Need to Know
Published: May 26, 2020 at 8:47 a.m. ET
Critical information for the U.S. trading day
The glass is half full for Tuesday, with investors taking any positive bit of news on the virus front and running with it. That list includes vaccine news, lockdown easings across the U.S. and Europe, and Spain’s plans to crack open its borders to visitors again.
It may help also help morale to see a few NYSE traders return to the floor, for the first time since late March.
Our call of the day comes from BlackRock’s chief investment officer for U.S. fundamental active equity, Tony DeSpirito, who said that while he doesn’t see markets as too optimistic right now, there is plenty that investors may not fully understand about assets and the economy.
He has got a few more worries, such as whether the world will see a second wave of the virus and the vaccine odds, plus rising U.S. and China tensions remain a point of concern for investors.
DeSpirito added that when it comes to stocks, absolute valuations, which calculate present values of businesses by forecasting future cash flows, “are not cheap. That said, stocks are still very attractively priced when compared with bonds. The implied equity risk premium (the expected return on stocks over bonds) is still quite high,” said DeSpirito.
If the virus “continues to wane,” and activity starts to normalize, S&P 500 SPX, 2.01% earnings estimates for 2021 should “approximate the original estimates for this year.
“A recession shouldn’t really change either the long-term growth of the economy, the earnings power of the S&P 500 index, or the valuation of the market. The market always overshoots in corrections,” said DeSpirito.
On the heels of the Memorial Day break, Dow YM00, 2.28%, S&P SPX, 2.01% and Nasdaq COMP, 1.70% futures are soaring, alongside European stocks SXXP, 1.03% and those in Asia, with the Nikkei NIK, +2.55% and Hong Kong stocks HSI, +1.88% up over 2% each.
The rate of U.S. job losses may have slowed in May, according to this chart from the Dallas Federal Reserve:
It is compiled from an online household survey — the Federal Reserve Real-Time Population Survey — that documents labor market trends in real time and at a higher frequency than official employment data.
Spain will open its borders to some foreign visitors as of July 1, but so far only from European countries where virus outbreaks are under control. Travel-related companies surged in Europe on that news.
China’s military says 10,000 troops were ready to “safeguard” the mainland’s interests in Hong Kong over Beijing’s plan to impose a new security law, with protesters active on Sunday. Beijing is also unhappy about an expanded U.S. blacklist of technology companies over human rights abuses.
A pair of home price indexes, consumer confidence for May and new home sales data are on tap for Tuesday.