[Market Madness] Edition 0050
Sunday Recap - Happy 50th!
A little retrospection never hurts
Well folks, no one likes turning 50 but I am blown away by how fast 50 editions have come and gone. I am amazed by how far we’ve come, and more inspired for the road ahead. I have a lot of exciting plans in my mind for the continued future of Market Madness, and I look forward to taking extra time to refine those ideas and bring you all the best content I can.
Over the weekend, with the indices closed, unrest took to the streets. Protests and riots following the untimely death of George Floyd have spanned across the U.S., turning cities upside down. (We will revisit this topic in the Reader’s Corner.)
2020 is shaping out to be a year for the history books in literally every respect. A shorter piece is in order for today, keeping you up-to-date with some quick takes from around the world and a piece on some insights to follow when tracking the progress of re-openings here in the U.S. and elsewhere. Please enjoy.
Not sold on the new look yet? Follow this link to read today’s edition in PDF hard-copy, as well as the entire MM archive.
Did you miss yesterdays’s piece? No worries, get it right here to catch up on the madness!
Fundamentals
Friday Close:
· Dow Jones Industrial Avg: -0.07%
· S&P 500: +0.48%
· NASDAQ: +1.29%
Sunday Updates:
· US 10 YR: 0.659% | 99 7/32
· Crude OIL: $35.32
· COVID 19 Global Cases: 6,200,242
International Edge:
· FTSE 100: -2.29%
· Nikkei: -0.18%
An eye on reopening
Everyone is eagerly awaiting more solid news regarding the states reopening processes, if they are working, and what businesses are in which phase. It is no easy gambit to try and comb through press briefings and interview reports to try and get this information. A columnist at CNBC has written an article highlighting some ingenious ways to lift the veil and gain some insights about local economies and their revitalization.
The article follows several charts in an attempt to get a feeling for the reignition of key economic areas:
· change in requests for directions on Apple Maps (driving activity)
· U.S. restaurant bookings (consumer confidence and dining industry)
· U.S. hotel occupancy rate (travel activity)
· U.S. air travel (travel activity)
· U.S. home purchases (consumer confidence)
What we are seeing is that Americans are driving more, walking more, but not using transit as much as before COVID 19. Consumers are seeking opportunities to begin eating at restaurants once again. Hotel occupancy rates are rising, telling us that people are traveling again, yet we are still seeing air travel not make a recovery yet.
Home purchases are on the rise during the past couple months, as seen in application for mortgages compared year-over-year. The chart in the article shows a large recovery in this market pretty quickly after its sharp decline in the lock down’s onset.
All-in-all, there are mixed recovery signals, but investors are seeing optimism in the positives and are giving more time for the lagging areas, like air travel, to catch up. In contrast with Citi’s warning of much more challenging times ahead, mixed signals are leaving many market-watchers scratching their heads.
Read more here: https://www.cnbc.com/2020/05/31/five-charts-that-track-the-us-economy-as-states-reopen.html
Hold my ETF
The Federal Reserve, earlier this month, started purchasing Exchange Traded Funds (ETFs) that were invested in corporate bonds (both investment and non-investment grade debt). These purchases so far have totaled over $1.3 billion, as the Fed continues its mission to backstop corporate debt in the wake of uncertain market conditions. Some of the notable funds that the Fed purchased are:
· iShares iBoxx $ Investment Grade Corporate Bond ETF
· Vanguard Intermediate-Term Corporate Bond ETF
· Vanguard Short-Term Corporate Bond ETF
· iShares iBoxx $ High Yield Corporate Bond ETF
A separate disclosure stated that the Fed had purchased ETFs in the ballpark of $3 billion, less than 2% of all U.S.-listed Corporate Bond ETFs. The point of the purchases is to help keep companies cash-rich to support their obligations like payroll. The cornerstone to the whole mission being conducted by the Fed is to help businesses maintain credit facilities that will go to supporting payroll and not adding to unemployment numbers.
In addition to ETF purchases, the Fed announced that it will purchase up to $250 billion in currently outstanding corporate debt as well as up to $500 billion in new corporate issues. The announcements of these programs have helped the debt market in that issuing costs have dropped. Due to much lower costs to issue, firms may be able to get what they need in funding directly from the bond market, and not from the additional crutch from the Fed lending facilities. Either way, the debt is necessary for firms looking to extend borrowing into longer-terms (instead of shorter-term bonds and commercial paper) to benefit from the lower market rates as firms will need longer support options for their payroll obligations.
Fed Chairman, Jerome Powell, wants to ensure transparency and continuity between what the Fed is doing and what is being propagated in the news.
“Disclosure will really help because I read things in the paper that are supposedly happening, and I know they’re not happening,” he said. “One reason they’re not happening is we actually haven’t made very many loans yet.” (excerpted from article)
As we get further into the Fed’s purchasing programs, it will be interesting to see how the overall market will change and how much support the bond market will need for the rising demand by companies to issue new debt at historic low rates.
Read more here: https://www.wsj.com/articles/federal-reserve-discloses-holdings-of-1-3-billion-in-exchange-traded-funds-11590782661
Quick takes
· SpaceX launch: successful launch of the shuttle ‘Dragon’ into orbit and has connected with the International Space Station. A historical day, starting a new era of space exploration. (via WSJ)
· U.S. pension plans worried about running out of funds by 2028. (via FT)
· Citi warns markets are not in-tune with what is happening in the world. Warns of tougher times ahead. (via FT)
· Donnie extends invite to Russia to return to the G7 summit in September. (via FT)
· Investors are eagerly awaiting the May jobs report, set to release 8:30 AM EST, Friday, June 5 from the Bureau of Labor Statistics (BLS). (via CNBC)
· In the wake of COVID 19, Trucost, S&P Global CEO Richard Mattison believes there is a ‘huge opportunity’ to redefine how we conduct business. (via CNBC)
· U.S. Federal Reserve discloses ETF holdings of $1.3 billion. (via WSJ)
Reader’s Corner
I’d like to say a special thank you to my former professor and ongoing mentor of mine, Professor James McCormack. Thank you for the support and encouragement from the very beginning and helping me attract and hopefully retain new readers to Market Madness.
The reader thinks that it is important for everyone to read what is going on regrading the civil unrest following George Floyd’s death. Regardless of your stance in the matter, we all have a part to play ensuring that hate has no home in the U.S. and everyone is in a position to follow their path and create for themselves their ‘American Dream.’ We owe that not only to ourselves but our neighbors, and fellow citizens.
I try to reserve my personal political sentiments here on Market Madness, in an effort to try and separate and report only on the finance. However, we are now living in a society where integration is everywhere, making the isolation of financial news more difficult. That being said, let’s all remember our place in the ongoing unrest and the words of Albert Einstein:
“If I were to remain silent, I’d be guilty of complicity.”
Don’t underestimate the effect civil unrest will have on the U.S. economy and financial system at large. Read more on the ongoing events here: https://www.wsj.com/articles/george-floyd-protests-minneapolis-11590844180
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