361 Capital Market Commentary | May 11th, 2020
The market’s continued rise is confusing many stock market participants and observers, equally. The biggest surge in non-farm payrolls and unemployment in 80 years does not seem to correlate with a stock market that just rose 25% in seven weeks. But the difficult economic data is backward looking, while the stock market is forward looking. Don’t forget that stocks fell by one-third before the U.S. economy completely shut down. The market’s rebound has been a function of scientists, doctors and nurses making meaningful advances in the labs and hospitals and the Fed and Treasury pumping trillions of dollars into the economy, while many Americans wear their masks and flatten the new COVID case curves. The market’s move suggests that even a new spike in COVID cases will be manageable and isolated. Until we have a vaccine, we are all at risk of getting the virus. But if a $5, five minute test at your pharmacy or office building could identify carriers so that we could isolate them, then getting through this period will be a whole lot simpler.
So, Shanghai Disney opened today. The Bundesliga and NASCAR will restart this weekend. Wynn Resorts would like to open their Vegas properties on May 26th. The English Premier league will play on June 1st. And Major League Baseball will return in July. A few big things to look forward to as long as we wear our masks in public, don’t infect the entire office or factory, and keep those middle seats empty. (We are all looking at you United Airlines.) Five-minute COVID-19 testing will become very welcome in all assisted living homes, meat factories and even the White House this week. And, at only $5 a pop, both Starbucks and Dunkin’ should offer it while you pick up your coffee each morning!
If you know anyone who needs proof that wearing a mask stops the virus, show them this simple chart…
@NateSilver538: New York’s serology studies have actually found slightly *lower* rates of COVID-19 among healthcare workers than in the general population. Suggests that PPE and masks help a lot!
The big science news over the weekend was the FDA approval for this rapid, cheap and effective COVID-19 test…
The move could mark a breakthrough in screening for the virus and comes as state and local governments ease lockdown orders and businesses begin reopening across the nation — and as health professionals argue that swift screening is essential to temper new outbreaks.
“It’s a very rapid test that could be used in a doctor’s office,” former FDA Commissioner Scott Gottlieb said Sunday on CBS’s “Face the Nation.” “Doctors now have about 40,000 of these Sophia machines already installed in their offices” where they are used to test for strep throat and flu, he said.
Each test will probably cost about $5, with results available within minutes, said Gottlieb, now a special partner at New Enterprise Associates, a venture capital firm that invests in the health-care and biotech sectors.
(Quidel)
As expected, the U.S. jobs data last week was terrible…
But the silver lining is that so many workers expect this layoff to be temporary and they expect to return to work at some point.
The sectors with the most job losses are the ones that you are no longer participating in…
So, when you return, those jobs will return.
(WSJ)
One big pickle to re-opening is the generous unemployment paychecks…
But at some point, the wages being offered and the desire to re-enter the workforce will be too great for many. Also, expect the seasonal immigrant workforce to not return to America this summer which means there could be millions of open positions available at much higher wages then the employer paid last summer.
The pressure for businesses to staff back up is especially intense as many have tapped federal loans contingent on paying employees. The government’s Paycheck Protection Program forgives the loans if companies bring back all workers within eight weeks of receiving funds that can be used to pay operational expenses such as payroll and rent.
For Julie Crowley, Ms. Luce-Fina’s employer, the clock is ticking. Ms. Crowley, who owns Triphammer Wines & Spirits and co-owns Ithaca Coffee Co., received a federal loan. She said that over the next seven weeks she needs to hire back 12 workers still laid off from both businesses.
Congress passed a coronavirus stimulus package in March that boosted unemployment benefits by $600 a week. About half of all U.S. workers stand to earn more if laid off than they did at jobs before the pandemic, until that increase expires at the end of July.
Ms. Crowley paid Ms. Luce-Fina $12.50 an hour. By itself, the $600 weekly bonus equates to working full time at $15 an hour…
“Do you call your employees back and expect them to take a pay cut and be a happy camper?” said Ms. Crowley. “People are all going to do what’s in their best interest. It’s in my best interest to get them back on my payroll.”
(WSJ)
Given all the money that the Fed and Treasury has thrown at the U.S. economy, we had better have a “V” shaped recovery if COVID-19 doesn’t re-accelerate…
@carlquintanilla: MORGAN STANLEY: “If history is a guide, ‘U’ may actually stand for ‘Unicorn’ because U-shaped recoveries coming out of a recession really never happen. Therefore, we continue to bet on the ‘V’ and employ our recession playbook.” (Wilson)
Increased driving causes increased gasoline prices…
And yes, Denver’s roads have become much busier in the last week.
Even airport travelers exceeded 200,000 for the second time since March…

(TSA)
The longer-term TSA pax graph needs plenty of work to recover, but at least the worst is behind us…

