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COVID-19 crisis and the existential threat to the economy

COVID-19 crisis and the existential threat to the economy

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COVID-19 crisis COVID-19 Sell-off impact voting corona give investment advice

Summary

  • The most pessimistic analysts fear that the COVID-19 crisis will bring about an economic dislocation comparable to the 1930s, or at least 2008.
  • The market has been saying that investors don’t believe this hypothesis.
  • “Other” factors seem to do a better job of explaining this year’s bearish market action.

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Q1 2020 hedge fund letters, conferences and more

More seasoned market observers have been scratching their heads as to why, after the initial hiccough, the recent bear market curbed its losses to the point where those losses, at least to April 17, 2020, look like nothing more than a speed bump. (All "year to date" figures are from December 31, 2019 to that date.) If COVID-19 is an existential threat to the global economy and markets, one would never know it from the behavior of the indexes such as the Dow. In all fairness, stock price action to April 17, 2020 hasn't been exactly bullish, but neither does it reflect a 2008 level recession, let alone a depression. Instead, this seems to be more reflective of relatively isolated issues with one or more sectors, with the full year 2015 being the nearest comparable.

Impact Of The COVID-19 Crisis

The COVID-19 crisis was so dramatic that it pushed the other major economic story off the front pages: the collapse of oil prices globally. But looking at the market action instead of the news, one would think that the latter is the main factor causing the market fall, as was the case in 2015. Breaking down the performance of the Dow index in 2020 year to date, and full year 2015, and 2008 by sector, and starting with energy, one can see how this might be the case:

Sector: Energy 2020 YTD 2015 FY 2008 FY
Chevron -27.7% -19.8% -20.7%
Exxon Mobil -38.1% -15.7% -14.8%
Sector Average -32.9% -17.8% -17.8%

For this sector, the current year is the worst, by far, than both 2015 and 2008. And it's no wonder, because oil prices have fallen by as much as three quarters, so far in 2020, versus one quarter in 2015, and slightly more than one half in 2008, bottoming in the low $40s and low $30s respectively in the other years. Both the underlying shock and the weakness of the associated equities, go a long way in explaining the year to date fall in the indexes. (Price and index data are sourced from the Dogs of the Dow website, and the sector averages assume equal weights for the stocks in the sector.)

Another hard-hit sector, industrials, is more of a mixed bag:

Sector: Industrials 2020 YTD 2015 FY 2008 FY
Boeing -52.9%  11.2% -51.2%
Caterpillar -21.2% -25.8% -38.4%
Dow/Dupont -38.9%  -9.9% -42.6%
3M  -8.9%  -8.3% -31.8%
Raythoen/United Technologies -25.2% -16.5% -30.0%
Sector Average -29.6%  -9.9% -38.8%

In this group, Caterpillar (CAT) and 3M (MMM) are doing about as well as in 2015, and much better than in 2008. The two defense contractors, Boeing (BA) and Raytheon/United Technologies (RTX), seem to be on cycles of their own, although their 2020 performances are comparable to those that existed in the recession conditions of 2008, and worse than in 2015. The last comparison, between Dow (DOW) (in 2020) and Dupont (DD), its predecessor in the index in the other two years, before their merger and spin-off of Dow, is skewed by the fact that Dow is more of a commodity chemical company, and hence more economy sensitive.

Financial Sector Gets Hit Hard

Another hard-hit sector is financials.

Sector: Financials 2020 YTD 2015 FY 2008 FY
Am Express -29.8% -25.2% -64.4%
Goldman Sachs -21.2%   -7.0% -59.2%
JP Morgan Chase -31.7%    5.5% -27.1%
TRV (Citigroup in 2008) -23.3%    6.6% -77.2%
Visa   -9.8%   18.3%    n/a
Sector Average  -23.2%    -0.4% -56.7%

American Express (AXP) stock is down only slightly more in 2020 than in 2015, and much less than in 2008. JP Morgan Chase (JPM) is doing worse than in both 2015 and 2008, which reflects, among other things, greater energy exposure than the other concerns. The other financial stocks are down somewhat more in 2020 than in 2015, but much less than in 2008. In most cases, the fee-based servicing businesses are doing fine, but the "deal" businesses (lending and investment banking), have taken a hit. Financials tend to get hit harder than most others in a "real" recession like that of 2008. Warren Buffett likes to buy them in such hard times.

