Stocks rally as governments plan to ease virus lockdowns

Stan Choe, Damian J. Troise And Alex Veiga Ap Business Writers
Monday, April 27, 2020
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A currency trader stretches at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea, Monday, April 27, 2020. AP PHOTO

Stocks around the world rose Monday as governments prepare to gradually lift restrictions they imposed on businesses to slow the sweep of the coronavirus pandemic.

The S&P 500 was up 1.2% in afternoon trading, at the start of a week chockablock with market-moving events. Several of the world’s largest central banks are meeting, including the Bank of Japan, which announced its latest stimulus measures to prop up markets.

A slew of the biggest U.S. companies are also scheduled to report how much profit they made in the first three months of 2020, including the handful that most heavily dictates how the market moves. More importantly, CEOs may also talk about how they see future conditions shaking out.

With central banks and governments promising overwhelming amounts of aid for markets and economies, some investors see a repeat of the 2008 financial crisis as unlikely. That has them looking beyond the economic devastation currently sweeping the world to the potential return of growth as the outbreak levels off in some areas.

“Investors have written off 2020 as a shocker and are looking more intently into the landscape in 2021,” Chris Weston of Pepperstone wrote in a report.

Treasury yields pushed higher in an indication of less pessimism in the market, but crude tanked again in the latest extreme swing that’s dominated oil markets in recent weeks.

The Dow Jones Industrial Average was up 260 points, or 1.1%, at 24,035, as of 12:10 p.m. Eastern time, and the Nasdaq was up 1%.

Some of the stocks hardest and earliest hit by the coronavirus pandemic were leading the way.

Shares of banks and other financial companies rose 3.1% for the biggest gain among the 11 sectors that make up the S&P 500. They had earlier tumbled on worries about waves of households and businesses defaulting on their loans.

The recent reopening of some businesses in the United States and a slowdown in deaths and hospitalizations in the hardest-hit state of New York helped revive them. So did a rise in Treasury yields, which can help them make bigger profits from making loans. JPMorgan Chase rose 4.6%, and Bank of America gained 4.5%. Financial stocks, though, remain down 27% for the year.

Real-estate investment trusts that own shopping malls also recovered a portion of their earlier losses as investors looked toward a future where people actually leave their houses again. Even travel-related stocks, which fell before the rest of the market on worries about the coronavirus outbreak, were strong.

The big gains, though, are built more on hope that conditions will continue to improve than on anything certain. Some investors are worried that reopenings of businesses could actually trigger a second wave of infections if they’re premature, and many warn that it’s still too uncertain how long this recession will last.

“The sense I get is people are not going to be comfortable with life as usual,” said Marc Chaikin, founder of Chaikin Analytics. “It’s a big leap of faith to expect that earnings are going to go back to pre-2020 levels.”

“The biggest risk to the stock market is if the reopenings don’t go well,” he said. “If that were to happen, that would deflate the investment psyche.”

And it’s not like stocks are screamingly cheap. Companies in the S&P 500 are trading at 19.1 times their expected earnings per share over the coming 12 months. That’s a more expensive level than their averages over the last five and 10 years, and even higher than when stocks peaked two months ago, according to Bruce Bittles, chief investment strategist at Baird.