Week in a Glance: optimism, pandemic and earnings season ahead

13 Jul 2020

The main result of the week was new historical highs in the Nasdaq Index. The reason for the sharp rise in optimism on Friday was information from Gilead Sciences about the latest test results for remdesivir, which, according to their data, reduces the risk of death from coronavirus by 62%. Oil was added to the fire by Biontech, saying that they are ready to provide the vaccine by December (meaning to submit it to regulatory authorities).

All this, of course, is great. But buyers clearly do not ask themselves one simple question: what to do here and now, when last week a new absolute maximum was recorded in the number of new cases in the world and the USA in particular. Today this is more urgent issue, since a week or two of such a tendency and lockdown No. 2 will become real.

Also, none of the buyers seem to be interested in the dynamics of bankruptcies: their number continues to grow and we are not talking about small companies, but about entire networks of retail trader, restaurants, gyms, etc. Last week, the legendary Brooks Brothers filed for the Bankruptce, and Ascena Retail Group Inc (Ann Taylor, LOFT, Lou & Gray, Justice, Lane Bryant, Catherines and Cacique brands) plans to file for bankruptcy. Other names include Rosehill Resources Inc., Sur La Table, Lucky Brand Dungarees, Muji, G-Star RAW USA and many others.

This week will be fulfilled with important events: ECB, Bank of Japan and Bank of Canada will provide us with their decisions. In addition to important macroeconomic statistics such as China’s GDP for the second quarter, UK GDP for May, US retail sales for June, we are waiting for the start of the earnings season in the US for the second quarter.

The earnings season promises to be the most disastrous in history. That is why we have until recently recommended and still recommend sales in the US stock market despite its growth. Total overvaluation, multiplies by disastrous data of corporations will become the last straw that will fill the cup of patience and the bubble will go to the stage of collapse.

Traditionally, banks will be the first to report. Recall that last quarter, the drawdown in their profits ranged from 50% (CitiGroup) to 90% (Wells Fargo). And this is according to the results of the quarter, when the US did not yet have an epidemic and lockdown. So there is every reason to expect losses in the second quarter, when the economy showed the largest drop in history.