[Market Madness] Edition 0056

Sunday Recap

Jun 07, 2020

Never a dull weekend

Well folks, the markets carried investors with good spirits into the weekend. The unrest across the U.S. is migrating away from violence, in favor of more peaceful demonstrations, allowing the protesters’ message to reclaim the spotlight. Like with many things these past couple months, we are not out of the woods yet. With COVID 19 cases surpassing 7 million globally, and with new hotspots erupting, the end is still not yet in sight. Many more in the big pharma space, like AstraZeneca, Novavax, among others entering the vaccine development ring in hopes of sparking some forward progression towards a promising cure.

Elsewhere, growing geopolitical tensions between the U.S. and other global leaders will present complications down the line, especially once the G7 comes around. Fidelity comes onto the scene, warning of large-scale corporate solvency issues across the globe, and Wall Street unrolls the red carpet for a long line of IPO candidates.

Did you miss Friday’s piece? No worries! Get it right here and catch up on the madness.

Fundamentals

Friday Close:

Dow Jones Industrial Avg: +3.15%
S&P 500: +2.62%
NASDAQ: +2.06%
US 10 YR: 0.902% | 97 4 / 32
Crude OIL: $38.97
Market Madness Portfolio: +1.80%
COVID 19 Global Cases: 7,013,737

Indices Overseas:

FTSE 100: +2.25%
Nikkei: +0.74%
Hang Seng: +1.66%

Fidelity waves warning flag

Miss Anne Richards, CEO of Fidelity International, is warning that the asset management industry will be challenged to provide the capital required to assist businesses in the solvency issues they face as economies reopen.

“The fund management executive, whose investment company oversees £305bn in client assets, said many businesses would need an injection of capital to offset the high levels of debt they had accumulated during the crisis, which has left whole industries unable to operate.” (excerpted from article)

She is encouraging businesses to tap into a multitude of capital sources because just the asset management industry alone will not be able to match the necessary demand. The need for capital comes off of the high levels of debt businesses have been forced into taking to stay afloat during the shutdowns. In order for those companies to be able to return to operations and service their newfound large debt load, it will be necessary for firms to find sources of recapitalization. The concern is in the size of recapitalization needed on a global level and exactly where those recapitalization funds will come from is what has Miss Richards worried.

The scale of cash needed to repay the public funding businesses have received from governments or central banks is likely to be so large that it is “either going to be written off or sit on balance sheets, where it will have a depressing effect”. (excerpted from article)

This global call to pay attention to cash considerations of struggling businesses will be a highlighted theme over the coming months. Globally, many firms are strongly considering whether or not they will financially be able to reopen and continue or if they will have to close up shop, declare bankruptcy and call it a day.

While the article focuses on the UK in terms of its analysis, these considerations are very true here too. Many investors are not interested in seeing more federally funded bailouts, as many look back to the fallout from the great recession in 2008. We’ve already seen several big household names file for Chapter 11 bankruptcy protection, and we are likely to see many more as Fidelity International’s CEO warnings become realized in the market.

Quick Takes

Several law firms are opening investigations on behalf of shareholders and noteholders of Occidental Petroleum Corporation ($OXY) concerning potential violations of federal securities laws. (via WSJ)
Russian and Saudi Arabian leaders seek extensions on output cuts for crude as OPEC+ meeting this upcoming week still questionable. (via CNBC)
The Fed will announce their decision on the Federal Funds Rate at the FOMC meeting - Wednesday, June 10 at 2:00PM EST (followed by a press conference at 2:30PM EST). The current consensus is that the Fed Funds Rate will remain at 0.25%. (via FactSet)
St. Luke’s University Health Network and Steward Health Care on track to reach a deal on securing the private-equity backed Easton Hospital in Pennsylvania. (via WSJ)
Furniture giant, IKEA, rushes to reopen stores after fumbling online orders in wake of massive e-commerce surge. (via WSJ)
AstraZeneca approaches Gilead informally about a possible merger between the two pharma giants. (via Bloomberg)

Reader’s Corner

The reader found an interesting WSJ article that talked about the potential downsides and challenges for firms if they’re intending to move some of their workforce to permanent remote placements.

I think that this chart is telling. I’ve heard a lot of good things not mentioned, though. I’ve heard contacts of mine speak about productivity improvements, flexible hours arrangements, and par-level team communication. If we have to return to the offices but still wear masks and have cubes with Plexiglas walls, not be able to access shared dining spaces or open-style communal office rooms, and having to zoom call into conferences from your desk, then why not just stay home to begin with? Read the whole story here.

Behind the Madness

Thank you again for checking in.

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