Stocks closed sharply lower Friday in an ugly start to the month of May as investors showed disappointment with earnings from big tech companies and with President Donald Trump’s threat to impose import tariffs on China in retaliation for its handling of the COVID-19 pandemic.
How did the major indexes fare?
The Dow Jones Industrial Average US:DJIA fell 622.03 points, or 2.6%, to end at 23,723.69, while the S&P 500 US:SPX gave up 81.72 points, or 2.8%, to settle at 2,830.71. The Nasdaq Composite Index US:COMP retreated 284.60 points, or 3.2%, closing at 8,604.95. US:NQ00
After gains Monday through Wednesday that helped the major indexes post their best April in years, losing sessions Thursday and Friday left the benchmarks with losses on the week, with the Dow and S&P losing 0.2% and the Nasdaq ending the week 0.3% lower.
What drove the market?
U.S. stocks posted sharp losses as investors reevaluated the corporate earnings picture and the economic impact of the ongoing COVID-19 epidemic, after the major benchmarks notched their best monthly performances in years in April.
“After one of the best months in history, it’s not overly surprising to see some profit taking here,” said Matt Miskin, co-chief investment strategist at John Hancock Investment Management in an interview.
“We started off earnings season on fire — there was a big start to the tech results and last night it was more mixed,” he added. “Markets were pricing in near perfection from the tech giants and now we’re seeing some downward pressure on the market as there’s a bit more realistic view of these results.”
Analysts said it was the guidance — or lack thereof in the case of Apple — that appeared to unsettle investors. Apple reported that profits slipped slightly but sales grew amid the spread of COVID-19, while promising investors billions more in stock repurchases and dividends, but declined to provide an outlook. Shares of Dow component Apple Inc. US:AAPL closed 1.6% lower Friday.
Shares of Amazon.com Inc. US:AMZN. , the second-largest company by market capitalization in the S&P 500, ended the session down 7.6% after it said late Thursday it topped $75 billion in sales in the first quarter as COVID-19 swept across the globe, but profit declined and the company said it might lose money in the current period as it spends to keep up with demand.
Both Apple and Amazon are among the companies that led the S&P 500 index’s comeback from the March 23 lows and were two of the best performers in April. Amazon rallied nearly 27% in April while Apple jumped 15%.
The magnitude of the rebound from the market’s March 23 lows also has left valuations at very high levels during a time when the ongoing coronavirus epidemic makes forecasting future corporate profits difficult. The S&P 500 ended Friday with a forward price-to-earnings multiple of 19.8, well above historical averages, according to FactSet.
Meanwhile, global equities were pressured after President Donald Trump indicated he may consider imposing import tariffs on China.
The Washington Post on Thursday reported that U.S. officials are beginning to explore proposals for punishing China for its handling of the pandemic, including punitive import tariffs, adding to bearish sentiment on Wall Street.
“Supply chains were already in a tough place given the pressure to global growth, the lack of transport of goods around the world, and hearing that there could be even more strains to supply chains in the form of tariffs is rightfully being priced into the market negatively,” Miskin said.
Stocks saw little movement after the Institute for Supply Management said its April manufacturing index came in at 41.5%. Economists surveyed by MarketWatch, on average, had looked for the gauge to plunge to 35% from a 49.1% reading in March. A figure below 50 indicates a contraction in activity.
Which companies were in focus?
- The U.S. Food and Drug Administration said late Friday that it granted drugmaker Gilead Sciences Inc. US:GILD emergency use authorization for remdesivi, its experimental COVID-19 treatment. Late Thursday, the company said it would spend around $50 million to test and manufacture remdesivir, while reporting better-than-expected first-quarter results. Gilead shares fell 4.8% after rising more than 12% in April.
- Clorox Co. US:CLX shares rose 3.4% after the maker of cleaning and household products topped quarterly earnings forecasts, boosted by demand for disinfecting and other cleaning products.
- Dow component Chevron Corp. US:CVX on Friday reported a rise in first-quarter earnings but a drop in revenue from a year ago, as oil and commodity prices plunged in March. The oil giant said it was further reducing its 2020 capital expenditure outlook by $2 billion to $14 billion, and expects operating costs to decrease by $1 billion. Shares closed 2.8% lower.
- Exxon Mobil Corp. US:XOM shares retreated 7.2% on the day after the oil giant and Dow component posted its first quarterly loss in three decades.
- Honeywell International Inc. US:HON shares lost 3.3% after it reported a first-quarter profit that beat expectations, but sales that fell more than forecast as the industrial conglomerate said the COVID-19 pandemic had a significant impact on its supply chain, customer sites and on the commercial aerospace and oil and gas end markets
How did other markets trade?
Crude oil prices closed out the week higher, with the price of a barrel of West Texas Intermediate Crude for June delivery US:CLM20 gaining 94 cents, or 5%, to settle at $19.78 on the New York Mercantile Exchange. In precious metals, June gold US:GCM20 rose $6.70, or 0.4%, to settle at $1,700.90 an ounce on Comex.
The U.S. dollar was unchanged relative to a basket of trading partners, according to the ICE U.S. Dollar index US:DXY .