Now we turn to a sector, technology, where the story is very different from the three above.

Sector: Technology 2020 YTD 2015 FY 2008 FY
Apple  -3.60% -15.5% -33.4%
Cisco Systems -10.80%  -2.4% -38.9%
IBM  -10.4% -14.2% -22.1%
Intel    0.8%  -5.1% -45.0%
Microsoft  13.10%  19.4% -45.4%
Sector Average   -1.7%  -3.6% -37.0%

Technology is doing, if anything, better in 2020, than in 2015, and much better than in 2008. That's because "tech" supports "shelter in place" initiatives such as working from home during the COVID-19 crisis.

Health Sector Avoiding The Huge Losses

A somewhat similar story may be told by the health sector, which is showing low single digit percentage losses in 2020, versus low single digit percentage gains in 2015, but avoiding the huge losses of 2008.

Sector: Health 2020 YTD 2015 FY 2008 FY
Johnson&Johnson  4.2% -1.8% -10.3%
Merck -8.2% -7.0% -47.7%
Pfizer -5.8%   3.6% -22.1%
United Health -1.2% 16.4% -44.2%
Sector Average -2.8%  2.8% -31.1%

Likewise, this sector buoyed by the fact that it is expected to find a vaccine or cure, or at least diagnostics, for COVID-19.

Finally,

Sector: Consumer 2020 YTD 2015 FY 2008 FY
Coca-cola -13.2%   1.8% -26.2%
Disney -26.3% 11.6% -29.7%
Home Depot   -4.1%  26.0% -14.6%
McDonalds   -5.8%  26.1%    5.6%
Nike  -11.7%  30.0% -26.2%
Proctor & Gamble    -0.2% -12.8% -15.8%
Verizon    -4.8% -1.2% -22.4%
Walgreens Boots    -9.8%  10.0% -20.7%
Walmart    11.2% -28.6%   17.9%
Sector Average    -7.1%    7.0% -14.7%

This is a defensive sector whose reaction to the bear market has been relatively mild. It has apparently suffered somewhat from the COVID-19 crisis, but not to the degree that was the case in 2008, when earnings and stock prices were hammered by more traditional concerns. As a group , these stocks rose in 2015, suggesting that this was not among the afflicted sectors at the time.

The post COVID-19 crisis and the existential threat to the economy appeared first on ValueWalk.

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Microsoft Corporation (NASDAQ: MSFT) Issues a Status Report to Its Shareholders Before the Commencement of the Next Quarter

Microsoft Corporation (NASDAQ: MSFT) recently announced the disposing of its stock without the value of its upcoming dividend remittance. The company disposed…

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Microsoft Corporation (NASDAQ: MSFT) recently announced the disposing of its stock without the value of its upcoming dividend remittance. The company disposed of the stocks a day before its record date, which entails Microsoft deciding who is entitled to acquire a dividend. Microsoft initiated the ex-dividend day due to the traffic caused once it announced a stock trade. During the announcement, the platform disclosed that the purchase price of each share would be $2.48, thus accruing a dividend of $ 0.62 per share.

An organisation should ensure that it reviews its dividend remittance and ensure that it is renewable, thus ensuring that expanding it further and creating a source of income. Microsoft’s sales in the previous year indicated the amount of income that the company bears, thus increasing its number of shareholders.

The SAP Sapphire gathering was helpful after a long hiatus

The recent SAP Sapphire gathering was held physically following a three-year hiatus due to the restrictions issued in the pandemic.  The event took place in Orlando, Florida, and invited various organisations worldwide; thus, major tech platforms, including Microsoft, were present. The organisation disclosed its latest projects at the conference, including the RISE with SAP on the Microsoft Cloud. Microsoft’s cloud assists all types of institutions update and share their SAP solutions in the cloud.

