Coronavirus

Daily Markets: Investors Absorb Grim Jobs and Market Data

Empty rail station in Shanghai, China
Credit: Aly Song - Reuters / stock.adobe.com

Today’s Big Picture

Today’s focus is on jobs with March’s Nonfarm payroll report and the deluge of grim economic data from around the world. Nonfarm payrolls declined by 701,000 in March and the unemployment rate rose to 4.4% from the prior 3.5% - more on the report down below. If those numbers don’t sound as dire as you’d imagined, that is because the report does not include the estimated 10 million people (around 6% of the workforce) who filed for unemployment for the first time over the last two weeks of March because the survey is conducted mid-March. The really big number for the day was the drop in the March labor force participation rate, which saw 700,000 leave the workforce. With nearly 90% of the US population under stay-at-home orders, April’s payroll report is going to be one for the record books, much to our chagrin. 

Stocks in Asia were little changed today with China’s Shanghai Composite down 0.6%, Japan’s Nikkei 225, and South Korea’s Kospi flat and Australia’s ASX 200 down 1.7%. By midday trading the major European indices were all trading lower and US equity futures pointed to those markets opening lower following yesterday’s rebound. 

Data Download

Coronavirus Update

Today there over 1 million confirmed cases of the coronavirus globally, with the United States reaching well over a quarter of that today. Just seven days ago, the US overtook Italy for the most number of cases in the world, and today the US has more than double the number of cases of Italy, with nearly 30,000 added yesterday alone. The current 5-day moving average of daily new confirmed cases for the US is 27,215, according to data from John Hopkins. That is 3.4x times faster than the pace of the next fastest nation, Spain, at 8,036 and 4.6x faster than the third-fastest nation, Germany. Italy continues to be a source of optimism, having once been the hardest hit nation - it’s 5-day moving average for daily new confirmed cases peaked on March 21 at 6,034 and has fallen to 4,501.

New York accounts for 37.9% of all cases and New Jersey 10.4%. California, the nation’s most populous states, accounts for only 4.6% of cases, but as we mentioned yesterday, it is in the bottom half of states with respect to the percent of the population that has tested.

Projections are for total deaths in the US to be between 100,000 and 240,000, which would mean between 303 and 725 per million. Today Italy has the highest death rate of any nation with over 1,000 cases at 230 deaths per 1 million residents, but its daily case count is slowing significantly. 

Markets

The markets yesterday were, to use a technical term, bonkers. Futures started in positive territory despite the record-breaking new unemployment claims. Markets started trading in positive territory but then fell into negative territory during the first hour of trading. Naturally, that led to a spike up in the second hour of trading, which saw the NYSE Composite up around 3%. Things went downhill from there to see the major US indices nearly flat on the day between 2pm and 3pm ET, but wait, US markets had yet to close for the day. During the final hour of trading, we were off to the races again to see the Nasdaq 100, S&P 500, Dow, and NYSE Composite all close up over 2% while the small-cap Russell 2000 closed up 1.3%.

The oil market saw some wild moves with WTI futures having, on a settlement versus settlement bases, their best day ever after President Trump announced he had brokered a deal for huge cuts in oil output. Saudi Arabia announced it had called an OPEC+ meeting (which includes Russia), but no agreement had been announced. After seeing the price of oil spike as much as 35% at the peak, prices fell back after a Russian official denied that a conversation between Putin and Saudi Arabia’s Crown Prince Mohammed bin Salman had occurred. The front-month contract for WTI closed the day up 16.5%, but the rest of the curve was mostly unchanged, which means the market still expects demand destruction and persistent oversupply in the future. And while WTI just had its best day ever, it is still down over 45% in the past month. This morning prices spiked again on the rumor that Russians are ready to cut if other nations cut as well.

US Economy

Yesterday the Federal Reserve released the H.4.1 report on its assets and liability. Over the two weeks ending Wednesday, assets rose 22%, with Treasury purchases the most significant contributor.

