(New York)

The market has fallen a couple of sessions in a row and is looking weak today. It is sort of feeling like the decline many have been forecasting is finally grabbing hold as the reality of a long recession grips the psyche of investors. JP Morgan published an interesting report this week, saying that markets could fall significantly but that there are two divergent scenarios that could take place. In the bull case scenario, the re-opening of the economy works, with social distancing measures keeping a second wave from occurring (especially as summer arrives and holds COVID at bay). They describe the bearish scenario like this, saying “The other option is that overly complacent consumers bring down the guard too quickly, a second wave of infections hits, and the world is forced to rethink the optimistic timing of the new normal”.

FINSUM: The big question in our minds is whether a middle ground exists between these two scenarios. Maybe there are some isolated second waves with certain cities getting locked down. The market might just drift from here until the situation becomes more clear.

(Chicago)

The early thinking about grocery stocks was that the big surge in demand at the start of the COVID lockdown was just a flash in the pan. However, as earnings and guidance is emerging from companies in the space (like General Mills), it is becoming apparent that demand for groceries because of a heightened preference for home cooking seems likely to stick around for a while.

FINSUM: We agree with the fundamental thesis here. Until we cure COVID, people are going to stay worried about public spaces, including restaurants. The trick to picking stocks is to understand where each company is getting its revenue. For instance, General Mills does a lot of sales through grocery stores so its stock is rising, but Molson Coors does a large share of its sales through bars and restaurants, so its stock is falling.

(Seattle)

The biggest aircraft maker in the country just put out a dire prediction (although not a surprising one)—that there will be a major airline bankruptcy this year. The airline industry has been wounded as never before, with demand falling more than 90% since this time last year. Most analysts think it will take until the end of year for demand to even rise to 50% of the year prior. Credit default swaps—a proxy for the odds a company will default—are very high right now. For instance, markets are putting a 54% chance that American Airlines defaults.

FINSUM: This is an odd comment from a company that is talking about its biggest clients. It speaks volumes.

(Washington)

Smaller broker-dealers around the nation are grossly underprepared for the forthcoming Regulation Best Interest. In early April, the SEC decided not to extend the implementation date of the rule because of COVID, which means all firms will need to be ready by June 30th. However, most small broker-dealers are so focused just trying to stay in business, that most are delaying any actions that will help help for the rule. The SEC has said it will take circumstances into account when enforcing the rule.

FINSUM: One of the big issues besides COVID, is that there is a high degree of complacency about the new rule because many think “I prepared for the DOL rule, so we should be covered for this”. However, there are some important distinctions with this rule (e.g. retail investor vs retail customer), and many could find themselves in hot water.

(New York)

Anybody who has paid even scant attention to the market over the last eight weeks has been shocked by what it has done. After dropping 35% from peak, the market has rallied back by almost as many percent over the course of the last 5 weeks. Now, Societe Generale says the comeback is just too fast and defies all previous bear market recoveries. Rebounds from bear market lows tend to be long slogs, with gyrations upward and downward as the market moves slowly higher. This recovery has been a lightning bolt as the market almost sprints higher. However, UBS argues that this recovery could be different, saying “This is a policy-induced downturn, and the speed and structure of the recovery could follow a different route from previous downturns”.

FINSUM: The thing that is really keeping this recovery afloat is the extraordinary monetary and fiscal stimulus that has been injected into the economy. That said, it is likely going to take a LONG time to get back to where we were on February 15th 2020, so a plateau or fall in markets does not seem unlikely.