Wednesday Market Sum

Wednesday’s Headlines

1. US markets rally behind big tech stocks

2. Gold hits a multi-year high

3. Wall St. is throwing darts

4. Tesla has more than tripled its market cap in one year

5. Brooks Brothers files for bankruptcy

 

Markets Today

U.S. markets got back on track today, rallying behind big tech stocks ripping to record highs. Indeed, Apple, Amazon, and Netflix hit new all-time highs as investors stay with the stocks that have worked all year. Oil and gold prices also returned to recent trends, bouncing higher without any economic news to derail them.

The U.S. has now recorded 3 million coronavirus cases, and the curve is pointing in the wrong direction in many states. The economic fallout continues as more legendary companies filed for bankruptcy, closed stores, or warned of mass layoffs. 

It’s hard for individual investors to wrap our heads around rising markets in the midst of economic destruction, but institutional investors aren’t having an easier time of it, either. Their forecasts for market returns for 2020 are all over the place, which shows the lack of visibility and certainty at the highest levels of finance. They get paid to do this. Maybe they should just follow these stocks.

Headlines:

  • United Airlines said it is warning about 36,000 front-line employees—more than a third of its staff—about potential furloughs as the pandemic continues to level travel demand. In a memo sent to employees Wednesday, United said workers who receive a WARN notice may not get furloughed. Some of the workers may be called back to work but that will depend on a return to demand.
  • Bed Bath & Beyond said Wednesday its sales tumbled nearly 50% during its latest quarter, even as online sales surged more than 100% during April and May. The company said it plans to permanently close roughly 200 of its namesake stores over the next two years, starting later in 2020.
  • The U.S. Department of Health and Human Services has announced “surge testing” in hotspots in Florida, Louisiana, and Texas for five–12 days. 5,000 tests per-city per-day will be offered at no charge to those tested. The U.S. has been testing over 600,000 people per day in July, compared to less than 300,000 in early May, according to the COVID Tracking Project. 
  • Dividend net changes (increases less decreases) for U.S. domestic common stocks declined $42.5 billion during Q2 2020, compared to a gain of $8.4 billion in Q2 2019, according to S&P Global Indeces. The decline was the worst since the $43.8 billion decline of Q1 2009 and comes after a $5.5 billion decline in Q1 2020. The good news is that the trend appears to be reversing.
  • U.S. mortgage applications to purchase a home rose 5% for the week and were 33% higher than a year ago, according to the Mortgage Bankers Association’s index, which was seasonally adjusted.
  • Warren Buffett is giving away another $2.9 billion to the five charities he has earmarked for his vast donations. That brings his total philanthropic donations to more than $37 billion since 2006. Buffett has said that he will give away more than 99% of his fortune, with the bulk going to the Bill and Melinda Gates Foundation—a charity founded by his late wife Susan Thompson Buffett—and charities run by each of his three children.
  • Mark Zuckerberg and other Facebook execs “disappointed” activists at a meeting yesterday. The #StopHateforProfit campaign is demanding a c-suite level executive with civil-rights expertise, third-party audits of identity-based hate and misinformation, and changes to the “community standards.” Almost 1,000 brands have now pulled advertising on the company’s platforms.
  • Insurance giant Allstate is buying rival National General Holdings for $4 billion in cash, or $34.50 per share. “Acquiring National General accelerates Allstate’s strategy to increase market share in personal property-liability and significantly expands our independent agent distribution,” said Tom Wilson, chair, president, and CEO. 
  • AMC Entertainment Holdings is nearing a restructuring deal that would help it avoid declaring bankruptcy, according to The Wall Street Journal. The deal would require bondholders to provide a $200 million senior loan and swap their unsecured claims at a discount for new, second-lien debt. The movie theater chain plans to reopen 450 U.S. locations on July 30. Shares are 12% higher pre-market.
  • Levi Strauss & Co (LEVI) shares fell 8.38% despite the company’s Q2 earnings beating expectations. The blue jeans pioneer warned of a weak H2 and is cutting its non-retail, non-manufacturing workforce by about 700 positions, or roughly 15%, which it expects will generate annualized savings of $100 million.
  • 202 year-old clothier Brooks Brothers filed for bankruptcy today and announced dozens of store closures. The Chapter 11 bankruptcy filing in Delaware allows Brooks Brothers to keep operating while it works out a plan to turn the business around and pay its debts. The company listed assets and liabilities of at least $500 million each in court papers, and it lined up a $75 million bankruptcy loan from WHP Global, owner of the Joseph Abboud and Anne Klein brands, according to a statement.

 

They Don’t Know Either

One of the investing industry’s favorite games is to forecast the year-end targets for indexes. In normal years, those forecasts are all typically clustered in a tight range, since strategists are looking at mostly the same data. 2020 is not a normal year. 

 

According to Sentiment Trader, the standard deviation for Wall Street strategists year-end price targets has never been wider, ever. As Sentiment Trader notes, “…What’s even more notable is that strategists aren’t giving the S&P much room to rally. On average, they have a year-end target of 2,998, about 2% below where the S&P is trading. That’s tied for the lowest-ever year-end target relative to where the S&P was trading at the end of June.”

Why We Have the Advantage

In crazy markets like this one, I am often reminded of the wise words of Barry Ritholtz, one of the original financial bloggers, and founder of his own RIA. “The biggest advantage of being a ‘retail’ small investor is you are NOT competing with any index. You are in charge of your time frame and money. You never have to short a stock and you don’t need to own a stock of a company you would not buy for your kids. Keep it simple.”

The Big Get Bigger, Tesla Edition

Continuing our theme of “The Big Stocks Get Bigger,” this week, we bring you Tesla. It has seen its market cap swell over 380% in just the past year as its faithful shareholders and many new ones have piled into the stock. Last week it became the largest automaker in the world by market cap even though its sales and profits are far smaller than its legacy competitors. (Zoom into the chart above.)

The giant tech stocks like Apple, Microsoft, and Amazon have also seen sizable increases in their market value, but when that already exceeds $1 trillion, it’s harder to see meaningful increases.

Heavy Metal

Gold has been the shiny object in capital markets all year, and the ETF crowd is really into it. Gold spot prices crossed the key $1,800 an ounce level for the first time today since 2011. Its all-time record of $1,921.17 was set in September of that year. The global net inflow into gold ETFs was $39.5 billion in the first half of this year, according to the World Gold Council. This already exceeds the record set for highest annual inflows set in 2016 ($23 billion).

 

As the price of gold rose 17% over the first half of the year, global gold ETF holdings (in tonnage terms) increased by 25%. Global daily trading volumes reached a record $233 billion per day in March and were at $156.9 billion per day in June, comfortably above the 2019 daily average of $145.7 billion. By the end of June, gold-backed ETFs held 3,620 tonnes of gold worth $206 billion.

Comment

There is no comment on this post. Be the first one.

Leave a comment