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US stocks rebound on retailers' earnings

By SCOTT REEVES in New York | | Updated: 2020-05-21 02:45
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US stocks rebounded sharply Wednesday, reflecting solid earnings by two major retailers amid continued uncertainty created by the coronavirus pandemic.

Investors kept a wary eye on states restarting the economy. So far, there hasn't been a spike in new infections. But there may be market volatility ahead.

Demand for gasoline and other fuels continued to increase, boosting crude oil prices.

Solid retail sales appear to have led the turnaround from Tuesday's market sell-off.

Big Box retailer Target said first quarter sales increased 10.8 percent overall compared with the same period a year ago. Same store sales, or sales at stores open at least a year, rose 0.9 percent and digital sales climbed by 141 percent.

But labor costs rose and sales of more expensive items such as clothes fell 20 percent.

The Minneapolis-based retailer said net income dropped to $284 million, or 56 cents a share, from $795 million, or $153 million, or $1.53 a share. Wall Street analysts expected the company to earn 40 cents a share.

Target stores remained open during the coronavirus pandemic and underscored the cost of online retailing. As online sales increase, retailers must pay more for selecting the items from warehouse shelves, packing them and shipping them to the customer. In many cases, this pressures profits.

"Last quarter was unlike anything I've ever seen," CEO Brian Cornell said on a conference call with reporters. "It was intense. It was volatile. It was stressful for our guests and for the country."

Cornell said the company is likely to spend about $500 million from early March through July 4 on higher wages and other operational changes due to the coronavirus.

In March, Target withdrew its earnings guidance for the year due to the pandemic.

"We are still trying to understand what's going to happen with children going back to school, what's happening with colleges and universities and how guests will celebrate holidays," Cornell said. "There is just so much uncertainty."

In early trading, Target's stock dipped 0.02 percent.

The COVID-19 pandemic has force many retailers to furlough staff and pushed others into bankruptcy.

This month, Neiman Marcus, J. Crew and J.C. Penney filed for bankruptcy protection. But retailers that remained open, including Walmart, Home Depot and Costco, reported higher sales as shoppers stockpiled household and personal hygiene products.

In early trading Wednesday, the Dow Jones Industrial Average rose 351.88 points, or 1.46 percent, to 224,558.7. The S&P 500 gained 1.55 percent. The Nasdaq Composite added 1.70 percent.

On Tuesday, the Dow lost 390.51 points, of 1.59 percent, and closed at 24,206.86. The S&P 500 declined 1.05 percent. The Nasdaq Composite slipped 0.54 percent.

On Wednesday, the price of West Texas Intermediate crude, the gauge of US oil prices, rose 2.57 percent to $32.78 a barrel. Brent crude, the worldwide benchmark, gained 2.86 percent to $35.66 a barrel.

Home improvement retailer Lowe's also reported better-than-expected first quarter results as same-store sales rose 11.2 percent.

The company said net income increased to $1.34 billion, or $1.76 a share, compared with earnings of $1.05 billion, or $1.31 a share for the same period a year ago. Wall street analysts expected the company to earn $1.32 a share.

Lowe's seeks to attract more professional contractors while holding on to the do-it-yourself customer.

In general, Lowe's stock has underperformed competitor Home Depot.

"We enhanced the safety of our operations by shortening our stores operating hours in early March so we could increase cleaning protocols and restock shelves," CEO Marvin Ellison said in a statement.

"And during the hours that our stores were open, we implemented significant operational changes that best facilitate social distancing."

In early trading, Lowe's stock gained 2.05 percent.

The US Treasury will offer a 20-year bond Wednesday as part of the government's plan to repay debt incurred during the coronavirus outbreak. The bond was last issued in 1986.

The yield on the 20-year bond was 1.21 percent, or about 50 basis points higher than 10-year bond. The 30-year bond yield was 1.41 percent.

The government briefly considered issuing 50-year and 100-year bonds to pay down debt, but during testimony Tuesday before the Senate Banking Committee, Treasury Secretary Steven Mnuchin said there was no demand for those securities.

"It's my intention to expand our financing in 10-, 20- and 30-year bonds," Mnuchin testified.

"What I'd like to do is lock in a significant amount of very low interest rates so that the money we are borrowing can be paid back and dealt with over a long period of time."

For the first time, the United Kingdom borrowed at a negative rate amid concern about a global recession and the likelihood of increased bond buying from central banks.

Britain's Debt Management Office said it sold about $4.66 billion in three-year bonds at a yield of negative 0.003 percent. Germany and Japan also sell government debt with negative yield.

In effect, the government is being paid to borrow. If held to maturity, investors will get back slightly less than they initially paid.

In March, the Bank of England cut interest rates to a record low of 0.1 percent and purchased an additional $245.49 billion in bonds as part of its quantitative easing program.

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