Adam Vettese, UK Market Analyst at eToro, has provided his daily commentary on traditional and crypto markets for April 29, 2020.
Tech giants hit the headlines on Tuesday as the first of the results from the world’s largest companies were reported, while coronavirus cases in the US passed one million. Google parent Alphabet delivered first quarter earnings that showed its profits have taken a bigger hit than analysts had anticipated, although it beat revenue expectations. The firm, which is heavily reliant on digital advertising revenue, posted earnings per share of $9.87 versus $9.50 in Q1 2019 (although that quarter was marred by a $1.7bn fine levied by the European Commission related to Google’s online advertising practices).
Alphabet CEO Sundar Pichai said that the firm will be reducing spending, including hiring. But CFO Ruth Porat set a more positive outlook after stating that, while there was a sharp drop off in ad revenues in March, the situation had not worsened in April, with signs users are beginning to conduct more commercial searches again. Alphabet stock dropped 3% during trading yesterday prior to releasing its numbers, but soared more than 8% versus its closing price after an earnings call in which it successfully quashed investors’ concerns.
Facebook also made headlines on Tuesday, after The Wall Street Journal reported that recent changes to the company’s board were part of an effort by founder and CEO Mark Zuckerberg to consolidate his decision making power at the firm. In other corporate news, Pfizer announced it plans to expand its coronavirus vaccine trials, with a timeline for clinical trials by October.
Overnight, as oil markets rallied hard – WTI oil, which turned negative last week, was up 8% at $13 this morning – Asian markets made widespread gains to take a leading Asian equities index into bull market territory.
The MSCI Asia Pacific index is now up more than 20% from recent lows, the technical definition of a bull market. US futures are also indicating a strong opening today, with the likes of Alphabet providing upwards momentum.
Ford predicts $5bn pretax loss in second quarter
After climbing 4.1% during market hours ahead of its earnings announcement, Ford stock sank heavily in late trading after it announced that it expects to post a $5bn loss in the second quarter of the year. In its Q1 results, which it reported yesterday, revenues declined 14.9% to $34.3bn and the firm delivered a loss of $2bn. Ford stock is down more than 40% year-to-date, and its value had already nearly halved in the five years running up to the start of the pandemic.
All three major US stock indices posted a negative day yesterday, with the tech heavy Nasdaq Composite falling furthest at -1.4%, although the index is down just 4.1% year-to-date. Information technology stocks were among the day’s biggest losers, with the IT sector of the S&P 500 falling 1.4%, driven by a 2.4% decline in software stocks. The Nasdaq was led lower by 4% plus falls in names including Adobe and Netflix. In the Dow Jones Industrial Average, which fell just 0.1% on the day, led by gains from Dow, American Express, 3M and ExxonMobil — the last of which gained 2.3% on the back of oil price gains.
Dow Jones Industrial Average: -0.1% Tuesday, -15.6% YTD
Nasdaq Composite: -1.4% Tuesday, -4.1% YTD
British airways to cut up to 12,000 jobs
London-listed stocks continued their rally into Tuesday, with the FTSE 100 and FTSE 250 both gaining around 2%. The gains came despite British Airways announcing that it is going to cut up to 12,000 jobs from its workforce of 42,000, a reaction to the near total collapse of travel demand during the coronavirus pandemic. The firm said that it will take several years for air travel to reach pre-virus levels and warned that there is no government bailout waiting for the company. BA CEO Alex Cruz wrote in a letter to staff that “we cannot expect the taxpayer to offset salaries indefinitely … We will see some airlines go out of business.” Parent firm IAG’s stock closed 1% down following the news.
Away from the airlines, the FTSE 100 was helped higher by significant gains posted by banking stocks, including an 8.9% pop for Lloyds Banking Group, 7.4% for Barclays and 7% for Royal Bank of Scotland.
FTSE 100: +1.9% Tuesday, -21% YTD
FTSE 250: +2.1% Tuesday, -25.6% YTD
What to watch
Microsoft: More than 40 firms with a market cap of at least $10bn are reporting earnings in the US on Wednesday, but Microsoft is the biggest of the lot. The $1.3trn market cap tech firm has delivered a positive 7.7% return year-to-date, and 30% over the past 12 months, as mass working from home drives adoption of its cloud services and demand for personal computing products, where supply is far more an issue than demand. Expect analysts to probe company management on exactly how much of a constraint supply chain disruption has been on the firm’s earnings call. Expectations for the quarter are riding marginally higher than they were three months ago, with analysts now projecting a $1.28 earnings per share figure, versus $1.24 before. Wall Street overwhelmingly favours a buy rating on the stock, with 28 buy ratings, two overweights, four holds and no sells.
Tesla: Tesla stock has been a serious rollercoaster ride for investors in 2020. The firm sank dramatically in the broader market sell-off, losing more than half its value — much of which was amassed in a mammoth rally running from late 2019 into early 2020. Since mid-March, the stock has almost rebounded to its former highs, meaning over the past 12 months the stock is up over 200%. The firm reports its Q1 2020 earnings after market close on Wednesday, where analysts will be asking how factory shutdowns and economic lockdown have affected deliveries and sales, and how much of a compensating factor the reopening of its new Shanghai factory has been. Three months ago, analysts expected an earnings per share figure of $0.99 for the quarter; now, the consensus estimate stands at -$0.32. Wall Street analysts’ consensus rating is a hold.
Boeing: The grounding of global air travel could not have come at a worse time for Boeing, which was already battling to get its 737 Max airliner deemed airworthy again, after two disastrous accidents resulted in a huge loss of life. The firm has already backed out of a $4bn acquisition deal to save cash, and key rival Airbus has said it will be quickly cutting costs to adapt to the new economic reality the aerospace industry faces. Government intervention, the firm’s gradual production restart at its Seattle facility, and an update on order cancellations are all items certain to be on the agenda when the company reports its first quarter earnings on Wednesday morning. Expectations for the quarter have sunk from a -$0.06 earnings per share figure to -$1.60 over the past three months. Boeing stock is down by 60% year-to-date and has been left out of the broad market rally in recent weeks.
Other major US firms reporting on Wednesday: Facebook, Mastercard, American Tower Corp, Qualcomm, Vertex Pharmaceuticals, Crown Castle, Anthem, CME Group, Automatic Data Processing, Servicenow, Northrop Grumman, General Electric, Boston Scientific, Humana, Ebay, Spotify.
Crypto corner: Ethereum 2.0 project passes next milestone
The likelihood of Ethereum 2.0, its second incarnation, is seemingly one step closer after coders released a multi-client testnet for it. This is a vital step in the process towards launching a second version of Ethereum, a cryptoasset which aims to maintain decentralisation.
The multi-client phase is crucial because there are various different developers and companies that are creating their own Ethereum 2 versions, and these need to communicate with each other for it to take off.
Broadly, the demand for cryptoassets remains strong, with both Bitcoin and Ethereum charging higher overnight. Bitcoin is closing ever nearer on the $8,000 mark while Ethereum broke through the $200 mark for the first time since the early March sell-off to trade at $203 this morning.
All data, figures & charts are valid as of 29/04/2020. All trading carries risk. Only risk capital you can afford to lose.
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