[Market Madness] Edition 0049
Consumer Spending Makes Record Slide
TGIF, folks
Well folks, the indices here in the U.S. took a large swing yesterday following Donnie’s announcement of a press conference about China. The bearish sentiment remained throughout the early trading day with indices opening red across the board and turning mixed in the afternoon. By the close, we saw movement back toward break-even (and even positive) as the press conference looks like it will keep the current trade deal intact. Let’s just get into the weekend.
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Fundamentals
Friday Close:
· Dow Jones Industrial Avg: -0.07%
· S&P 500: +0.48%
· NASDAQ: +1.29%
· US 10 YR: 0.655% | 99 7/32
· Crude OIL: $35.00
· COVID 19 Global Cases: 5,990,341
International Edge:
· FTSE 100: -2.34%
· Nikkei: -0.18%
Consumers might be confident
Last month, consumer spending fell a record 13.6%. Not all is doom and gloom as over datapoints suggest that personal income rose 10.5% due to COVID 19 government stimulus checks and purchasing is starting to pick up here in May. The challenge with the rise in personal income is the backend struggle of getting workers back to work. As was the case in many states, the per hour breakdown of the stimulus check far outweighed the individual’s normal per hour wage, meaning they’re making more money to stay home and collect unemployment.
Looking at past month’s data, it is obvious to see the results. Consumer’s saving is way up, partially attributed to more income coming in, but also, more importantly, many stores have been closed, disallowing consumers to spend a lot of money in the first place. The balance between saving and spending is a see-saw; as one side goes up, the other must go down since you divide between your one pool of money between those two options (ignoring investing for the example). I, like many, were horrified to hear about American’s emergency fund pools (or lack thereof) which can be set aside and used in times of reduced, or no, income. Many are also hoping that the savings habits that have been unintentionally (or intentionally — good for you) created during lockdown will stay for the future.
I’ve always been an advocate of teaching basic personal finance in high school. That way, the first time young adults are faced with personal finance decisions, there are very low stakes, and not buried under student loans and other debt obligations and googling ‘how to file bankruptcy.’ I say this somewhat jokingly, but this is an unfortunate circumstance for many young adults who are not privy to anything in regards to planning their financial future. Everyone should make friends with someone in the financial planning profession. These people are heroes to many who are not financially adept. Even just pointers to help a young person start in the right direction can be the difference between that person making good financial decisions over bad ones.
Tangents about financial literacy aside, there are genuine concerns that the over-payment of unemployment and stimulus will disincentivize a large portion of furloughed workers to not return to work. If this happens, then we will turn our temporary unemployment challenges we are seeing each week, into more long-term unemployment figures, with greater economic impact. With the potential for more stimulus, as debates continue on Capitol Hill, some considerations must be made for how that would impact people’s willingness to go back to their job where their pay is substantially lower than what they are getting now. It remains too early to tell what will happen on this front, as the re-openings are still in their early stages. Regardless, it will be really interesting to follow this issue in the coming months, and I’ll be sure to provide follow-up.
Read more here: https://www.wsj.com/articles/consumer-spending-personal-income-coronavirus-april-2020-11590701150?mod=hp_lead_pos4
Hot brew
Following up from a prior story, JDE Peet’s coffee had a very successful IPO, thumbing its nose at the current COVID 19 conditions. The IPO raised about $2.5 billion and valued the company at just over $17 billion. That valuation makes this IPO one of the world’s biggest deals so far in 2020. A successful IPO in such uncertain and difficult times could pave the way for other companies also looking to go to market. JDE Peet’s generates about 80% of its revenue from at-home coffee consumption mediums, which have notably performed well given the lock down conditions.
The article does note that JDE Peet’s will now have to punch above its weight-class and compete with Nestlé SA, the world’s largest at-home coffee seller. Last year’s data puts Nestlé SA as owning 25% of the coffee market compared to JDE Peet’s 10%. It will be a tough competitive market, but not impossible for JDE Peet’s to find new and innovative ways to entice customers and gain more market share.
The proceeds from the IPO will go to paying down internal debt and reimbursing existing shareholders who sold down their positions.
Read more here: https://www.wsj.com/articles/peets-coffee-raises-2-5-billion-from-ipo-defying-pandemic-11590736417?mod=lead_feature_below_a_pos1
Quick takes
· Twitter continues to combat Donnie’s tweets, flagging a tweet about Missouri for ‘glorifying violence’. (via WSJ)
· Fed Chairman, Jerome Powell, says that the Fed will begin issuing loans in Main Street lending facility within the coming days. (via CNBC)
· Powell also suggests that negative rates are not ‘an appropriate tool’ during Fed press conference. (via ATOM+)
· Prescriptions of Hydroxychloroquine surge after Donnie’s self-medication binge. (via CNBC)
· The world’s largest all-electric aircraft completes first flight. (via CNBC)
· Blood from COVID 19 survivors is becoming a ‘hot commodity.’ (via WSJ)
· Donnie announces U.S. severing relationship with the WHO. (via NY Times)
Reader’s Corner
The reader is out for the weekend to soak up some sun! He’ll be back on Sunday with some new and interesting reads to supplement the articles within Market Madness. Enjoy the weekend!
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