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The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Tuesday's Headlines

1. US markets tumble as oil slides again

2. US Senate agrees on new $484 billion stimulus plan

3. Netflix adds 15 million new subscribers

4. Who is taking stimulus money?

5. FLIR is having its moment

Markets Closed

Dow
23,018.88
−631.56 (-2.67%)

S&P
2,736.56
−86.60 (-3.07%)

Nasdaq
8,26323
−297.50 (-3.48%)

VIX
45.41
+1.58 (+3.60%)

Bitcoin
$6,886.38
+$34.06 (+0.06%)

US 10-Yr Yield
0.571
−0.055 (-8.79%)

image: shotbydave/Getty

Markets Today

U.S. markets sold off again as oil prices continued to slide as investors cast further doubt on the strength and shape of the recovery. The DJIA has dropped 1,200 points, or 4%, in just the last two days. The price of West Texas Intermediate Oil for June delivery fell 43% today, following yesterday's bizarre plunge for the May WTI contract that sent prices below zero for the first time in history.

U.S. senators agreed on a new $484 billion coronavirus relief package, which is desperately needed by small businesses struggling to stay afloat as the economy withers. Congress is expected to vote on it later this week.

But investors are fixated on oil prices given the fact that they are a useful predictor of future demand, and the oil and energy sector plays such a pivotal role in the U.S. and global economies. Nearly 7 million people work in the oil and energy sector in the U.S., and trillions of dollars are tied to the energy economy in one way or another. The market valuation of that sector in the U.S. is now smaller than Alphabet, the parent company of Google.

chart courtesy Bespoke Investments

**Survey alert: We are running another survey of our U.S. newsletter readers to learn more about your views on these volatile markets and moves you may or may not be making in your portfolios. We don't do anything creepy or untoward with the information you provide... I promise. If you would, please take this brief survey, and we'll let you know what we learn. Thanks!**

Headlines:

U.S. Senators reached a deal Tuesday on a $484 billion coronavirus relief package for small businesses, hospitals, and testing. The Senate could vote on legislation later today and will need unanimous support to pass it. The House could approve the bill as early as Thursday.
Netflix reported quarterly results that missed analysts' expectations for profits but met revenue forecasts of $5.77 billion, while adding more than 15 million global subscribers in the first quarter. In its letter to shareholders, Netflix said it expects viewership and subscriptions to spike but warned of an expected decline in viewership and slowdown in growth down the road.
The United States Oil Fund, a popular exchange-traded security known for its 'USO' ticker, which is supposed to track the price of oil and is popular with retail investors, plunged nearly 40% as the managers of the fund made repeated changes to its structure to stave off a collapse. Trading was halted midday for the ETF.
Sales of existing homes fell a more-than-expected 8.5% in March compared with February to an annualized pace of 5.27 million units, according to the National Association of Realtors' seasonally adjusted index. Sales were just 0.8% higher than in March 2019. These sales figures are based on closings that occurred mostly in late January and February, before the coronavirus shut down so much of the economy.
Coca-Cola says global demand in terms of volume has declined 25% so far in April. It reported first quarter EPS of 51 cents on revenue of $8.6 billion, both better than analysts' forecasts. In March it saw a sharp decline in away-from-home channels, which includes sporting and entertainment events and comprise half of the firm's revenues.
Governors in Georgia, Tennessee, and South Carolina yesterday announced plans to ease some restrictions. In Georgia, gyms and salons will reopen Friday followed on Monday by movie theaters and restaurants. Certain businesses in SC were even allowed to reopen yesterday. Tennessee is not extending its "safer-at-home" order that is set to expire on April 30.
The Federal Housing Finance Agency (FHFA) is considering whether to allow Fannie Mae and Freddie Mac, the government-controlled mortgage-finance giants, to buy home loans that recently entered forbearance, according to The Wall Street Journal. Those are homes where borrowers have stopped making payments, and they are growing as the economic shutdown persists.
The J. M. Smucker Company saw "unprecedented" customer and consumer demand for the fiscal year 2020 ending April. The firm now expects net sales to drop 1% instead of 3%, adjusted EPS to exceed the high end of the previous guidance range of $8.10 to $8.30, and free cash flow to exceed the previous guidance of $850 million.
The Volvo Group and Daimler Truck AG are forming a joint venture to develop, produce, and commercialize fuel cell systems for heavy-duty vehicles. Volvo will acquire its 50% in the JV for approx. 0.6 billion euros. "In the context of the current economic downturn, cooperation has become even more necessary in order to meet the Green Deal objectives within a feasible time-frame," said the press release.
Starbucks is launching a plant-based lunch menu in China this week that will debut Beyond Meat's products in the Asian market. Starbucks has reopened almost all its cafes in the country after temporarily closing them. BYND stock is up over 12% pre-market.
Small business owners have filed class action lawsuits against JPMorgan, Bank of America, Wells Fargo, and U.S. Bank over their handling of the paycheck protection program. The lawsuits alleges that the banks processed the biggest loan amounts first because it increased their origination fees.
The U.S. restaurant industry is expected to lose $240 billion this year, according to a survey of 6,500 restaurants conducted by the National Restaurant Association. Restaurants lost $30 billion in March and were on track to lose $50 billion in April. Over 60% of owners said that existing federal relief programs—including the CARES Act—will not enable them to keep their employees on payroll during the downturn.

