Before The Bell - The investment community will return this week from a long holiday weekend as the U.S. equity and bond markets were closed on Friday in observance of the Independence Day holiday. The mood on Wall Street improved last week, with sentiment helped by some encouraging reports on the U.S. economy. A better-than-expected jobs report for the month of June, as well as an encouraging reading on consumer confidence gave equities a boost even with lingering worries about a resurgence of coronavirus cases in several states that aggressively opened their economies. Some of the aforementioned states are pulling back on the gas pedal amid the surge of COVID-19 cases. Still, the major averages delivered a positive performance during the abbreviated four-day stretch, with gains of around 1% each for the Dow Jones Industrials, the NASDAQ Composite and the S&P 500 Index. That buying is set to continue stateside this morning after a strong showing overnight in Asia.

On Thursday, the aforementioned indexes, along with the small-cap Russell 2000, jumped out to big gains, with the NASDAQ hitting a record high above the 10,300 mark. The main catalyst was an encouraging report from the Labor Department. Specifically, nonfarm payrolls increased by 4.8 million last month, far exceeding the consensus expectation, and the nation’s unemployment rate contracted from 13.3% in May to 11.1% last month. Wall Street viewed it as a positive sign that the economy is recovering from the COVID-19 driven shutdowns earlier this year, and when combined with an uptick in consumer confidence and a record jump in pending home sales earlier in the week, stocks moved higher during the week’s final trading session, even with some late-day profit taking on display. For the session, the Dow 30, NASDAQ, and S&P 500 Index climbed 92, 53, and 14 points, respectively.

Now with the economic picture looking a bit better than it did a few months ago, the next big hurdle for Wall Street on the wall of worry in front of it will come in the form of the second-quarter earnings season, which commences next week with June-period results from banking giant JPMorgan Chase (JPM) on July 14th. Overall, the second-quarter results are expected to be dismal, with much of the U.S. economy shut down for a significant portion of the 90-day stretch. Given this assumption, we think the accompanying guidance and the remarks from each company’s leadership will be what Wall Street is most interested in, and will likely trade on those factors. One theme that we think will continue is that the technology stocks will maintain support, as those companies were most apt to weather the second-quarter economic weakness. 

But until we get to the commencement of earnings season, our sense is that trading will continue to be fueled by coronavirus news and whether the many states that have seen a recent in spike in cases can balance slowing the virus and keeping the economic progress going. On the business beat, the reports will be on the light side, with data on nonmanufacturing activity (due at 10:00 A.M. (EDT) this morning) and producer prices (Friday) book ending a quiet  middle three days. This light schedule will probably put Wall Street’s focus on the latest COVID-19 news. 

Before the opening bell, the equity futures are pointing to a nicely higher start for the U.S. equity market. So far overseas the trading has been real good. The main indexes in Asia finished sharply higher overnight, led by an eye-catching 5.7% jump in China’s Shanghai Composite, while the major European bourses are well into positive territory as trading moves into the second half of the session on the Continent. Driving stocks upward today was an editorial in the Securities Times, China’s state-run media outlet, suggesting that the nation prioritize fostering a “healthy” bull market after the pandemic. This, along with news over the weekend that President Trump signed into law an extension (from June 30th to August 8th) for applications into the Paycheck Protection Program (PPP), a key component of the virus-related fiscal stimulus intended to aid small businesses by receiving subsidies for costs including payrolls, is giving a boost to stocks around the globe. In general, investors, at least for the moment, seem to be betting that the reopening of the U.S. economy will continue, even with the record surge in coronavirus cases stateside in recent weeks. Stay tuned. – William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.