[Italics-bold within the brackets are my additions/elaborations] [New M* Discussions doesn’t allow any colors for cut-and-paste from WORD]
Pg M1, Trader: DJIA down only -2.7%, what a relief! Investors should look for winners and losers beyond the pandemic. VIX fell [although still high] and stock correlations fell. There was a wide gulf among the best [DG, MKC, GIS] and the worst [CCL, AAL, LYV]. The market may have had its internal low [i.e. the point of indiscriminate selling]. Although the broad market indexes may continue to fall, many stocks may have had their lows. Recall that during the financial crisis, many stocks had their lows in November 2008 [i.e. the internal low] although SP500 bottomed in March 2009; there was a similar pattern during dot.com bubble. Economic data will get worse, but investors seem prepared for that. Q1 earnings season will start soon but pay no attention to it [know that Q2 will be much worse].
After hitting 20 year low, oil jumped +32% on the hopes for OPEC/OPEC+ production cuts. President Trump, President Putin and Crown Prince MBS have been talking. OPEC/OPEC+ has an emergency videoconference on Monday. A Texas Railroad Commissioner is also participating in international talks. But the devil will be in details – how to allocate 10-15 million barrels/day in cuts? Any agreement may only be for the duration of coronavirus crisis. US oil E&P industry will suffer regardless as it was unprofitable even with oil at much higher levels. For exposure stick with strong companies such as CVX.
Odd & ends.
At-home stocks now include ZM [Zoom], MSFT [Skype], GOOGL [Hangouts], etc. In the old days it would have been T.
Buffet/BRK-A/B sold huge chunks of strongest airlines, DAL, LUV.
[The CME FedWatch tool, based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes, is totally confused by 2 large off-meeting cuts and the missed March 18 FOMC. I am keeping this portion as placeholder when tool comes back to normal]
For the week [index changes only], DJIA -2.70%, SP500 -2.08%, Nasdaq Comp -1.72%, Russell 2000 -7.06%. DJ Transports -5.12%; DJ Utilities -6.97%. US$ +2.35%, oil/WTI +31.75%, gold +0.60%.
YTD [index changes only], DJIA -26.23%, SP500 -22.97%, Nasdaq Comp -17.83% [oil/WTI -53.59%].
Pg M4, Europe: UK grocer Morrison [MRW.uk/MRWSY; fwd P/E 12.4] is now attractive. It has a vertical supply chain – it owns many of its suppliers, farms and food processing facilities. It also has a wholesale business and it has partnered with UK McColl’s convenience stores and Amazon/AMZN.
Pg M4, Emerging Markets: EM corporates [CEMB] are attractive after March crash. Almost 2/3rd of EM corporates are investment-grade with 130 bps spread over US investment-grade corporates.
Pg M7, Commodities: Corn prices may drop to 10+ year lows due to weak demand and prices for gasoline and ethanol. Gasoline has almost 10% ethanol but now ethanol futures are more expensive than gasoline futures. Almost 40% of corn production is used for ethanol. On the other hand, planted corn acreage is up [and that cannot be reversed quickly].
Pg M5, Options: Many companies have announced dividend cuts. 2020 dividends may be 25% below 2019 levels. Options investors can generate income via selling/writing calls [but the stock may be called away] and/or selling puts [but obligated to buy on assignment if the price falls].
[SP500 VIX 46.80 (high), SKEW 120.57 (low)] [10-Yr TYVIX 6.06 (high)] [Yahoo Finance data]
Pg M25, L58: A down week in Europe [Norway +6.24%, France -4.53%] and a bad week in Asia [Australia +4.63%, Japan -9.09%]. The equity CEF index [data to Thursday] underperformed the DJIA and its discount was -10.5%.
Treasury rates 3-mo yield 0.10%, 2-yr 0.23%, 5-yr 0.39%, 10-yr 0.62%, 30-yr 1.24% [Treasury data*]. Dollar rose sharply, DXY 100.68, +2.3% [M27]. Gold fell, $1,613, -0.3%; the gold-miners rose [M30]. [^XAU was at 84.36, +3.12% for the week]
Top FDIC insured savings deposit rates*: Money-market accounts 1.78%; 1-yr CDs 1.84%; 5-yr CDs 1.98% [under 2%] [L59].
