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U.S. stocks have started the week on the wrong foot again.
All three major U.S. indexes climbed last week despite the unemployment rate rising to 14.7% — the worst since the Great Depression. The coronavirus pandemic cost 20.5 million U.S. jobs in April, according to Friday’s data. However, stocks were mixed on Monday as investors looked toward the global recovery.
In our call of the day, ING strategists said investors may be attaching too much weight to the 2021 recovery. Investors were prepared to “look through” the 2020 slowdown, with a 20% fall in S&P 500 earnings being priced in to the market before a 25% recovery next year, they said.
The bank’s research team, led by global head of markets Chris Turner, said the consensus 20% decline for U.S. corporate earnings in 2020 was “too optimistic.”
ING’s chief international economist James Knightley sees a 7% contraction in U.S. gross domestic product, well below the -4% consensus, which the team said would see the 2020 drop in corporate profits “dwarf” those of the financial crisis.
“Equally, the poor transparency for corporate profits — where even Amazon AMZN, +1.16% and Apple AAPL, +1.00% are struggling for guidance — suggests investors will need some strong compensation for holding equities,” they said.
They noted that given the recent 35% rally off lows and the expansion in price to earnings ratios, the 12-month forward earnings yield on the S&P 500 offered a less than 400 basis point pickup over the long end of the U.S. Treasury market.
“In uncertain times like these, higher earnings expectations or lower valuations may be needed to keep equity markets supported. We err towards the latter,” they said.
The markets
After closing 455 points up on Friday, the Dow Jones Industrial Average DJIA, -0.18% fell 0.3% in early trading on Monday. The S&P 500 SPX, +0.17% rose 0.1%, while the Nasdaq COMP, +0.76% climbed 0.7%. European stocks rose early on Monday as investors turned optimistic over the easing of lockdown restrictions across the world, before falling back. The pan-European Stoxx 600 SXXP, -0.39% fell 0.6%. Asian markets ADOW, +0.82% climbed overnight as investors looked beyond dire U.S. jobs data and toward a global recovery.
The buzz
Former President Barack Obama has described President Donald Trump’s handling of the coronavirus pandemic as an “absolute chaotic disaster,” according to a leaked recording obtained by Yahoo News.
Federal Reserve official Neel Kashkari said the U.S. economy would have a “slow, more gradual recovery” from coronavirus after White House officials displayed optimism over a snapback recovery.
British Prime Minister Boris Johnson has told those who can’t work from home to return to work, as the U.K. set out the first steps of easing its lockdown measures.
Budget airline EasyJet EZJ, -5.90% may have to raise up to £1 billion, Citi analysts said, after the U.K. government said it was looking to impose a 14-day quarantine on people entering the country.
Shanghai Disneyland reopened on Monday for the first time since Jan. 25, with strict anti-coronavirus controls in place.
A San Francisco doctor returning from volunteering at a New York City hospital to help fight the coronavirus says he was forced to endure a packed flight on United Airlines UAL, -4.72% —despite the carrier’s promise to enforce social distancing.
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