Earnings standouts helping the Nasdaq. The broad S&P 500 Index opened lower this morning amid some skepticism about whether the rally off the March lows is fully justified, but the Nasdaq is getting a lift from well-received earnings results. Asian markets were higher overnight in tracking Wednesday’s gains in the United States, while European markets were broadly lower.
More job losses. The flood of Americans seeking unemployment benefits has slowed but remains extremely high after 3.8 million people filed for unemployment claims from April 19 to 25. That puts the total filings since the crisis began at around 30 million and highlights the severity of the recession. Backlogs of filings in some states suggest filings may remain elevated into May. The unemployment rate is likely headed to the mid-teens or higher, though many of those jobs will come back as the economy reopens.
Sell in May? As stocks are wrapping up one of the best months ever, the historically worst six-month period for stocks is around the corner. The May-October period has been the worst six months of the year for the S&P 500, but it has produced gains in seven of the past eight years. We discuss this in today’s LPL Research blog.
Emerging markets. Emerging markets estimates have held up relatively well, but they haven’t escaped the global pandemic’s wrath. Estimates for the next 12 months for the S&P 500 and MSCI EAFE indexes have fallen by about 18% over the past two months, compared to 14% for the MSCI Emerging Markets indexes (source: FactSet). China’s early emergence from the crisis helps solidify the earnings outlook and supports our continued favorable emerging markets equity view.
US stocks getting expensive. With the S&P 500 trading at a forward price-to-earnings ratio (PE) near 20, some are looking for more attractive valuation opportunities. At a 23% discount to the S&P 500, the MSCI EAFE Index is attractively valued, but for tactical investors looking for international exposure, we continue to favor emerging markets, which we find more compelling at a 36% discount.
Biggest economic contraction for Eurozone. Eurozone gross domestic product (GDP) fell 3.8% in the first quarter, non-annualized, the sharpest contraction ever reported and far greater than the annualized 4.8% contraction in the US economy reported on Thursday. The European epicenters of the pandemic—France, Italy, and Spain—had even larger contractions in their economies. This supported the European Central Bank’s decision, announced this morning, to expand its stimulus program, though it’s still probably not enough.
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