Microsoft also disclosed a testimonial from TalkTalk, an organisation that offers solutions to connectivity issues in the UK. The avenue completely welcomed Microsoft’s Viva Suite as a method to aid its workers’ satisfaction.

The software is an employee satisfaction avenue that identifies factors that ensure proper workflow, including education, assets, and others.

Microsoft’s contributions to the recent consumer privacy concerns 

Various organisations insist on the placing of passwords on crucial software and accounts, including TikTok or emails. The passwords differ in the form of restrictions placed by the developer at the time of logging in.

However, Fast Identity Online Alliance recently developed a method that allows users to log in to their accounts without a password. The institution designed a method that allows consumers to store their security details on their phones, thus allowing them to sync and access their accounts. Organisations are attempting to obtain mechanisms to make this method permanent.

Please make sure to read and completely understand our disclaimer at https://www.wallstreetpr.com/disclaimer. While reading this article one must assume that we may be compensated for posting this content on our website.

The post Microsoft Corporation (NASDAQ: MSFT) Issues a Status Report to Its Shareholders Before the Commencement of the Next Quarter appeared first on Wall Street PR.

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Economics

Weekly investment update – Weaker economic outlook weighs on markets

Global equities have continued their sell-off over the last week. What is new is that markets are now reacting to risks of weaker economic data weighing…

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Global equities have continued their sell-off over the last week. What is new is that markets are now reacting to risks of weaker economic data weighing on earnings. Real bond yields, whose rise triggered the recent drop in equity markets, have fallen as investors price a higher probability of a recession.   

Yields of US Treasury bonds have slipped since reaching around 3.12% in early May (see Exhibit 1). The rally has been driven by fears of a global recession due to poor economic data, strong inflation numbers, aggressive talk from central bankers and concerns over the consequences of Covid in China.

Recent data that contributed to the bond market’s unease about the prospects for the US economy includes: 

  • The Richmond Federal Reserve Manufacturing survey, which fell to its lowest since 2020 at -9.
  • The monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York fell to -11.6, with the shipment measure falling at its fastest pace since the start of the pandemic two years ago.
  • The Federal Reserve Bank of Philadelphia’s May business index dropped 15 points to 2.6, with the six-month outlook falling to its lowest since December 2008 (though the underlying details were better than the headline number).
  • Existing and new home sales dropped for a third month, to its lowest since 2020, held back by lean inventory, rising prices and higher mortgage rates. 

Taken together, the various regional Federal Reserve surveys suggest that the ISM Report for Business may come in at around 53, above 50 so still clearly in expansion territory for the US economy, but down noticeably from the upper 50s/lows 60s readings to which markets have become accustomed.

US equities still weak

US equities have remained weak as the down move continues for its seventh week.

It has been apparent that, in contrast to the start of the year when rising real bond yields were undermining equity markets, it is now fears of falling earnings due to a weaker economy that are weighing on stocks.

The last week has seen, in accordance with the risk-off regime, more buying-the-dip and selling-the-rally. There has also been a rotation out of growth and cyclicals into value and defensives (healthcare, real estate, utilities and staples).

European markets under the cosh

Bearish sentiment is prevalent in Europe, too, with investors cutting exposures to European equities.

There was another outflow in the week to 18 May, taking the total to 14 weeks of outflows in a row. Cyclicals, in particular, saw strong outflows, led by the materials, financials and energy sectors.

Our multi-asset team are inclined to reduce exposure to equity markets given the deterioration in the outlook.

European economy resists

Economic activity indicators have fallen so far in May, but remain above 50. Activity edged up in the manufacturing sector despite the fallout from the Ukraine war and supply chain disruptions that have intensified with China’s coronavirus lockdowns.

Although factories continue to report widespread supply constraints and diminished demand for goods amid elevated price pressures, the eurozone economy is being boosted by pent-up demand for services as pandemic-related restrictions are wound down.