Speaking of travel, good luck keeping cruising addicts away from their ships…
While I have been on many ships during my days as an equity analyst, I have never actually been on an overnight cruise. But I know people of all ages that need their cruise ship fix annually. I completely understand that a moving hotel is appealing for many and it makes total sense. See cities during the day and the hotel moves at night. Others just like the Vegas similarity of the shows, the food, the pools and the casinos. Unfortunately, the virus just killed future food buffets. But while the industry has become the scapegoat of COVID-19, you can bet that the companies will need to be the leaders of virus avoidance in the future. There will be a 5-minute virus test at the entrance of every ship within weeks. The ships will never be cleaner going forward, and if I were Clorox, I’d be working on a sponsorship deal right now. Imagine an entire ship painted yellow like a magical container of wipes. Given the medical advances the last two months, combined with the flattening of the new case curves, I think it’s a safe bet that the ships will begin sailing again this year.
“Two weeks ago, I would have said that everyone was sticking close to home, but no. Nobody’s booking close in [this year] because they don’t know what’s going to happen,” Tully says. “But for next year? They’re booking everything, as if it’s any normal year.”…
Cruisers are one of the most loyal segments of the travel industry. There’s a reason that cruising is known for repeat guests who sail with certain lines for decades. “[My clients] aren’t worried about cruise ships, because they can spread out; they’re more worried about being on a plane, sitting shoulder to shoulder,” Tully says. “A lot of people think cruises are so confined, but it depends on the cruise, what area you’re going to, and how confined you want to be.”
And for those who have given up on air travel, Camping World (RVs) said they just had “the biggest weekend in the company’s history”…

(@1MainCapital)
Over in fast food, a large Burger King and Popeye’s franchisee just noted their sizeable comp recovery in April…

(Carrols)
The April upturn in Papa John Pizza’s comps were even more positive…

(@1MainCapital)
Casual dining restaurants might be able to survive the next 12 months if more cities begin to reclaim their streets for outdoor dining…
Those sorts of experiments could be lifelines for struggling businesses. For restaurants barely hanging on, “that could be the difference between boarding up your shop forever or saying, ‘We can stick around for another month because we know we’re a priority,’” says Jennifer Keesmaat, a former chief city planner of Toronto who now runs her own planning consultancy.
(Wired)
A top auto dealer had positive things to say about their April performance…
A top U.S. homebuilder also experienced improvements through their April numbers…
A top utility detailed how its energy use shifted in April…
The utility’s commercial and industrial customers used 13.7% less power for the month, though people working from home offset some of that with a 3.2% increase in residential energy use, company said.
The top fertilizer company, Scotts Miracle Gro, just had its best week ever…

(@bluff_capital)
One of the largest semiconductor chip makers in the world did just fine in April…
@firstadopter: Taiwan Semiconductor sales up 28.5% y/y in April $TSM
COVID-19 has accelerated the end of cash transactions. Just ask PayPal…

Sports betting returned with a vengeance this weekend…
The first live U.S. sporting event in two months gave gamblers something to cheer for. Now how big do you think the action will be on Mickelson/Brady vs. Woods/Manning in two weeks?

So, 4.5% of the world population has a Fortnite registration. Welcome to ‘Ready Player One’…
Most recently, the developer added party royale, a gun-free social space within the game that allows players to log in and hang out with friends, watch concerts from big-name music acts, and engage in a variety of theme park-style activities. It’s all part of Epic’s quest to build a metaverse-style social network that lives entirely within its 3D world. After a massive and surreal Travis Scott concert last month and last Friday’s Diplo show, Epic says it’s going to host a mini music festival featuring DJs Dillon Francis, Steve Aoki, and deadmau5 starting at 9PM ET this Friday, May 8th.
(TheVerge)
A good listing of which REITs received their April rents…
Healthcare, Apartments and Public Storage look fine. Office and Industrial okay. Retail no comment.
The convertible bond market is seeing a flood of issuance as companies look to raise lots of more aggressive capital…
Since Dealogic began tracking data in 1995, convertible bonds have accounted for roughly 18% a month of total equity-capital-market volume. The number typically hovered around 15% during the market’s recent decadelong bull run.
(WSJ)
The BofA Bull & Bear indicator needs a ventilator…
The BofA Bull & Bear indicator is at 0.0 and suggests an extreme bear level. It is an indicative metric only, used as contrarian indicators to identify market extremes (for informational purpose only, not investment advice).
Also, individual investors remain very skeptical…
The AAII Bulls index moved to new recent lows while the Bears index moved to highs.
So, guess what?
With all the talk of FAAMG stocks, here is a list of the new highs…
No FAAMG but lots of Tech and Healthcare.
Now here is your FAAMG highly represented…
@VrntPerception: Small-cap value vs large-cap growth shows the incredible polarity of the US stock market

I completely agree with Morningstar’s long term view on U.S. bank stocks…
If the financial system and, most important, the banks have enough liquidity and capital to survive COVID-19, then investors should be rewarded at today’s prices. It will not matter if earnings decline 10%, 20%, or even 50% in the next quarter or for the entire year. Any valuation framework that directly links transitory changes in EPS with permanent changes in the intrinsic value of a firm is flawed. A decline in earnings of 40% over a finite period does not necessarily justify a 40% drop in the stock price.
Good luck to the public universities without flush state budgets…
Alabama would not be alone. If 2008-level cuts to state public higher education funding are repeated and replaced with tuition, 23 states will have a tuition-to-public-funding ratio greater than 2:1.
And that assumes they can actually increase tuition dollars. The flow of lucrative full-tuition-paying international students has been choked off by travel restrictions tied to the coronavirus pandemic. Domestic students who were planning to matriculate out of state may want to stay closer to home. Public universities are often a bulwark against the economic hollowing-out of many rural and nonurban communities. If the universities go under, more social devastation could follow.
(NYTimes)
A massive demographic shift just accelerated away from the big cities…
Guessing this move will increase even more dramatically with Google and Facebook allowing their employees to work wherever they want for the rest of 2020. Guessing that every empty home in McMinnville, Bend or Hood River, Oregon just found a renter from the Bay Area.