State of the Stock Market Analysis for the Week Ending on May 3, 2020 (Volatility Most Likely Here to Stay in Coming Weeks | State of the Stock Market 5-3-20All You Need Is Jobs

The last week of April was as busy as it gets, as a slew of crucial corporate earnings reports, economic releases, and central bank meetings led to wild swings across asset classes. The Fed and the European Central Bank (ECB) ended up slightly disappointing investors since a lot of analysts were expecting further easing steps to support the global economy that suffered a huge shock due to the pandemic. Corporate earnings were relatively stable, especially in the all-important tech sector, but that was not enough to keep the broad rally alive, and the major indices sold off toward the end of the week. U.S. stocks are still relatively strong compared to global risk assets, with especially emerging markets showing signs of stress due to the COVID-19 crisis, which could mean volatility is here to stay in the coming weeks.

We had another week of bearish economic surprises, with almost all of the key measures missing even the already bearish expectations. While that all but confirms that the pandemic’s short-term hit to the U.S. economy is bigger-than-expected, the lockdowns will likely end well before most analysts feared, which could lead to a quick recovery in the coming months. The weekly number of new jobless claims was 3.84 million, the CB consumer confidence number dropped to 86.9, while personal spending crashed by 7.5%. The U.S. GDP declined at an annualized rate of 4.8% in the first quarter, which is the biggest drop in output since 2009. Only the ISM manufacturing PMI and construction spending beat expectations in April.

The sharp late-week dip was not enough to erase the technical improvements of the past few weeks, and the key trend indicators continue to paint a mixed picture of the major indices. The S&P 500, the Dow, and the Nasdaq all closed the week above their declining 50-day moving averages, but apart from the tech benchmark, the indices are still stuck below their 200-day moving averages. Small-caps surged higher in the first half of the week, but the Russell 2000 all but gave back its encouraging gains on Friday, and it remains below both its moving averages. The Volatility Index (VIX) jumped higher by 20% in two days due to the broad selloff, but while the fear gauge’s closing value of 37.5 is still very high, it remains below its rising 50-day moving average.

Even though market internals improved significantly as small-caps joined the post-crash rally in earnest, the second half of the week saw another deterioration in the most reliable breadth measures. The Advance/Decline line finished the two-faced week virtually unchanged, even though advancing issues outnumbered decliners by a 3-to-2 ratio on the NYSE, and by a 4-to-3 ratio on the Nasdaq. The average number of new 52-week highs rose on both exchanges, ticking higher to 17 on the NYSE and 34 on the Nasdaq. The number of new lows decreased in the meantime, falling to 3 on the NYSE and 6 on the Nasdaq. The percentage of stocks above their 200-day moving average also jumped higher in the first half of the week, but the measure closed near 18% again on Friday, erasing all of its gains.

Short interest first took a nosedive in the first half of the week, but the most-shorted issues got walloped ahead of the weekend break amid the intensifying economic worries. iRobot (IRBT) remained very strong in the face of the late-week pullback, after hitting its highest level since October, and the stock’s very high short interest of 49% could continue to fuel its rally. Even though National Beverage (FIZZ) finished the week slightly lower, it’s still trading near its recent almost six-month high, and its short interest of 58% means that a lot of bears could be hurt even more in the coming weeks. Snap-On (SNA) skyrocketed in the wake of its first-quarter earnings report. While it dipped lower together with the broader market in the second half of the week, its days-to-cover (DTC) ratio of 9 might continue to help the stock in its post-crash recovery.

Even though the most valuable companies already reported earnings this week, we will still have companies worth trillions publishing their quarterly numbers next week including Disney (DIS), PayPal (PYPL), CVS Healthcare (CVS), Bristol-Meyers (BMI), Raytheon (RTX), and T-Mobile (TMUS). As for economic releases, we will have another busy week, with all eyes on Friday’s government jobs report. Before that, factory orders will be released on Monday, the ISM non-manufacturing PMI will highlight Tuesday’s session, the ADP payrolls number is scheduled for Wednesday, while the Challenger job cuts estimate and the weekly number of new jobless claims will be released on Thursday. Besides the economic numbers, investors will keep a close eye on the number of new COVID-19 cases in the states and countries that are starting to ease their lockdown measures. Hopefully, we will not see a spike in infections. Stay tuned!

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