While purchasing manager indices are still pointing to growth, it may be that these surveys understate the shock to activity, while sentiment surveys likely overstate the shock. Markets are increasingly tilting towards anticipation of a contraction in the coming quarters.

Higher food prices

Restrictions on the export of Ukrainian cereals continue and risks increasing food insecurity as the UN World Food Programme has highlighted.

As much of Russian and Ukrainian wheat goes to poorer nations, hunger could be a critical risk, driving up political instability.

The risk of further rises in food prices will be a key driver of inflation, particularly in emerging markets, the worst-case scenario being that the situation worsens significantly.

Moreover, lower fertiliser supply will have a greater impact on the next few months’ harvests, while the pass-through of costlier logistics and input prices is likely to drive food prices even higher.

Coming up…

Minutes of the meeting of the US Federal Open Markets Committee on 3-4 May will be published later on Wednesday.

However, market conditions have soured appreciably since the Fed’s first 50bp rate rise, so some of the language in the minutes pertaining to financial risks and market conditions will be outdated.

Instead, the three major focus points for market participants will likely be: 

  • Policymakers’ views on the conditions which could lead to a shift down, back to a pace of raising rates by 25bp at each FOMC meeting;
  • Any hints as to how far and for how long policymakers intend to push policy rates into restrictive territory;
  • Guidance shaping expectations for the next Summary of Economic Projections — aka the dot plot — due to be released at the June meeting. 

Forthcoming economic data  

US personal income and spending data for April should give investors an insight into the US consumer’s behaviour: Are they tightening the purse strings? The report may also show the Fed’s preferred inflation gauge (core PCE deflator) starting to decelerate.

Perhaps equally important, the report should shed light on how consumers are responding to the current high inflation environment, indicating how wages are performing relative to inflation and how aggressively consumers are tapping into the USD 2.5 trillion of accumulated savings from the pandemic period.

Disclaimer

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Writen by Andrew Craig. The post Weekly investment update – Weaker economic outlook weighs on markets appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.

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Economics

5 Top Consumer Stocks To Watch Right Now

Are these consumer stocks a buy amid the earnings season?
The post 5 Top Consumer Stocks To Watch Right Now appeared first on Stock Market News, Quotes,…

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5 Trending Consumer Stocks To Watch In The Stock Market Now         

As we tread through the earnings season, consumer stocks could be worth watching in the stock market this week. This would be the case since a number of big consumer names such as Costco (NASDAQ: COST) and Macy’s (NYSE: M) will be posting their financials for the quarter. As such, investors will be keeping an eye on these reports for clues on the strength of consumer spending amid this period of high inflation.

However, despite the soaring prices across the economy, it seems that consumers are surprisingly showing resilience. According to the Commerce Department, retail sales in April outpaced inflation for a fourth straight month. This could suggest that consumers as a whole were not only sustaining their spending, but spending more even after adjusting for inflation. Ultimately, it could be a reassuring sign that consumers are still supporting the economy and helping to diminish the narrative of an incoming recession. With that being said, here are five consumer stocks to check out in the stock market today.

Consumer Stocks To Buy [Or Sell] Right Now

Nordstrom

retail stocks (JWN stock)

Starting off our list of consumer stocks today is Nordstrom. For the most part, it is a fashion retailer of full-line luxury apparel, footwear, accessories, and cosmetics among others. The company operates through multiple retail channels, boutiques, and online as well. As it stands, Nordstrom operates around 100 stores in 32 states in the U.S. and three Canadian provinces.

Yesterday, the company reported its financials for the first quarter of 2022. Starting with revenue, Nordstrom pulled in net sales worth $3.47 million for the quarter. This marks an increase of 18.7% from the same quarter last year. Its Nordstrom banner saw net sales rise by 23.5% year-over-year, exceeding pre-pandemic levels. Next to that, its Nordstrom Rack banner saw a 10.3% increase in net sales from last year. Besides, net earnings were $20 million, with earnings per share of $0.13 for the quarter. Considering Nordstrom’s solid quarter, should you invest in JWN stock?

