- U.S. stocks pull back on high global Covid infection level and pre-earnings caution
- Pandemic worsens in many parts of the world ‘
U.S. stocks pull back on high global Covid infection level and pre-earnings caution — The U.S. stock market on Monday closed lower on rising global Covid infections and caution as the U.S. moves into the heart of earnings season. The S&P on Monday fell back from last Friday’s record high and closed the day down -0.53%.
There are 79 of the S&P 500 companies that report earnings this week. Next week will see the peak with 180 of the S&P 500 companies reporting. The following week will see reports from 136 of the S&P 500 companies.
Q2 earnings season is off to a good start so far. Of the 44 reporting SPX companies, 84.1% have beaten the consensus, which is much better than the long-term average of 65.3% and the 4-quarter average of 75.5%, according to Refinitiv. SPX earnings growth is expected to be very strong in Q1 at +30.9% and improve to +56.2% in Q2, before easing to +20.9% in Q3 and +14.7% in Q4. On a calendar year basis, the consensus is for strong +27.9% earnings growth in 2021, overcoming the -12.2% decline seen in 2020.
The U.S. stock market on Monday was undercut by weakness in tech stocks as the Nasdaq 100 index fell -0.96%. The tech sector was dragged lower by a -7% plunge in Peloton Interactive (PTON) after U.S. regulators on Saturday warned consumers to stop using Peloton’s Tread+ exercise machine if there are young children or pets at home due to injuries from the machine. Also, Tesla (TSLA) closed down more than -3% Monday after a crash Saturday of a Tesla Model S in Texas killed two people, with conflicting information about whether the auto-pilot was on.
Stocks were also undercut by a small +2 bp rise in the 10-year T-note yield to 1.60%. T-note prices were undercut by a sell-off in German bund prices, which was tied in part to European vaccine optimism after the European Commission said on Monday it will exercise its option to buy another 100 million doses of the Pfizer Covid vaccine.
Bund prices were also undercut after Goldman Sachs said the ECB is not likely to increase its bond purchases, and a “mini taper-tantrum” could emerge from this Thursday’s ECB’s policy meeting if the ECB fails to forcefully reaffirm its commitment to easy monetary conditions.
Pandemic worsens in many parts of the world — The pandemic remains on a slow boil in the U.S. and is getting worse in some areas of the world. While the outlook is better in the U.S. due to the fast vaccination pace, the outlook in many other parts of the world is only getting worse. The world economy will not be able to fully recover until all countries in the world are able to get the pandemic under control.
Globally, new global Covid infections for the week ended April 19 rose +12% w/w to +5.2 million, the most for a week since the pandemic began, according to reporting by Bloomberg. Globally, cumulative Covid infections have risen above 142.116 million, while cumulative deaths have exceeded 3.035 million.
The situation is currently the worst in India, where the 7-day average of new Covid cases has spiked higher from only about 10,000 in late March to the current level of about 246,810, according to Johns Hopkins. That means that nearly a quarter of a million people are getting the virus every day in India. That is just below the record high of 251,057 posted in the U.S. in January.
In Delhi, the health care system has “reached its limit” and could collapse if action is not taken, according to an official quoted by the Washington Post. Delhi is being hit harder than any other city in India. Delhi on Monday was forced to announce a 6-day lockdown to try to curb the surge.
There is a new “Indian variant” called B.1.617 that is associated with higher infection rates and lower antibody resistance. That variant is showing up in as many as half the samples taken in India, according to Bloomberg. The Indian variant could be a factor behind the surge.
Other countries that are seeing a sharp upward trend in new Covid infections include Germany, Poland, Ukraine, Turkey, Iraq, Pakistan, Brazil, Argentina, Colombia, and the Philippines.
The renewed spread of the virus in recent weeks is being attributed to less-cautious behavior, reduced government restrictions, and the spread of more-transmissible variants. Most countries do not yet have enough vaccinated people to slow the new-infection rate.
The pandemic in the U.S. is continuing at a high level, but at least is not getting worse. The 7-day average of new U.S. Covid infections reached a 2-month high of 71,343 last Tuesday before tailing off to 67,680 by Sunday.
The ability of the U.S. to dampen the pandemic is due in large part to a fast average daily vaccination rate of 3.13 million doses over the past week, according to Bloomberg’s Vaccine Tracker. The CDC reports that 25.7% of the U.S. population has been fully vaccinated and that 39.9% of the population has received at least one dose.
The CDC this week will continue its review of the blood-clot data and whether it will allow the Johnson & Johnson vaccinations to resume. The resumption of the one-shot J&J vaccination would go a long way to helping more people get vaccinated quickly and dampening the infection rate.
