The futures are pointing to a significantly higher open this morning after yesterday’s rally fizzled.  The Dow was up 378 points at the high before pulling back and ending the day down -32 points to 24,102. The S&P 500 lost 0.5% to 2863, and the Nasdaq suffered the biggest decline 1.4% to 8608.

While the markets couldn’t hold on to the gains yesterday, breadth continues to tell a more positive story.  Advancers outpace decliners, up volume exceeds down, especially on the NYSE, and there were significantly more new 52-week highs than lows.

Energy was the best performing sector despite oil being lower.  WTI closed down 4.6% to $12.37, after recovering from being down 22% during the session.

Healthcare was the biggest loser yesterday, as Merck (MRK) and Pfizer (PFE) were lower after reporting earnings, and Johnson & Johnson (JNJ) was downgraded.  The FAANG stocks, which were hit again, impacted Communication Services and Technology.  So far this month, all 11 S&P sectors are in the green. Today, will be a different story for them after Google’s earnings report.

The earnings parade continued as numerous companies reported results.  While the results have been mixed, the thesis is similar. Most companies results were good for the first two months of the quarter but began experiencing major slowdowns in March.  Some are suspending or cutting dividends and withdrawing or lowering full year guidance.  Big names reporting include:

• Alphabet/Google (GOOGL): while the company beat on revenues of $41.16 billion, in March it "experienced a significant slowdown in ad revenues."  Search revenue was up 8% to $24.5 billion. EPS of $9.87 missed by $1.12. Stock is up 8%.
• Boeing (BA): missed on EPS and Revenue, however free cash flow was better than expected. Net loss was $1.70 per share, revenue declined 26% to $16.91 billion. Commercial airplane revenue fell 48% to $6.21 billion, but it beat expectations of $5.94 billion. Shares are indicating up 5.5%.
• Starbuck’s (SBUX) beat on revenues and meet on EPS.  The company experienced a 10% drop in same store sales last quarter due to closures.  Net revenue was $6 billion, down 5% from the previous year and adjusted earnings per share was $0.32. Up 1% in pre-market.

Meat

Yesterday, President Trump used the Defense Production Act to declare meat processing plants critical businesses to help avoid meat shortages.  Over 5,000 food and meat processing employees have been either exposed or infected by Covid-19 causing many plants to shut down. The executive order requires the plants that produce beef, pork, and poultry to reopen or stay open. There will be new guidelines including recommendations for employees 65-year-old and up along with those with pre-existing conditions to stay home.  In exchange, administration may protect these companies against lawsuits from employees that may be exposed to the virus.

Remdesivir

Positive data emerged from the NIAID study of Gilead’s trial of its drug remdesivir to treat Covid-19. The 5- and 10-day treatment were well tolerated and showed similar results in treating the virus, which could potentially help ramp up supply.  There will be more data available today, and after being halted, GILD is up about 8%.  

The data from Gilead’s trial has rocketed the futures significantly higher.  And right now, it seems more important than the abysmal first quarter advance GDP numbers of -4.8% versus estimates for -3.5%. The quarter is expected to have the largest economic contraction since 2009.  Let’s see what the Fed has to say about it later today.

Portfolio Approach

Yesterday, we closed a position in Technology and added to Healthcare.