Eq: Total Market
(New York)
Data released today painted a very grim picture of the economy. The data was bad in its own right, but what was very disheartening is that it showed that one of the supposed bright spots of the economy is actually doing poorly. Retail sales fell a whopping 16.4% in April after also falling steeply in March, the worst tumble in American history. Car dealerships and gasoline, which comprise a big part of retail sales, were slaughtered. Even grocery sales—one of the areas that seemed to be doing well—dropped 13% (!). The only bright spot was ecommerce, which still only rose a little over 8%.
FINSUM: This is a pretty devastating report. The big question is whether this speaks to the state of the US consumer (which to some extent it obviously does) vs to what extent it is just a temporary fear of the virus. We think this recession is going to last until at least the end of the year.
(New York)
The stock market is looking rough right now. The trend has been remarkably more bearish over the last couple of weeks than the 35-40% run higher we saw in the previous five weeks. With that in mind, here are some good stocks to ride out the storm: Morgan Stanley, United Rentals, Baxter International, Iqvia Holdings, Boeing, Whirlplool, Twitter, T-Mobile, Western Digital, and Peloton.
FINSUM: We want to take a moment to focus on Peloton, which has been an incredible business. Peloton’s growth since the lockdown has been enormous, and they have a low churn subscription business. Gyms are going to be unappealing for some time, so Peloton looks like a great buy.
(New York)
The market has fallen a couple of sessions in a row and is looking weak today. It is sort of feeling like the decline many have been forecasting is finally grabbing hold as the reality of a long recession grips the psyche of investors. JP Morgan published an interesting report this week, saying that markets could fall significantly but that there are two divergent scenarios that could take place. In the bull case scenario, the re-opening of the economy works, with social distancing measures keeping a second wave from occurring (especially as summer arrives and holds COVID at bay). They describe the bearish scenario like this, saying “The other option is that overly complacent consumers bring down the guard too quickly, a second wave of infections hits, and the world is forced to rethink the optimistic timing of the new normal”.
FINSUM: The big question in our minds is whether a middle ground exists between these two scenarios. Maybe there are some isolated second waves with certain cities getting locked down. The market might just drift from here until the situation becomes more clear.
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(New York)
Anybody who has paid even scant attention to the market over the last eight weeks has been shocked by what it has done. After dropping 35% from peak, the market has rallied back by almost as many percent over the course of the last 5 weeks. Now, Societe Generale says the comeback is just too fast and defies all previous bear market recoveries. Rebounds from bear market lows tend to be long slogs, with gyrations upward and downward as the market moves slowly higher. This recovery has been a lightning bolt as the market almost sprints higher. However, UBS argues that this recovery could be different, saying “This is a policy-induced downturn, and the speed and structure of the recovery could follow a different route from previous downturns”.
FINSUM: The thing that is really keeping this recovery afloat is the extraordinary monetary and fiscal stimulus that has been injected into the economy. That said, it is likely going to take a LONG time to get back to where we were on February 15th 2020, so a plateau or fall in markets does not seem unlikely.
(New York)
We are headed towards Great Depression like unemployment, yet the market is rallying. What gives? That is a question everyone is asking themselves. We have already far exceeded Great Recession era unemployment levels and are quickly heading higher. Over 20m Americans lost their jobs in April and more than 33m have lost jobs since the start of the pandemic. The unemployment rate is just under 15%, and most analysts think it will get north of 20%, putting it on part with the Great Depression. Mnuchin himself said we may hit 25%.
FINSUM: We do not think the market has ever had to navigate such a difficult situation in recent memory. On the one hand we are dealing with the worst economy in a century. On the other, there is a temporary nature to this downturn (because it is self-imposed) and the government is doing a lot to stimulate the economy.
(New York)
PPP has been nothing short of a disaster. Big companies gobbled up all the money first, leaving small businesses without the capital they needed to survive. Those big businesses then had the rules changed so that the capital is no longer attractive. By the time that small businesses could really access money, the terms around forgiveness have grown so uncertain that many don’t even want it, according to COVID Loan Tracker, a site that tracks PPP loan disbursement. Now, for those who have already accepted a loan there is a new problem—workers don’t want to be hired back. In many cases workers are getting more on unemployment than they are from being re-hired, and coupled with the fact that many can’t find childcare right now, it makes little economic sense to return to work. This has very bad ramifications for small business owners, as if they cannot rehire their workers, then the forgive-ability of their loans is seriously in question.
FINSUM: This program has been full of mismanagement and unintended consequences, and businesses all over the country are feeling the brunt.