By Scotia Wealth Management - The Zukiwsky Group

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MARKET WATCH: February 7

Feb 7, 2020 | 10:11 AM

Big Picture

N.A. Markets Climb as Coronavirus Fears Begin to Wane, Earnings Improve

U.S. stocks began to bounce back Monday from last Friday’s deep sell-off, which saw the Dow drop over 600 points, as investors bet that the coronavirus outbreak wouldn’t severely impact U.S. economic growth. In the U.S., January manufacturing data released Monday showed that the sector had returned to growth, and that new orders for manufactured goods rose in December at the fastest pace in more than a year. By Monday’s close, the Dow had climbed 144 points, while the TSX was up 61, buoyed by domestic data that showed Canadian manufacturing activity expanded in January for the fifth straight month.

N.A. stocks continued their ascent on Tuesday as the Nasdaq hit a record high and the S&P 500 posted its biggest one-day gain in about six months after China’s central bank injected more than 1.7 trillion yuan (US$242 billion) in economic stimulus over two days. Crude prices also rebounded Tuesday, with Brent crude gaining over 1%–just a day after skidding into a bear market as it fell more than 20% from September levels.

Canada’s main stock index rose on Wednesday, aided by a 3.7% jump in energy stocks, as oil prices soared. Also boosting sentiment was data that showed Canada posted a narrower-than-expected trade deficit in December. By Wednesday’s close, the Dow had jumped 438 points, while the TSX surged 139.

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Another positive this week has been U.S. corporate earnings, which have largely beaten analysts’ expectations. By the close of reporting season, analysts expect modest earnings growth overall—a definite plus after multiple quarters of declining earnings. The news from Europe was also upbeat this week as eurozone business activity accelerated in January.

Finally, U.S. markets headed higher Thursday after China said it would slash existing tariffs by half on $75 billion of U.S. imports.

N.A. Markets Recover Ground…And Then Some

For the four days covered in this report, the Dow surged 1,124 points to close at 29,380, the S&P 500 jumped 120 points to settle at 3,346, while the tech-heavy Nasdaq added 421 points to close at 9,572. In Canada, the TSX gained 439 points to end at 17,757.

Equities

S&P 500 companies provided upbeat earnings guidance for 1Q20 when compared to historical first quarter trend. Thanks to strong quarterly reports from technology and consumer companies, the S&P 500 appears set to post an EPS decline of just -0.3% on a year-over-year basis for 4Q19. This is well above an EPS decline of -1.9% expected only two weeks ago. Excluding the declines in the energy sector, the index is on track to post EPS growth of more than 2% for the quarter. So far this earnings season 38 companies have offered guidance for 1Q20, and the outlook has been notably less negative than the average of the last six years. For 1Q20, negative revisions outpaced positive 13 to 10, with the remaining firms offering neutral guidance. Declining trade related uncertainties, an accommodative monetary policy and better performance in the manufacturing sector can improve global growth prospects for 2020. Notwithstanding the potential impact from the coronavirus outbreak, this should translate into a modest rebound in earnings growth for 2020.

_Disclaimer

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