Mixed Signals | Flow Traders Investment Competition | Week 25

Major global index returns were mixed this week, as investors are pricing in the hope that progress containing the coronavirus will soon result in partial reopening of multiple economies. The Nasdaq index outperformed this week by a wide margin, as did growth firms and large-caps relative to value and small-caps. Gains by Amazon boosted consumer discretionary shares, and gains among pharmaceutical helped health care stocks. Most of this week’s gain came on Tuesday, when investors reacted positively to reports indicating lower infection rates and hospitalizations. 

Another significant factor in the day’s rally was pressure put on traders with a short position in stocks that had been hurt the most by the pandemic. The STOXX Europe 600 Index rose 0.61%. Other markets were mixed, with Germany’s Xetra DAX up 0.66%, France’s CAC 40 little changed, and Italy’s FTSE MIB down 2.91%. The UK’s FTSE 100 Index slipped 0.93%.  The Nikkei 225 Stock Average advanced 399 points (2.0%) and closed at 19,897.26. For the week overall, the Shanghai Composite index rose 2.0% and the CSI 300 large-cap stock index gained 2.3%, both indexes gaining steadily over the week.

Tuesday also marked the start of earnings reporting season, with major banks reporting first-quarter profits. JPMorgan and Wells Fargo reported profit declines of 70% and 89%, respectively, while Citigroup reported a drop of 46%. While bank earnings are feeling the pinch of lower lending margins due to falling interest rates and the prospect of rising loan defaults, analysts polled by FactSet expect other sectors to fare somewhat better, with overall earnings for the S&P 500 declining 14.5%. The week’s economic data highlighted the challenges facing companies and appeared to foster a downturn on Wednesday. Retail sales dropped by 8.7% in March, the biggest decline ever. 

On Thursday, another 5.2 million Americans had filed unemployment claims, bringing the total over the previous four weeks to more than 22 million. For Europe, The IMF predicted that the economy will shrink by 7.5%. It also forecast that gross public debt will rise by around EUR 800 billion and reach 97.4% of gross domestic product (GDP), much higher than during the sovereign debt crisis. As expected, Greece and Italy will have the highest debt burdens this year among euro area countries. 

The growth projections from the IMF point to a 5.2% contraction in Japanese growth this year 2020. The headline annual decline in first-quarter GDP of 6.8% was within a broad range of estimates. Financial markets were able to rise on the news, even though the majority of the monthly data that were released alongside the GDP estimate also came in below expectations. 

The week ahead: earnings season will be dominating this week, with approximately 20% of the companies in the S&P 500 reporting their Q1 results. In addition, we have the following economic indicators that will be released this week. For the U.S.  Existing home sales will be published on Tuesday, weekly unemployment claims, new home sales and PMI on Thursday. Consumer sentiment and durable goods orders will be published on Friday. 

Let’s move on to the Investment Competition. On the top of the mountain, this week, stands Clear Water Group with a positive M2 of 23.31%, followed up by Concordia international and Omega investments. Our biggest risers in the rankings this week is MBA investors (+10) and a formidable weekly gain of 8.70%. On the other hand, Alpha investments dropped 11 spots in the ranking. 

Amar Soebhag