Reality smackdown

Jobless claims & retail sales 

Job losses continue to plague the US as life as we knew it remains shuttered. Another 5.25M workers applied for unemployment benefits last week, bringing the COVID-related job losses to over 21M in just a month. To put this into perspective, this is about equivalent to the number of jobs that have been created since the financial crisis in 2008. 10+ years of job creation lost in just one month. While many companies are suffering, others like Amazon are hiring thousands to keep up with the sharp increase in demand from the quarantine life that we’ve now accepted as reality where days and time seem irrelevant, baking bread is all the rage, and Zoom is the place to be for happy hour. 

Moral of the story: Unemployment is approaching 15% at this point. March retail sales plummeted by a record 8.7%, and that was before the country really shut down completely. I wouldn’t be surprised to see close to a 20-30% decline in economic output for the second quarter at this rate. 

Earnings are here 

Guys, getting through this earnings season is going to be rough. The market is oversaturated with information as it is, and adding earnings into the mix over the next month is going to really test Wall Street. I will be running on fumes and lots of caffeine, please send thoughts and prayers. We’ve already heard from the major banks and they all saw profits decline anywhere from 30-50% driven by billions in loan loss reserves even though trading profits were higher driven by higher volatility leading to higher trading volumes. We also heard from a giant in the consumer goods space this week. Procter & Gamble (they own brands like Charmin, Bounty, Tide, Swiffer, Mr. Clean, Pampers) reported a 10% increase in sales as consumers stocked up on essentials ahead of the COVID shutdowns. The only business line that saw declining sales for P&G was its grooming business (Gillette and Venus). In the absence of haircuts and a complete apathy toward grooming, safe to say many of us are turning onto cavemen during these trying times. 

Moral of the story: Earnings season is just getting started. The real impact on businesses from this shutdown isn’t even close to being realized and truly understood. While millions have lost their jobs in the last month, they probably still had some cash on hand to get through the first few weeks of unemployment. We’re going to start seeing a much bigger impact of unemployment on the economy in the upcoming weeks and hearing from management teams during earnings season will be a crucial source of information as the market tries to price in any sort of recovery on the other side of this crisis. 

Miscellaneous COVID updates

A couple noteworthy items this week related to COVID are important to cover as it explains a lot of market sentimentStimulus checks are starting to be deposited into bank accounts. Some small businesses are starting to receive rescue funds – the entirety of the $350B allocated for small businesses through the CARES Act has been spoken for by 860k applications through more than 4k different lenders. As you can imagine, this is a massive undertaking, which means the logistics of getting money into the hands of these small businesses is taking longer than ideal. Separately, while the federal government still hasn’t taken any action to shut down the country completely (like we probably should have weeks ago to stop the spread across state lines) west coast states (CA, OR, WA) and several northeast states (NY, NJ, CT, RI, PA, DE) have announced they will be working together to ensure their regions are taking collective actions to flatten the curve. Importantly, news about Gilead drug remdesivir’s ability to treat COVID-19 gave investors some hope. 

Moral of the story: The government’s stimulus package is just not going to be enough for individuals or small businesses unless the economy reopens, and the promise of a medical solution to COVID-19 is the type of thing that could reopen the economy in a big way. It’s still uncertain the extent this Gilead drug could be used, but it’s already been approved by the FDA and could be placed into use as fast as it can be produced, which is a lot faster than a new COVID-19 vaccine.