US trade data for February was released yesterday, and it found there were significant declines in imported goods. Trade with China has seen a massive shift, with the overall trade deficit with China the smallest since January 2010. Since the March 2018 peak, imports have fallen 43%, with 1/3rd of that decline coming in February alone. Digging into the details here, that looks like this drop is more about China’s shutdown, which hit its ability to export big time, than about the US wanting to buy less.

The DNC yesterday announced that it is postponing its presidential nomination convention from July 13 to August 17.

Nonfarm payrolls fell by 701,000 versus expectations for a decline of 150,000 while the unemployment rate increased 4.4% from the prior 3.5%, well above the expected increase to 3.8%. Average hourly earnings increase by 0.4% MoM, much better than the 0.2% expected and up from the prior 0.3%. On a YoY basis, average hourly earnings rose 3.1% from the prior 3% where they were expected to remain. Average weekly hours dropped to 34.2 from 34.4, less than the expected decline to 34.1.

As for the impact of the pandemic on the domestic economy, opinions vary. The Congressional Budget Office is forecasting a 7% contraction in GDP in the second quarter. Bloomberg Economics is estimating a 9% drop. Citigroup is forecasting a 12% decline while JPMorgan is looking at a 25% drop. Goldman Sachs is one of the most pessimistic at 34% contraction in Q2, Morgan Stanley outdid GS and is looking at a 38% contraction while Capital Economics is all the way down to a 40% decline. 

To put all that in context, the most severe annual contraction in the US economy occurred in 1932 when the economy contracted by 23.1% over the entire year, according to data from the Bureau of Economic Analysis with annual data going back to 1929. The most severe quarterly contraction was in 1949 when the economy contracted 7.7% on an annualized basis. The worst quarter during the Great Financial Crisis saw the economy contract 7.4% on an annualized basis.

Some have compared what we are facing to the Great Depression of the 1930s. From 1929 through 1933, GDP contracted by 45.3%. In the absence of some major global policy errors that leads to a massive crash in global trade, that comparison seems overstated. Between Q3 2008 and Q2 2009, the economy contracted 4.3% on an annualized basis. So yeah, this looks like it will be a whole lot worse than the Great Recession, but by how much?

Later today, for the US, we will get the Markit Services and Composite PMI, ISM Non-Manufacturing report, the usual weekly Baker Hughes oil rig report, and total vehicle sales for March. We are expecting the Markit service sector and composite reports to be pretty grim in light of reports from around the world today, as you’ll see below.

Global Economy

Australia’s Commonwealth Bank Flash Composite PMI saw the steepest contraction in March since data collection began in May 2016, dropping to 39.4 from the prior 49. The services sector shrank at the fastest pace on record. Sentiment deteriorated to its lowest on record.

Japan’s Jibun Bank Composite March PMI dropped to 36.2 from the prior 47, the weakest level on record. The services sector contracted at the steepest pace in the survey’s history. Factory activity contracted the most since April 2009. Output contracted the most since the Tsunami in 2011. Both manufacturers and service providers recorded lower employment levels for the first time in nearly 5 years.

China’s Caixin Composite PMI rose to 46.7 in March from a record low 27.5 in February. This is the 2nd lowest reading in 11 years. Growth in backlogs of work slowed, and input costs rose after a big decline in February. Manufacturers look to be more confident than service providers about the future.

Russia’s IHS Markit Services PMI fell to 37.1 in March from the prior 52, the lowest level since (you got this one?) the series began in December 2010, with output falling at the fastest pace in over 11 years. Total sales declined at the quickest pace since February 2009. 

Singapore, which has perhaps had the most effective strategies for dealing with the pandemic, saw its Services PMI drop to 33.3 in March from 47. No nation is getting through this without some serious pain. Now facing a second wave of infections, the country is closing schools and most workplaces by next Wednesday.

The IHS Market Eurozone Composite PMI dropped to an all-time low of 29.7 in March from the prior 51.6. Both service and manufacturing saw record declines. Services declined to 26.4 from 52.6, the steepest 1-month contraction on record.