*For local rates https://www.depositaccounts.com/banks/rates-map/
Pg 26: Cover “What New York City Says About the Nation’s Economic Slog Ahead”. In 1 month, NYC became an epicenter of coronavirus pandemic. NYC of 8 million people producing 10% of the US GDP froze. With the US economy concentrated in metropolitan areas [6 metro areas produce 25% of GDP], those should pay attention as early actions and responses are very important. It will take time to recover from job and business disruptions and there may be huge job shifts requiring job retraining. Unemployment is rising rapidly [now 10 million, expected to grow to 20 million by April end] and may be much higher as state unemployment offices are overwhelmed. The federal government is helping with CARES Act but it has a chaotic rollout. This is
the 1st one of several coronavirus features.
Supplement Fund Quarterly 2020/Q1 features will be in Part 3 in the Mutual Fund forum.
Pg 7, Up and Down Wall Street: The last monthly jobs report was even worse than it looked. The mid-March survey didn’t capture 10 million who were already claiming unemployment insurance by March-end [and that may rise to 20 million by April-end]. Weakest sectors were leisure and hospitality and most job losses were among the lower-paid workers. It is better to watch weekly initial jobless claims and tax withholdings. $2 trillion CARES stimulus will not reach people fast enough. SP500 should retest its March 23 low and it isn’t that far away.
This is becoming one of the worst economic downturns in history. Recorded economic downturns in England include 1349 [-23.5% from Black Death], 1629 [-25.5% after the King dismissed the Parliament following a war with Spain], 1919, 1921,…, 2009 [-4.2% during Great Recession], 2020 [-6.5% est]. The US economic downturns include 1932 [-12.9% during Great Depression], 1946 [-11.6% post-WW II], …2009, 2020 [-4.2% est]. Germany and Japan had -50% economic contraction in 1946 post-WW II. The rapid change from optimistic outlook just in February is astounding. The stock market may not have bottomed; gloomy David Rosenberg thinks that the worst case for SP500 may be 1,135-1,455 and the moderate case may be 1,515-1,798. The unprecedented monetary and fiscal policies may or may not make a difference. But the recovery, when it comes, would be swift [just as the downdraft was].
Pg 9, Streetwise: Retail was already suffering pre-coronavirus pandemic. But what will the retail scene look like post pandemic? May be there will be less spending [with people getting used to staying home and getting by with less, having less income] and more online shopping [AMZN]. The US was/is quite overstored [vs UK, Germany, etc] and many stores may not comeback. Retailers with grim outlook include LB, JCP, M, KSS, JWN, etc. The stock market hasn’t bottomed – if it did, this will be the shortest bear market of 23 trading days. But investors can look for reasonably priced stocks now. Consider discount stores [COST, WMT, TGT, TJX, ROST], grocery stores [KR, GO], home improvement [HD], fitness centers [PLNT].
"Economic data will get worse, but investors seem prepared for that. Q1 earnings season will start soon but pay no attention to it [know that Q2 will be much worse]."
Are they though? I'm not so sure markets have priced in what's happening let alone what will happen. Morningstar argues many sectors of the economy are not directly affected, but this doesn't seem to take into account the sometimes unfathomable interconnectedness of supply chains. The services/hospitality sector buy a range of products and services, not just food. It's only natural for the financial industry to put a brave face on it—and may be it needs to—but I don't think we're close to being able to offer any predictive words of comfort, or doom. I'm waiting for LEI data which are lagging and still show positive for the US.
Airlines, as Buffett is unloading....What will the American taxpayer get in return for Airline bailouts? As the crisis ebbs and then later when the world gets back to normal will they offer compensation to those who must share their seats with the +300 pounders? The TV ad of the 6 year old kicking the (explentitives) out of the seat back will be REQUIRED to move to a different seat each 30 mins of a flight, will the victims compensated? Very funny in the commercial because so many of us have had to endure this in real life. Will the Airlines provide pre-boarding for the passengers with SSSS codes on their boarding passes? What are they going to do for the traveling tax payer public who despite some efforts to guarantee rights often can still not have the use of restrooms on planes with long delays after you have been imprisoned, without being threatened with arrest when the ordeals end.
Thank you for posting your weekly Barron's summaries. I usually read Barron's at the library but that is not possible now since local libraries have been closed since 03/13.