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Market Tumbles on Tepid Eurozone Outlook

Zacks Equity Research

Investors are selling in Tuesday’s pre-market, following a strong start to the trading week yesterday and an overall bullish environment over the past couple weeks. Overnight, two reports out of Europe signaled a deeper and longer-lasting challenge to dig out of our global “Great Suppression.” We’re also seeing some negative economic developments resulting from a two-week quarantine mandate in the Tri-State area.

The Paris-based Organization for Economic Cooperation & Development (OECD) now expects unemployment to reach levels not seen since the Great Depression 90 years ago. Further, the organization is not expecting these high unemployment rates to recede back to pre-COVID levels until 2022. This is both a deeper cut and a longer duration into unemployment than previously expected.

Also, the European Commission has lowered its forecast for the Eurozone economy in 2020 by a full percentage point: -8.7% from an originally posted -7.7%. We already have seen a worst-ever Eurozone Q1 GDP at -3.6%, edging out the previous low of the Great Recession (these figures go back to the late 1990s). This new report suggests much more pain ahead for the Eurozone.

United Airlines UAL this morning has said it is considering sending out “warn notices” — 60-day advance notice of coming layoffs — to thousands of its employees. A big drop in bookings and cancellations from flights to current COVID hot spots like Florida has much to do with this development, as does the mandatory two-week quarantine from people flying from these hot-spot states into New York, New Jersey and Connecticut.

This Tri-State area was the first, hardest-hit region affected by the coronavirus, and it was also the most vocal — led by New York Governor Andrew Cuomo — about businesses shutting down, mask-wearing and social distancing being key to not overrunning the states’ healthcare systems. Thus, the region is being particularly protective of others entering from the new areas being deeply hit by the COVID crisis. But this is now showing up in a negative way to the airlines servicing the region — not just United (-2.8% in today’s pre-market), but also American AAL and Delta DAL, down 2.3% and 2.2%, respectively.

One stock clearly going the other direction is Tesla TSLA, up 40% in its last 5 trading sessions. The electric-vehicle major has posted 4 record high closes in a row, and has gained an astonishing 225% year to date. Currently, Tesla has a Zacks Rank #3 (Hold), with a Value grade of F.

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