It’s not April anymore. A new month started on Friday with steep declines in each of the major indices just a day after celebrating one of the best 30-day periods in market history.
We knew something would have to give after the impressive runup last month, especially since most of the economy remains shutdown due to the coronavirus.
And a sharp drop in shares of Amazon (NASDAQ:AMZN), one of the superstars of the recent rally, didn’t help matters.
In fact, the retail giant’s earnings report last night was a big factor in the NASDAQ plunging by 3.2% (or about 284 points) to 8604.95. Meanwhile, the S&P slipped 2.8% to 2830.71 and the Dow dipped 2.55% (or 622 points) to 23,723.69.
These selloffs left each of the indices in negative territory for the week.
Shares of AMZN were off 7.6% on Friday after missing earnings last night and stating that it would be spending a lot on its coronavirus response. However, demand for its services are high and the stock is still up double-digits this year.
Apple (AAPL) is also feeling pressure from the current situation and offered no guidance in its report from last night. But the iPhone maker did beat on both the top and bottom lines and was down only 1.6% today.
Investors are, of course, very sensitive to what happens with these tech giants since they were among the leaders in April’s double-digit surge.
While we’re on the subject, let’s repeat those gains again… because they deserve to be repeated! The NASDAQ jumped 15.5% last month, while the S&P and Dow soared 12.7% and 11.1%, respectively. The indices have recovered about half of the coronavirus selloff.
Nobody knows which direction things will go in May, but we DO know it will be another crazy month.
We’ll be getting a lot more data that’s tough to take, such as yesterday’s jobless claims number and today’s manufacturing report (which continued to slump but still beat expectations).
And we may also have to worry about the U.S. holding China accountable for the coronavirus, which reminds the market of the trade war.
But they’ll be plenty of good news too. Late today, the FDA granted emergency use authorization to Gilead’s (GILD) remdesivir, which caught the market’s attention earlier this week with some good data on its effectiveness in treating the virus.
Meanwhile, a handful of states are beginning to open up. While these moves are controversial with some, we’re all wishing them the best. And their results will offer important information for opening other parts of the country when they feel comfortable.
So get ready for more volatility in May. Fortunately, the first day’s performance needn’t be a harbinger for the whole month.
Today's Portfolio Highlights:
Blockchain Innovators: The market isn’t responding very well to Amazon’s (AMZN) quarterly report from last night, so Dave felt it was a good time to take his double-digit win and look elsewhere. He sold the ecommerce giant on Friday for a return of more than 44%. The new buy is 360 Finance (NASDAQ:QFIN), which offers a digital consumer finance program that provides online consumer finance products to underserved borrowers through its funding partners. Blockchain applications really “thrive” in this business and its looking for more ways to use the technology in its business model. QFIN has a good valuation and is expected to bring EPS growth of more than 36% and sales growth of nearly 16.5% next year. Read the full write-up for more today’s moves.
Counterstrike: Earlier this week, Jeremy warned us that the next 100 points or so higher would be pretty tough for the S&P given the runup throughout April. The editor played some defense to prepare by adding a couple inverse ETFs. With the market plunging on Friday, one of those positions soared in the double digits and became the best-performer of the day among all ZU portfolios. That name was ProShares Ultra VIX Short-Term Futures ETF (UVXY) and it rose more than 13.5% today.
Zacks Short List: This portfolio really did its job on Friday with two double-digit winners on a day the S&P plunged by nearly 3%. Short positions in Royal Caribbean Cruises (NYSE:RCL) and Tesla (NASDAQ:TSLA) brought gains of 12.8% and 10.3%, respectively. Remember that this is an emotion-free portfolio that takes advantage in falling and volatile markets, which is certainly what we had today.
Value Investor: "May is certain to be volatile. The “reopen” hope trade is now behind us because states ARE reopening.
"Going forward, it will be about the recovery.
"The market likes certainty. Right now, there is little certainty about what the economy is going to look like by Memorial Day.
"Be ready for volatility. And as value investors, be ready to look for some stock deals." -- Tracey Ryniec
Have a Great Weekend!
Jim Giaquinto
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