-offs of assets due to a pandemic.

“We were faced with big problems, and American Miracle, American magic always prevailed,” Buffett said in his speech. Obviously, he is optimistic about market prospects.

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