foxex: A Little Love

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Friday's Headlines

1. US markets moved little today but were higher on the week

2. Consumers remained confident in January

3. What COVID-19 looks like up close

4. Bonds see biggest inflows ever

5. What's ahead next week

Markets Closed

Dow
29,398.08
−25.23 (-0.09%)

S&P
3,380.16
+6.22 (+0.18%)

Nasdaq
9,731.18
+19.22 (+0.20%)

VIX
13.68
−0.47 (-3.32%)

Bitcoin
$10,314.99
+107.94 (+1.09%)

US 10-Yr Yield
1.588
−0.029 (-1.79%)

Year-to-Date

Dow
29,398.08 +3.01%

S&P
3,380.16 +4.62%

Nasdaq
9,731.18 +8.45%

Russell 2000
1,687.58 +1.15%

Crude Oil
$52.17 -14.42%

US 10-Yr Yield
1.588 -15.6%

(Programming note: We'll be off on Monday for Presidents Day, but we will send you some thoughts on the Oval Office. I'll be visiting family all next week, but James and Gabe will have the wheel. Enjoy the weekend. -Caleb)

Markets Today

U.S. markets ended the day relatively flat, but closed higher for the week. We've seen a lot of conflicting, new, and fabricated information about the spread of the coronavirus. At latest count, there have been more than 64,000 confirmed cases and 1380 deaths linked to COVID-19. The lack of clarity and containment is making its way into the supply chains of nearly every multinational business that sells products to or sources products from China. The auto sector is the latest to issue warnings about sales and supply forecasts.

Tesla warned yesterday that COVID-19 could have a material impact on its business saying, "... It is unknown whether and how global supply chains, particularly for automotive parts, may be affected if such an epidemic persists for an extended period of time." Chinese automakers are bracing for at least a 10% hit to overall sales in the next six months. European and American automakers are warning about supply chain disruptions at their plants in other countries due to the outbreak as well. Fiat Chrysler said it planned to halt operations at its factory in Serbia due to a shortage of Chinese parts. The United Auto Workers said disruption was a possibility in U.S. plants. Ford is working on a tiered schedule to restart plants in China, while Honda expects workers to return on Feb. 24. Nissan and Toyota expect to restart factories over the next two weeks.

In a world of global supply chains, global health emergencies are proving to be an unpredictable obstacle.

Headlines:

U.S. consumer sentiment figures for February came in higher than expected despite concerns about the coronavirus. The University of Michigan's consumer sentiment index came in at 100.9 for February, higher than the forecast of 99.5. In a related note, U.S. credit card debt hit a record $930 billion in the fourth quarter of 2019.
Tesla priced its secondary common stock offering at $767 a share, raising more than $2 billion. The $767 share price is a 4.6% discount to Thursday's closing price. The company also said that CEO Elon Musk will buy $10 million of the shares and Oracle billionaire Larry Ellison will purchase $1 million worth.
Delta Air Lines CEO Ed Bastian said the company is going "fully carbon neutral" starting March 1. Delta is committing at least $1 billion over the next decade to reduce its environmental impact, but the airline said it is not considering abandoning the use of jet fuel.
Attorneys general from 21 states rejected the proposed settlement of $18 billion over 18 years from McKesson, AmerisourceBergen, and Cardinal Health for their role in creating the opioid crisis. The Society of Actuaries estimated in a report last year that the opioid crisis cost the United States $179 billion in 2018 alone.
The Pentagon no longer opposes a proposed Commerce Department rule that would limit the products U.S. firms can sell to Huawei. Huawei is on an export blacklist meaning that U.S. companies can only sell them components for products made overseas and with less than 25% U.S.-made content. The proposed rule change would lower the threshold for Huawei to 10%.
Ever wondered what COVID-19, aka the coronavirus looks like up close? Chinese researchers have released this photo of the pathogen:

Record Week for Bond Inflows

At the risk of beating a proverbial dead horse it's worth pointing out that this week has seen a record amount of money flowing into the bond market. According to Bank of America, $23.6 billion flowed into bonds, which is a record annualized rate of nearly $1 trillion. $12.5 billion flowed into equity funds, an annualized rate of $443 billion - also a record.

This tells us that investors are being cautious, which we already knew. It also tells us that there is a lot of money on the sidelines - especially among institutional investors. Half of the flows into the bond market went into investment-grade corporate bonds. That tells us that big money wants to back corporate debt, which is a little riskier than government debt, but can produce better returns assuming corporations can pay their bills and service their debt. That has not been an issue in the last decade, thanks in part to low interest rates, and those appear to be here to stay.

chart courtesy Pew Research

Is Tax-Free Investing Coming?

According to CNBC, the White House is considering ways to incentivize U.S. households to invest in the stock market. The proposal would see a portion of household income treated as tax-free for the purposes of investing outside a traditional 401(k). Under one hypothetical scenario described by multiple officials who spoke to CNBC, a household earning up to $200,000 could invest $10,000 of that income on a tax-free basis.

Money put into the account would be done so on an after-tax basis, and taxed when withdrawn as well; but any accumulation of profits during the investment timeframe, known as capital gains, would not be taxed.

According to a survey by Gallup, 55% of Americans reported owning stock in one way or another. That's about the same percentage that owned stocks at the end of the financial crisis, but down from 62% in the years 2001-2007. The top 1% of the wealthiest Americans have benefited most from the rise in the stock market in the past decade since they have the most money in the market (see chart above).