Italy’s IHS Markit Service PMI fell to 17.4 in March from 52.1 in February, well below expectations for a drop to 22. This was the sharpest contraction in business activity since the survey began in January 1998. The seasonally adjusted New Business Index posted a record MoM decline of nearly 40 points and signaled the most significant decline in new work on record. The rate of job shedding was the quickest more than 22 years of data collection. Input prices fell for the first time in over a decade in March, with the rate of decline the quickest on record. Sentiment fell to an all-time low. You don’t say!

The Composite Output Index fell from 50.7 to 20.2 in March, the sharpest contraction in Italian private-sector output on record. The 12-month outlook for activity was the lowest on record in March with, for the first time ever, companies on average expecting activity to be lower in a year than it is today. Forget recession, Italy is facing a deep depression.

Frankly, a lot of us are these days.

France’s IHS Markit Composite PMI hit an all-time low of 28.9 in March, down from the prior 52. Private sector activity fell at a record pace in services and at the fastest pace since 2009 in manufacturing. New orders and exports both declined at a record pace in both services and manufacturing. Business sentiment hit an all-time low.

Germany’s IHS Markit Composite PMI was 35 in March, down from 50.7 in February. The nation saw a record contraction in private sector activity with services shrinking at the fasted pace on record. The level of new export business dropped at a record rate. Inflows of total new business posted a record fall. The drop in employment was the 2nd fastest in the survey’s history, while sentiment concerning future activity fell to its lowest level since the data began being tracked. Germany’s Economic Minister is forecasting a 5% contraction in GDP this year.

Stocks to Watch

This morning Constellation Brands (STZ), the largest multi-category alcohol supplier in the US, including Corona beer, reported earnings quarterly EPS of $2.18 vs. the consensus EPS estimate $1.63 Sales for the quarter were $1.9 billion vs. the expected $1.84 billion. Despite those beats and what your authors can only say from first-hand experience, there has likely been a surge in demand for the company’s products, Constellation did not serve investors a fresh round of guidance given “potential impacts on the business from COVID-19.”

Yesterday Walt Disney Co (DIS) announced that it is furloughing employees across all divisions in its domestic operations as it struggles with the impact of the pandemic. In a statement yesterday, a Disney spokesman said the company had “no clear indication of when we can restart our businesses.” Last week Disney said its domestic parks would remain closed indefinitely. Its movie business has also been hit hard by the postponement of the release of completed movies and the shutdown of movies currently in production.

The suspension of most sports has hit its ESPN network hard. All Disney stores have been closed. The company did not specify how many of its over 223,000 workers will be affected. Nonessential workers will be furloughed beginning on April 19, which will make them eligible for the recent stimulus package compensation. Those who have health insurance through the company will be able to retain it.

In other store closures and retail cutbacks:

  • Bed Bath & Beyond (BBY) will extend its store closures through May 2 and furlough most of its salespeople and some corporate staff until that date
  • Zumiez (ZUMZ) stores will be shut until further notice
  • Apple's (AAPL) retail stores in the US will remain closed, and work-from-home procedures will stay in place until early May
  • Shoe Carnival (SCVL) will extend its store closures until further notice but also shared its e-commerce business has grown triple digits since the company closed its brick & mortar locations
  • American Eagle (AEO) will furlough most of its field staff on April 5, and is suspending both its share buyback program as well as deferring its dividend
  • Caesars Entertainment (CZR) has furloughed 90% of the employees at its domestic, owned properties as well as its corporate staff following its properties being ordered to close
  • Playa Hotels & Resorts (PLYA) has closed all of its resorts for April and May
  • AutoNation (AN) has placed roughly 7,000 employees on unpaid leave and frozen all new hiring
  • All executives and salaried employees at Superior Industries (SUP) will take a 20% pay cut from April 1 through May 31, and most of its manufacturing workforce will be temporarily laid off in line with facility closures
  • Target (TGT) will start metering guest traffic at its stores starting Saturday, April 4

Macquarie Infrastructure (MIC) has withdrawn its guidance and suspended its quarterly cash dividend, and Dave & Busters (PLAY) has also suspended its dividend and share repurchase program.

