Market Brief: April 28, 2020

A daily summary of news, analysis and data shaping the market.
Market Brief
Tuesday, April 28, 2020
Weighing Reopenings. U.S. stocks gave up early gains to close mostly lower on Tuesday as investors gird for a slew of corporate earnings and the possibility that resuming normal economic activity could reignite coronavirus infection rates. The Dow Jones Industrial Average lost about 32 points, or 0.1%, to close near 24,101, while the S&P 500 gave up about 15 points, or 0.5%, to end the session near 2863. The technology-heavy Nasdaq Composite Index closed about 122 points, or 1.4%, lower, near 8608, with a full slate of tech names set to report earnings over the next few days. Investors were weighing the recent run-up for tech stocks since the mid-March market bottom against the possibility that the coming downturn could be worse than is commonly believed, and that a rush to resume normal activity could be dangerous. 3M shares jumped nearly 3% after it announced
earnings and sales that beat expectations.
DJIA 24,101.55 -32.23
S&P 500 2,863.39 -15.09
NASDAQ 8,607.73 -122.43
US 10-Year Note 0.61 -0.05
Dollar Index 99.88 -0.16
Crude Oil 12.67 -0.11
Gold 1,721.20 -2.60
Global Dow 2,625.02 17.84
Powered by Dow Jones Research, FactSet, Eurostat, SIX Financial Information.
Alphabet Earnings Hit by ‘Significant Slowdown’ in Ad Sales
Google’s profits were damaged even more than expected as the Covid-19 pandemic caused “a significant slowdown in ad revenues,” parent company Alphabet revealed in a quarterly earnings report Tuesday.

Alphabet reported first-quarter earnings of $6.84 billion, or $9.87 a share, compared with $6.66 billion, or $9.50 a share, in the year-ago period, though the 2019 results took a hit from a large fine levied by the European Commission. Revenue after removing traffic-acquisition costs grew to $33.7 billion from $29.48 billion in the year-ago period.

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IBM Bucks the Trend and Raises Its Dividend for the 25th Straight Year
IBM did something on Tuesday that few companies are daring amid the Covid-19 pandemic: It raised its quarterly dividend.

This marks the 25th straight year that the computer giant has raised its payout—up a penny to $1.63 a share. IBM has been paying quarterly dividends continuously since 1916. Its shares now yield 5.17%.

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Pfizer, Merck Earnings Beat Expectations
Two of America’s biggest pharmaceutical companies, Pfizer and Merck, released earnings Tuesday morning that beat analyst expectations.

Pfizer reported first-quarter earnings of 80 cents per share, beating the S&P Capital IQ Consensus estimate of 71 cents. The company reported revenue of $12 billion for the quarter. Merck reported earnings of $1.50 per share, 16 cents more than the S&P Capital IQ Consensus estimate, and quarterly revenue of $12.1 billion. But while Merck lowered its guidance for the full 2020 fiscal year in light of the Covid-19 pandemic, Pfizer reaffirmed the guidance it issued before the pandemic was in full force.

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3M’s Earnings Were Surprisingly Strong. Health Care and Masks Boosted Sales.
The industrial conglomerate 3M turned in better-than-expected earnings results for the first quarter of 2020 in a surprise fueled by the company’s health-care and personal-safety-equipment operations.

The company earned $2.16 a share from $8.1 billion in sales, while Wall Street was looking for $2.03 in per-share earnings and $7.9 billion in sales. Health-care sales jumped 21% year over year. Last year, health-care sales grew 0.3% in the first quarter. Overall, health care represents about 22% of total sales at 3M.

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Caterpillar’s Earnings Miss Expectations
Caterpillar’s first-quarter earnings, at about $1.60 a share, fell short of Wall Street estimates for a result of $1.69, but the stock rose anyway because earnings, right now, don’t matter.

Covid-19 shelter-in-place mandates went into place at the end of March, so conditions for Caterpillar for most of the first quarter qualified as normal. What is most important to investors right now is the shape of the coming economic recovery. There isn’t, however, much in the earnings press release about a recovery. The company, like many other firms, has suspended its full-year financial guidance, cut costs, and gathered cash resources.

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UPS Sales Impress, but Earnings Fall Short
Shipping giant United Parcel Service missed Wall Street earnings estimates while blowing past sales estimates.

It was a wild quarter. Results reflect that. No one knew exactly what to expect. Many industrial businesses that UPS delivers to are closed to help slow the spread of Covid-19. Wall Street earnings estimates, as a result, fell over the past few weeks. But UPS, along with its peer FedEx, are still working hard, delivering packages to homes and essential businesses despite the health risks.

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PepsiCo Sales Surge as Shoppers Stock Up
PepsiCo, the soda and snack giant, reported surging sales in the first quarter.

The beverage maker, which also owns Lay’s and Doritos, said organic sales grew 7.9% in the first three months of the year as consumers stocked up due to lockdown measures and shelter-in-place orders. Chief financial officer Hugh Johnston told analysts he expected second-quarter sales to decline at a low single-digit rate as restaurants, movie theaters, and other venues remain closed around the world.

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Good News on Oxford Vaccine Is Bright Spot in Somber Covid-19 Landscape
A vaccine developed by academic scientists at the University of Oxford is moving quickly into large clinical trials, giving investors a dose of optimism amid a grim landscape.

The vaccine effort, highlighted Monday in a New York Times article, is being run out of the British university’s Jenner Institute, which focuses on vaccine development. The laboratory began Phase 1 trials of the experimental vaccine on April 23, and said on April 24 that it planned to vaccinate 800 volunteers over the course of a month.

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Meat Shortages Are Coming as Coronavirus Shuts Down Packing Plants
The novel coronavirus has upended the U.S. meat-supply chain, with American consumers likely to face shortages of beef and pork before the end of May even as farmers are forced to slaughter millions of unwanted cattle and hogs.

Since the beginning of April, meatpacking plants across the country have been forced to shut in response to viral outbreaks that have infected thousands of workers. Meatpackers work in tight spaces and breathe recirculated air during long shifts, which makes it easy for the virus to transmit across the thousands of workers in a single plant. The United Food & Commercial Workers union estimates that 20 workers in meatpacking and food processing have already died from Covid-19, the disease caused by the new coronavirus.

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Harley-Davidson Braces for Loan Losses
Harley-Davidson reported another quarter of falling revenue in its motorcycle sales. Shipping 10% fewer bikes in the March 2020 quarter than in the 2019 period, the American icon reported an 8% revenue drop. But what knocked earnings down some 44% were the reserves it’s taking on loans it made to its bike buyers.

“Covid-19 has dramatically changed our business environment and it is critical we respond with agility to this new reality,” said Jochen Zeitz, who stepped in as acting chief executive after the February resignations of longtime leader Matt Levatich. He said the company was formulating a new strategic plan for growth and profits.

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