[Market Madness] Edition 0054
42 Million Total Jobless Claims
Jobless claims ramping down
Well folks, U.S. weekly jobless claims were higher than expected (1.877 million versus the expected 1.775 by analysts), but still on the decline compared to weeks prior. The trend is optimistic to some, yet the total unemployment number since March has surpassed 42 million. A truly staggering number indeed, especially when compared to the past.
Major U.S. indices opened down, but struggled to stay in the green throughout the early trading day. With the S&P 500 fast approaching a new all-time high, and having its best 50 day run ever, there is a lot of optimism still floating about.
By midday, we saw red across the board, with equities down and treasury yields rising (signalling selling behavior). Gold made a comeback today, signalling movement back to safer investments.
At the close, we gave up any gains and slid into the red, with the only the Dow Jones closing in the green. Outside of the sour jobless claims report, there did not appear to be any other large outstanding indicators explaining the downward price action, ending the past three-day rally (with the exception of the Dow Jones).
Did you miss yesterdays’s piece? No worries! Get it right here and catch up on the madness.
Fundamentals
Thursday Close:
Dow Jones Industrial Avg: +0.05%
S&P 500: -0.34%
NASDAQ: -0.69%
US 10 YR: 0.816% | 98 2 / 32
Crude OIL: $37.10
Market Madness Portfolio (Profit and Loss): +0.06%
COVID 19 Global Cases: 6,655,384
Indices Overseas:
FTSE 100: -0.40%
Nikkei: +0.36%
Hang Seng: +0.17%
Hedge funds fear second market downturn
Hedge fund managers are preparing for another downturn in the equities markets amid strong upward runs. Similarly, it appears that many are also growing aware the highly speculated ‘V-shape’ recovery is turning out to be a “fantasy.” These strong upward runs, deviating highly from the underlying data that normally supports such runs is what has these folks concerned. Coupled with the idea that many of these managers are also speculating on the Fed’s backstopping efforts are soon to hit their limit. Similarly, there are feelings that this economic downturn is only the start of something much larger and more economically devastating for the United States.
“It is entirely possible that there will be a fourth-quarter reckoning, where a second wave of job losses and a prolonged period of business failures tests equity sentiment,” said Seema Shah, chief strategist at Principal Global Investors.
Adding to the doom and gloom, Francisco Filia (head of London-based Fasanara Capital), is keeping a majority of his investment funds in cash as he predicts greater economic storms to come. He is seeing a current trend toward ‘deglobalization’ which will lend itself to higher inflation, and technology sector disruptions.
If this is the case, Mr. Filia is predicting some form of a liquidity crunch as investors follow a ‘dash to cash’ mindset and the ETFs being unable to handle the volume out. However, there are plenty of industry professionals who will not fight the Fed, given how Mr. Powell has made it abundantly clear the Fed’s backstopping intentions and their ‘additional firepower’ in reserve to combat further market liquidity problems.
Typically speaking, hedge funds are full of some of the brightest and savvy minds in finance and economics so their insights and suggestions are worth consideration as we move forward through the current economic recovery push.
Read more here: https://www.ft.com/content/e1e1c3ef-1849-46bc-a472-2af8c0aabe5b and here about inflation: https://www.ft.com/content/e2c61a16-deca-4501-98dc-aae6e5a9377d
Supply chains stumble
As manufacturing plants across the U.S. reopen, they are met with even greater challenges than simply their extended closure. Their latest problem is their staggering supply chains. (The supply chain is the process by which a company sources its raw inputs from producers, turns those inputs into finished goods and sells those finished goods to buyers, like you and I.) In addition, the contracted economy here in the U.S. due to COVID 19 has reduced their output forecasts due to reduced demand. Plant managers are also battling with retrofitting old production lines with new, regulated, protective measures, which are anticipated to slow down productivity and further reduce output.
This graphic captures the impact of longer wait times on deliveries from disrupted production. Typically, the slower deliveries come from increased backlog due to increased demand, but that is not what we are seeing. This time, the slower deliveries are being caused by breaks in the supply chains, further delaying final goods distributions, i.e. a major drag on manufacturing’s attempts to recover lost ground.
Many smaller details in everyday life have become major pain points for businesses’ supply chains. For instance, the article mentions a producer of glass bottles, O-I Glass Inc. This company is seeing much higher input costs (the raw glass) because consumer recycling is down (in addition to many grocery stores across the U.S. putting a pause on bottle and can redemptions).
“We’ve built our supply chains based on recycling,” said Randy Burns, O-I’s chief sustainability officer.
The most dangerous thing about the COVID 19 impact on businesses are the unforeseen consequences of taking the necessary precautionary measures to combat the virus and keep people safe. While there were expectations of delays and kinks to company supply chains, the extent to which those problems manifest throughout the whole economy was the unknown problem we are realizing now, well into recovery.
Read more here: https://www.wsj.com/articles/supply-chains-safety-protocols-hobble-u-s-factories-11591263001?mod=business_lead_pos1
Quick takes
European Central Bank (ECB) increased bond-buying stimulus package by € 600 billion. (via FT)
Iran releases U.S. Navy veteran, Michael White, after 683 days of capture. (via WSJ)
Gates foundation pledges $1.6 billion to the global vaccine alliance. (via CNBC)
Apple CEO weighs in on the conversation about George Floyd’s death with an open letter on the homepage of Apple’s website. Read that here: https://www.apple.com/speaking-up-on-racism/ (via CNBC)
CDC suggesting against carpooling to avoid spreading COVID 19. (via CNBC)
Allianz investors survey details:
NYC aims to offer outdoor dining at restaurants by July as a part of phase II reopening. (via NBC)
U.S. mall owner, Simon Properties, sues Gap over skipped rent payments. (via CNBC)
Zoominfo, the first tech-IPO during the COVID 19 pandemic, soars over 80% in first day. (via CNBC)
May’s hydroxychloroquine study in ‘The Lancet’ journal retracted on speculations about the validity of the data set used to draw conclusions. (via WSJ)
Reader’s Corner
The reader enjoyed this piece that builds off Jim Cramer’s comment earlier in the week that the ‘market has no conscience.’ This comment came as we saw markets booming while the rest of the U.S. was in turmoil and unrest. It seems to be that the markets were operating with blinders to everything else happening.
Hopefully this helps bring some insights to the divide we are seeing between Main Street and Wall Street. Read the whole piece here: https://www.wsj.com/articles/why-mr-market-ignores-a-world-in-turmoil-11591272919?mod=markets_lead_pos3
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