Here Comes The Flood

Here comes the flood.  Stocks sold off yesterday in response to a collection of bad economic data.  There was little, if any positive news to hold onto yesterday prompting a broad selloff in stocks.

N O T E W O R T H Y

Just tell me, I can take it. 

Yesterday was tax day which is usually the day where one can see large lines at the post office snaking into parking lots as last minute filers mail their returns to the IRS.  As the CARES Act provides for an extension until July 15th, the long lines were confined to the grocery stores, which has become an all-too-familiar sight since the Coronavirus prompted an almost complete shuttering of the retail economy… that is the in-person retail economy.  As one might expect, Amazon and Netflix have become the go-to destinations for sheltered shoppers and entertainment seekers.  Not surprisingly either, both of their stocks closed at all-time highs yesterday.  In sharp contrast is J. C. Penney, which has been in business since 1902 and has been struggling recently along with all principally brick and mortar department stores.  The company, which employs 95,000 employees and sold $12 billion worth of goods and services in 2019 announced yesterday that it was going to miss a $12 million interest payment on its 6.375% 10/15/36 Senior Note.  According to its provisions, the company has a 30-day grace period which the company has said it would use to explore all of its options, including bankruptcy.  It was not a good day for investors in those bonds which spent much of last year trading around 35 but closed yesterday at 7.31.  The bonds are rated C by Moodys, which is just about as junky as you could get (it is Moody’s lowest rating) but investors who were willing to take the risk and bought the bonds last year would have received a yield to maturity of around 20%.  The company’s stock, which spent much of 2019 bouncing above and below the $1/share level closed out yesterday’s session at $0.23.  These are tough times for all of retail and that fact hit home yesterday when the US Census Bureau released its Retail Sales figure for March which showed a worse-than-expected -8.7% drop.  That marked its biggest decline on record. Breaking down the number by industry tells a story that is likely to be obvious by now.  At the bottom of the list is clothing and accessories, which shrunk by -50.5%.  Also hard-hit were bars and restaurants which saw a month over month loss of -26.5%. It wasn’t bad for all of retail as the food and beverage store category topped the list with a +25.6% month over month growth.  Bear in mind that these numbers are for March, during which the pause was only in effect for 2 weeks or so, which means that the numbers are likely to get worse before they get better.  Another message which is becoming clear is that when we emerge from this painful chapter in history, retail will emerge sharply and will almost certainly look different than it did in the past.

THE MARKETS

Stocks sold off broadly yesterday with all sectors ending the session in the red.  A succession of bad economic news soured investors' jubilance from a day earlier.  The S&P500 sold off by -2.20%, the Dow Jones Industrial Average gave up -1.86%, the Russell 2000 dropped by -4.31%, and the NASDAQ Composite slipped by -1.44%.  Bonds traded up and 10-year treasury yields fell by -13 basis points to 0.63%. Crude oil had a tough day with WTI trading below $20 at one point during the session as estimates for demand are being lowered.

NXT UP

- Housing Starts (March) are expected to have dropped by -18.7% compared to February’s -1.5% drop, while Building Permits (March) may have dropped by -10.5% after dropping -6.3% in the month prior.

- Philadelphia Fed Business Outlook (April) is expected to come in at -32.0 compared to last month’s -12.7.

- Initial Jobless Claims (April 11) is expected to show that 5.5 million Americans filed for unemployment coverage for the first time last week adding to the 6.606 million that filed a week earlier.

- This morning BlackRock, Bank of NY Melon and Rite Aid beat estimates.  Before the bell we will hear from Morgan Stanley and Abbott Labs.

daily chartbook 2020-04-16