[Read More] Best Stocks To Invest In Right Now? 5 Value Stocks To Watch This Week

The Wendy’s Company

best consumer stocks (WEN stock)

Next up, we have The Wendy’s Company. For the most part, it is the holding company for the major fast-food chain, Wendy’s. Being one of the world’s largest hamburger fast-food chains, the company boasts over 6,500 restaurants in the U.S. and 29 other countries. The chain is known for its square hamburgers, sea salt fries, and the Frosty, a form of soft-serve ice cream mixed with starches. WEN stock is rising by over 8% on today’s opening bell.

According to an SEC filing, Wendy’s largest shareholder, Trian Partners, is looking into making a potential deal with the company. Trian said that it is considering a deal to “enhance shareholder value.” Also, the firm adds that this could lead to an acquisition or business combination. In response, Wendy’s stated that it is constantly reviewing strategic priorities and opportunities. It added that the company’s board will carefully review any proposal from Trian. Given this piece of news, will you be watching WEN stock?

[Read More] 4 Semiconductor Stocks To Watch In The Stock Market Today

Foot Locker

FL stock

Another stock investors could be watching is the shoes and apparel company, Foot Locker. In brief, the company uses its omnichannel capabilities to bridge the digital world and physical stores. As such, it provides buy online and pickup-in-store services, order-in-store, as well as the growing trend of e-commerce. Some of its most notable brands include Eastbay, Footaction, Foot Locker, Champs Sports, and Sidestep. Last week, the company reported its results for the first quarter of the year.

For starters, total sales came in at $2.175 billion, a slight uptick compared to sales of $2.153 billion in the year prior. Next to that, Foot Locker reported a net income of $133 million. Accordingly, adjusted earnings per share came in at $1.60, beating Wall Street’s expectations of $1.54. CEO Richard Johnson added, “Our progress in broadening and enriching our assortment continues to meet our customers’ demand for choice. These efforts helped drive our strong results in the first quarter, which will allow us to more fully participate in the robust growth of our category going forward.”  As such, is FL stock one to add to your watchlist? 

Tyson Foods 

TSN stock

Tyson Foods is a company that built its name on providing families with wholesome and great-tasting protein products. Its segments include Beef, Pork, Chicken, and Prepared Foods. With some of the fastest-growing portfolio of protein-centric brands, it should not be surprising that TSN stock often comes to mind when investors are looking for the best consumer stocks to buy. 

Earlier this month, Tyson Foods provided its fiscal second-quarter financial update. The company’s total sales for the quarter were $13.1 billion, representing an increase of 15.9% compared to the prior year’s quarter. Meanwhile, its GAAP earnings per share climbed to $2.28, up 75% year-over-year. According to Tyson, these financial figures are a reflection of the increasing consumer demand for its brands and products. To top it off, the company was also able to reduce its total debt by approximately $1 billion. Thus, does TSN stock have a spot on your watchlist?

[Read More] Stock Market Today: Dow Jones, S&P 500 Rise, Wendy’s Stock Gains On Potential Deal

DoorDash

food delivery stocks (DASH Stock)

DoorDash is a consumer company that operates an online food ordering and delivery platform. In fact, it is one of the largest delivery companies in the U.S. and enjoys a huge market share. The company connects hundreds of thousands of merchants to over 25 million consumers in the U.S., Canada, Australia, and Japan through its local logistics platform. Accordingly, its platform allows local businesses to thrive in today’s “convenience economy,” as the company puts it.

On May 5, the company reported its first-quarter financials for 2022. Diving in, it posted a revenue of $1.5 billion, growing by 35% year-over-year. This was driven by total orders that grew by 23% year-over-year to $404 million. Along with that, it reported a GAAP gross profit of $662 million, an increase of 34% year-over-year. The company said that it added more consumers than any quarter since Q1 2021, due in part to the growth of its DashPass members. The growth in Monthly Active Users and average order frequency has helped it gain share in the U.S. Food Delivery category this quarter as well. Given DoorDash’s performance for the quarter, should you watch DASH stock?

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