The following have withdrawn their guidance:

  • Acushnet (GOLF)
  • Tenneco (TEN)
  • Sensata Technologies (ST)
  • Envista (NVST)
  • Fortuna Silver Mines (FSM)
  • Dynavax (DVAX)
  • Casey’s General (CASY)
  • Barnes Group (B)
  • Leggett & Platt (LEG)
  • Textron (TXT)

At an employee town hall, United Airlines (UAL) President Scott Kirby stated the company estimates its revenue is down $100M per day amid COVID-19 pandemic. American Airlines (AAL) announced it will suspend more than 60% of its total international capacity this summer, including an 80% reduction in Pacific capacity, a 65% reduction in Atlantic capacity, and a 48% reduction in Latin America capacity.

Cheesecake Factory (CAKE) expects its first-quarter comparable restaurant sales to be down approximately 13%. Comp sales were up 3% in January and February but dropped roughly 46% in March due to location closures and the drop in consumer activity. We expect to hear many similar comments in the coming weeks as the March quarter earnings season gets underway. 

According to data published by ACT Research, preliminary North American A Class 8 truck net orders fell to 7,800 units in March, down 45% from February and 51% YoY. March’s Classes 5-7 net orders were 14,700 units, down 36% from February and 31% from year-ago levels. This likely reflects capital spending cuts at trucking and logistics companies such as JB Hunt (JBHT)XPO Logistics (XPO), and Landstar Systems (LSTR), with implications being felt truck OEMs and their suppliers such as Paccar (PCAR)Navistar (NAV)Cummins (CMI) and Meritor (MTOR).

Ford (F) has confirmed the temporary suspension of vehicle and engine production at most of its European manufacturing sites is now expected to run to least May 4.

After last night’s market close Chewy (CHWY) reporting quarterly results that met expectations and shared its shop-at-home business is being “resilient” amid the coronavirus. 

Verizon (VZ) shared that despite seeing 100% growth of gaming in its network, 50% up on VPN, and people working from home, its network is holding up well. File this under interesting, reflecting a population that is moving around less and less, Verizon’s mobile handoffs are down 29% in the US and 63% week over week in the New York Metro area.

Shares of Tesla (TSLArallied in aftermarket trading last night following the company’s announcement, it produced almost 103K vehicles and delivered roughly 88.4K during the March quarter vs. the 79.9K consensus forecast. 

If you are feeling a bit antsy, AT&T’s (T) HBO is looking to help by offering free access to a number of its high-profile series, documentaries and other movies for free. The company is allowing US viewers without subscriptions to use HBO Now or HBO Go to stream shows, including The Sopranos, The Wire, True Blood, Veep, Six Feet Under, Silicon Valley, Succession, Barry and Ballers.

And while the following may not do much for your authors’ taste buds, Grupo Modelo (GPMCF) announced it will stop producing Corona beer because the business was deemed nonessential under a Mexican government order to curb the spread of the coronavirus. Someone really needs to re-think that thought process, perhaps after they have been locked down for more than a few days? If lime production stopped, we’d really have a problem!

There are no companies expected to report after today’s market close and readers looking to get the lowdown on upcoming earnings reports to be had next week, we suggest visiting Nasdaq’s earnings calendar page

On the Horizon

    • Dates to mark:
        • April 7: JOLTS report
        • April 8: FOMC Minutes
        • April 10: US equity markets closed for Good Friday
        • April 14: NFIB Small Business report
        • April 15: Retail Sales report
        • April 17: Options Expiration
        • April 24: University of Michigan Consumer Sentiment report
        • April 28: Wholesale and Retail Inventories
        • April 28-29: Federal Reserve FOMC meeting
        • April 29: Q1 GDP (first estimate)
        • April 30: European Central Bank rate decision
        • May 1: Vehicle Sales
        • May 12-14: Google I/O Developer Conference
        • May 25: US stock market closed for Memorial Day

Thoughts for the Day

Nature abhors a vacuum, but not nearly as much as a cat does.

Just because you can’t dance, doesn’t mean you shouldn’t. - Alcohol

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

Read Chris' Bio

Lenore Elle Hawkins

Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

Read Lenore's Bio