U.S. markets and stock exchange traded funds retreated Wednesday from a four-week high as more economic data pours in and fuels projections that we are in for the worst economic recession since the Great Depression.
On Wednesday, the Invesco QQQ Trust (NASDAQ: QQQ) was down 1.2%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) fell 2.1%, and SPDR S&P 500 ETF (NYSEArca: SPY) dropped 2.2%.
Weighing on market sentiment, U.S. retail sales plummeted 8.7% over March, manufacturing output declined by the most in 74 years and a survey showed manufacturing activity in New York state dipped in April to its lowest in the series’ history, Reuters reports.
The retail sales numbers reflect the shift in Americans’ lives as restaurants, malls, and most stores were closed to contain the spread of the coronavirus pandemic. Meanwhile, layoffs and furloughs are weighing on American households’ demand for nonessential goods.
“The consumer is 70% of the U.S. economy,” Jack Janasiewicz, a portfolio manager at Natixis Investment Managers, told the Wall Street Journal. “So anything you see on that front is going to matter.”
Investors now anticipate one of the worst earnings season in years, with S&P 500 company earnings expected to decrease 12.8% in the first quarter. Bank of America was the latest to take a hit on Wednesday after revealing it was setting aside $4.8 billion to cover bad loans, and Citigroup stock also weakened after the bank raised its allowances to $20.8 billion.
“Earnings numbers are a bit of a reality check: The market has anticipated weak figures for the first and second quarters, but this is a reminder that things are not OK,” Seema Shah, chief strategist at Principal Global Investors, told the WSJ. “We may be close to an inflection point with the virus, and we may have policy support, but that’s not enough to avoid a deep contraction.”
Meanwhile, the International Monetary Fund has already warned that the global economy could suffer through its sharpest slump since the 1930s.
“Investors need a strong stomach to stick with stocks through some bad earnings reports in the coming days, weeks and months,” David Trainer, chief executive officer of investment research firm New Constructs, told Reuters. “Earnings and coronavirus are tightly intertwined and the more progress there is on coronavirus, the sooner economic activity resumes, and earnings rebound.”
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