chart courtesy CME

Where Do Oil Prices Go From Here?

While the WTI May contract for oil traded below zero yesterday, it's important to note that futures prices are stabilizing. They are trading lower, but as we go through the summer, those futures prices rise. Since oil, like all commodities, is mostly traded based on its futures price, it's important to look at what those expectations are. According to the CME, by October, futures prices for WTI are above $26 per barrel, and they will finish the year closer to 30. A lot could change between now and then, but that's the expectation today, in the middle of the storm.

Which Public Companies Are Taking Stimulus Money?

While the Payroll Protection Program of the CARES Act was set up to help small businesses pay and keep their employees, several public companies have also reported receiving funds from the program. There is nothing illegal about that, but because they are public, they have to disclose it.

According to analysis from Morgan Stanley, those companies range in market value from $1 million to over $404 million. You may be only familiar with a few from the list above, but they range across industries from mining to restaurants. Around 77% of these companies are concentrated in the manufacturing, accommodation, food services, and information sectors. They employ anywhere from 14 to 10,000 people, and more than half of them are not profitable.

JPMorgan Chase provided 31% of the total loans to these companies.

FLIR Systems Has its Moment

Amid all the volatility, many 'story stocks' are having their moment. A few weeks ago, it was Zoom Video Communications. This week belongs to FLIR Systems, a U.S. company that manufactures thermal imaging cameras.

As various economies look to reopen, companies are planning to use thermal cameras to detect employees that may be infected, since a fever is one of the symptoms of the novel coronavirus. Those who have a fever will also require further screening to determine the actual cause.

Amazon is using these devices at its warehouses and Whole Foods stores instead of handheld thermometers, as it's faster and allows for social distancing, according to Reuters. The report added that other companies that have explored using the camera systems, which can cost between $5,000 and $20,000, include Tyson Foods and Intel. General Motors and Wynn Resorts have already confirmed they'll be using such scanners.

Will the excitement last for FLIR? It almost never does, but it is fascinating to see what companies and industries find opportunities during periods of crisis.

More News:

Facebook Earnings: What to Look For

Alphabet Earnings: What to Look For

Hertz Stock Breaks Down After Analyst Cuts Price Target

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(chart courtesy YCHARTS)

Shares of FLIR Systems are up by 4% following yesterday's report that Amazon began using thermal cameras (of which FLIR is the world's largest designer and producer) within its warehouses to monitor employees for possible signs of coronavirus infection. Equifax's stock price rose by over 3% after the credit reporting agency announced that earnings for the first quarter had beaten consensus estimates.

Shares of Howmet are down by 8.5% as aerospace companies continue to struggle due to the ongoing pandemic effectively grounding almost every flight. Similarly, the tech sector's workforce has also been hit hard and companies like Lam Research (almost 8%), Salesforce.com (7.5%), and Advanced Micro Devices (over 6%) are feeling the effects.

Word of the Day

Demand Shock

A demand shock is a sudden and surprise event that dramatically increases or decreases demand for particular goods or services, usually on a temporary basis. A positive demand shock is a sudden increase in demand, while a negative demand shock is a decrease in demand. Both a positive demand shock and a negative demand shock will have an effect on the prices of goods and services.

Demand shocks may be contrasted with supply shocks, where there is a sudden decrease or increase in the supply of a good or service that causes an observable economic effect; both supply and demand shocks are forms of economic shocks.

image: thebalance.com

Today in History

April 21st, 1982:

Futures contracts on the S&P 500 index become available for the first time as they open for trading in the pits of the Chicago Mercantile Exchange. Now arbitrageurs and index fund managers can buy either the underlying stocks in the index, or a futures contract, whichever is cheaper. (Program traders can also bet on the futures, helping worsen the October crash of 1987.)

Susan Abbott Gidel, "100 Years of Futures Trading: From Domestic Agricultural to World Financial," Futures Industry, December 1999/January 2000, p. 1.