While this would be a game changer for the investment industry and could potentially bring more investors into the market, it is still just a proposal, and one that is tied to a new tax cut proposal the Trump Administration is said to be considering ahead of the 2020 election. No one thinks that the House of Representatives, which is under Democratic control, will approve a tax cut before the election or even if Trump is re-elected. However, if this idea catches hold, it could be a path to greater wealth for millions of Americans.

The Week Ahead:

Here are the year-to-date returns of different asset classes so far:

Here are some of the key economic events on the calendar for the week ahead:

Sunday February 16

Japanese Preliminary Gross Domestic Product (GDP) (Q4)
Japanese Industrial Production (Dec.)

Monday February 17

Market Holiday in the U.S. for Presidents Day
Market Holiday in Canada for Family Day
Chinese New Loans

Tuesday February 18

U.K. Average Earnings Index (Dec.)
U.K. Unemployment Claimant Count Change (Jan.)
German ZEW Current Economic Sentiment Index (Feb.)
Eurozone ZEW Economic Sentiment Index (Feb.)
NY Empire State Manufacturing Index (Feb.)
Japanese Trade Balance (Jan.)
Canadian Manufacturing Sales (Dec.)

Wednesday February 19

U.K. Consumer Price Index (CPI) (Jan.)
U.K. Producer Price Index (PPI) (Jan.)
U.S. Building Permits (Jan.)
U.S. PPI (Jan.)
U.S. Housing Starts (Jan.)
Canadian CPI (Jan.)
FOMC Meeting Minutes Release
People's Bank of China Loan Prime Rate

Thursday February 20

German PPI (Jan.)
French CPI (Jan.)
U.K. Retail Sales (Jan.)
U.K. CBI Industrial Trends Orders (Feb.)
European Central Bank publishes Monetary Policy Meeting Account
Philadelphia Fed Manufacturing Index (Feb.)
Japan CPI (Jan.)

Friday February 21

Indian Market Holiday for Mahashivratri
Eurozone Preliminary Purchasing Managers' Index (PMI) (Feb.)
U.K. Preliminary PMI (Feb.)
French Preliminary PMI (Feb.)
German Preliminary PMI (Feb.)
Eurozone PMI (Jan.)
U.S. Preliminary PMI (Feb.)
U.S. Existing Home Sales (Jan.)

China's Stimulus Decisions
The Chinese government has been using all sorts of measures to try and fight the slowdown caused by the coronavirus outbreak. It's been doing everything from pressuring commercial landlords to offer rent relief, expanding central bank loans, and even releasing supplies from its strategic pork reserve to stabilize food prices. The People's Bank of China announces its next interest-rate decision on Wednesday, and how much it cut its rates may be a good indicator of how much China is willing to push to keep its economy growing. China's GDP growth number has always been important to its government's image, but this year is special because if growth stays at about 6%, the Chinese government will have met its goal of doubling China's GDP from 2010 to 2020. This could be a problem, however, because most stimulus measures work to counter low demand from insufficient money or credit. Demand isn't low because people don't have enough money or credit to spend, but because they're staying home to avoid the coronavirus. That means that stimulus may not have the same effect that it would on a conventional economic downturn.

FOMC Meeting Notes
Also on Wednesday the minutes of the January Federal Reserve Open Markets Committee meeting will be released. That was the first meeting after the start of the coronavirus outbreak, and while the Fed's press release earlier this month said the virus, "presented a new risk to the outlook" the meeting minutes may give us more details as to how much of a risk the Fed thinks it might be.

More News:

Is It Time to Buy Nike Stock?

Gilead Sciences Stock at Cusp of New Uptrend

Tesla Stock Moves Higher Despite $2B Capital Raise and Subpoena

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(chart courtesy YCHARTS)

Chemical firm Chemours rose substantially after a better-than-expect earnings report. Nvidia also rose after releasing earnings which showed very strong sales to data centers.

Streaming TV company Roku fell after saying that increased spending would likely put downward pressure on earnings over the next year. Transportation firm Ryder System also fell after giving a weaker-than-expected forecast.

Word of the Day

Secondary Offering

A secondary offering is the sale of new or closely-held shares by a company that has already made an initial public offering (IPO). There are two types of secondary offerings. A non-dilutive secondary offering is a sale of securities in which one or more major stockholders in a company sell all or a large portion of their holdings. The proceeds from this sale are paid to the stockholders that sell their shares. Meanwhile, a dilutive secondary offering involves creating new shares and offering them for public sale.

Today in History

February 14, 2005

Today in 2005, three PayPal employees, Chad Hurley, Steve Chen, and Jawed Karim started YouTube. It was initially conceived of as a dating site, but this was not successful. However, they saw that users were uploading videos of all kinds to the site and they decided to remake YouTube into a free video sharing website. They uploaded the first video to the newly restructured YouTube in May and viewership grew rapidly. The first video to get 1 million views was a viral Nike ad that aired that September, before the site was even out of its beta version. By October 2006, the company was purchased by Google for $1.65 billion, with each of the three founders making almost $400 million. The first video to reach 1 billion views was the music video for the song "Gangnam Style" by South Korean Rapper, Psy. The current record holder for the video with the most views is the music video for the song "Despacito" by Luis Fonsi, featuring Daddy Yankee, which currently has 6.6 billion views. In its Q4 2019 financials, Alphabet finally revealed Youtube's revenue, having previously grouped all Google properties together. Youtube generated $15.1 billion in revenue in 2019, more than mutual fund giant BlackRock, and nearly as much as Bank of New York Mellon.

Source: BusinessInsider