US stocks move lower ahead of important earnings week: April 13, 2020

US stocks ended mixed on Monday as investors gear up for the start of earnings season this week.

The coronavirus pandemic is expected to show up in companies’ first-quarter report cards, even though the virus didn’t shut down the US economy until mid-March.

Both indexes snapped a two-day winning streak.

The New York Federal Reserve is scaling back its emergency intervention into jittery financial markets.

The NY Fed said Monday it will reduce the frequency of its repo operations "in light of more stable" market conditions.

The Fed began pumping in vast amounts of money into the overnight lending markets last fall as borrowing rates spiked.

That rescue was accelerated last month as chaos erupted on Wall Street. The NY Fed offered to pump in up to $500 billion in the morning and another $500 billion in the afternoon.

But starting May 4, the NY Fed said it "intends" to scrap that afternoon repo operation, leaving just the morning one.

Likewise, the NY Fed said it will reduce the frequency of three-month repo operations to once every two weeks instead of once a week.

Of course, this plan could change should market conditions deteriorate again.

The NY Fed promised to adjust repo operations "as appropriate" to "support the smooth functioning" of funding markets.

Investors have been on a wild ride since Covid-19 arrived on America's shores.

At it worst the S&P 500, the broadest measure of US stocks, was down 34% from its most recent peak. Since then, it has rallied back, but is still down nearly 15% for the year.

"There are, however, some logical reasons for the stock market not to overreact," wrote David Kelly, chief global strategist at JPMorgan Funds, in a note. He detailed three:

"There are, of course, still plenty of risks," Kelly said.

But if a restarting of the economy leads to a re-acceleration in coronavirus cases, he said, there could be another shutdown -- which would likely weigh on the stock market.

Aurora Cannabis (ACB) said Monday it is pursing a $350 million follow-on offering to help shore up capital as it navigates the potential economic fallout from Covid-19.

The Canadian cannabis company also announced a 1-for-12 reverse stock split to ensure its shares could continue to trade on the New York Stock Exchange. The NYSE notified Aurora on April 8 that the company's stock was out of compliance as it traded below $1 for a 30-day period.

The reverse spit reduces the number of shares on the market, increasing the value of the share price.

Aurora had about $205 million in cash as of March 31, 2020, the company said in an announcement. The move to raise up to $350 million via a renewed At-the-Market Offering program will provide for additional "financial flexibility," the company said.

"It changes nothing about their challenging funding position, except that they can continue to list on the NYSE," said Kristoffer Inton, analyst from Morningstar. "It’s a little more troubling that they had to turn to a renewed equity ATM program for more funding though, which would continue to dilute shareholders."

The company's stock fell 14% to 12 cents a share.

US stocks are staying put in the red in early afternoon trading. The three major benchmarks are on track to break a two-day winning streak.

The Dow is 470 points, or 2%, lower. At its weakest point of the day, the index was off by 624 points.

The broader S&P 500 is down 1.8%, and the Nasdaq Composite is down 0.5%.

The financial fallout from the coronavirus crisis is the number one concern among business leaders, according to PwC's latest CFO survey.

Worries about a potential recession and the effects the crisis will have on the workforce and reduced productivity rounded up the top three concerns.

On top of that, only one in five surveyed CFOs expect their companies to bounce back within a month of the crisis ending.

Businesses will be faced with cutting costs as they emerge from the crisis.

This economy-wide cost-cutting exercise will come in many forms: 67% of survey respondents are deferring or cancelling planned investments for now. Meanwhile, more than a quarter of respondents also anticipate layoffs in the coming months, and half of them are gearing up to apply to government relief programs, including Washington's $2 trillion economic relief package and the Federal Reserve's new loan program.

People are still hunkering down and drinking up, which is a boon for online alcohol delivery service Drizly.

Last week marked the company's best week ever, Drizly said, with sales up 476% compared to expectations based on the previous eight weeks' sales averages.

In particular Drizly has noticed sales are higher than normal on Monday through Wednesday, which means people are making purchases throughout the week -- rather than waiting until the weekends, as is typical.

But weekends are still hot: Every Friday since March 20, Drizly has logged a fresh record for daily sales.

Drizly's sales spikes align with recent data with Nielsen that shows every type of alcohol is getting a boost in sales. Drizly said its top sellers are wine, vodka and bourbon.

Earnings season is kicking off this week with America's big banks reporting starting tomorrow.

It will be a strange earnings season with all the uncertainty businesses and the economy are still facing around the coronavirus pandemic. But it might finally give investors some clarity about how bad the damage might be.

"I don’t really care about management’s view about how long this will go on for,” said Jonathan Golub, Credit Suisse's chief US equity strategist, on a public conference call this morning. He said it’s much more important to hear about how deep the decline is for companies for now.

For banks, which are up first to report their results, the coronavirus crisis is translating into a real-time stress test, said Susan Roth Katzke, senior large cap banks analyst at Credit Suisse, on the call.

Banks are better capitalized than in the last crisis, which helped them prepare for this one. Still, the financial sector will get hit by loan forbearances and draw-downs, as well as low interest rates and declines from free-based revenues for activities like M&A.

For company earnings overall, it takes on average 10 quarters to recover from a recession, Golub said.

And if it takes three years for companies to bounce back, it's reasonable to assume that the stock market will take about the same time, he said.

America has seen a staggering spike in layoffs and furloughs over the past week as the coronavirus crisis is forcing companies to shut down. But this effect should be short-lived, according to ratings agency Moody's.

Unlike in previous recessions, where the impact on the labor market took some time to materialize, workers were the first to get hit this time around. But with many layoffs expected to be temporary, jobs will return as soon as the country-wide sheltering in place ends.

Nearly 17 million people filed for initial unemployment benefits since mid-March, and another 4.6 million claims are expected to show up in this week's data.

Moody's expects the unemployment rate to jump to 8.8% to 16.2% in the second quarter, indicating more job losses are expected over the next weeks, particularly in retail, transportation, construction and hospitality and leisure. In March, the unemployment rates stood at 4.4%. It could climb beyond Moody's estimates if the economy remains shut down beyond June.