| Monday's Headlines 1. US markets surge on vaccine hopes 2. Oil climbs, and stays, above $30/barrel 3. Japan falls into recession 4. Comparing the 2008–09 stock market to today 5. Small businesses are shuttering Markets Closed
 Image credit: BehindTheLens/Getty Markets Today Positive news on the vaccine front sent U.S. markets surging today, as all sectors of the market rallied, and they rallied hard. The DJIA was up more than 1,000 points at its highs, and it managed a 3.8% gain by the market close. Transports, including airlines and airplane makers, posted big gains as the vaccine news and signs of increasing demand are bringing those sectors back to life. Oil prices jumped 10% back above $30 per barrel for the first time since March.
The S&P 500 is now up 3% from a year ago, which seems unfathomable, but it's true. We know big tech stocks have driven those gains, but new analysis from Ned Davis Research shows that 58% of the market cap of the S&P 500 has not been materially impacted by COVID-19. Think big tech stocks, Netflix, and cereal makers—but not chips. That rally has put a hefty forward price-to-earnings ratio on the stock market, which is higher than its five- and 10-year averages.
Investors seem to be coming to terms with that, and any good vaccine news is like lighter fluid on a campfire. That—plus more supportive comments from U.S Fed Chair Jay Powell on TV last night promising the Fed isn't out of ammunition and what looks like a hefty stimulus package coming from the ECB—was enough to send markets to their biggest gains in months. chart courtesy Deutsche Bank  Headlines:
 Today vs. The Great Financial Crisis There is an understandable interest in comparing this recession to the Great Financial Crisis of 2008–09. It's the most recent in memory, and it had a significant impact on the global economy, individuals' personal finances, and capital markets.
While this particular crisis was brought on by a health pandemic that shut down the global economy, the 2008–09 crisis was born out of the financial sector with a liquidity crisis that spread to every other part of the economy. This health pandemic is leading to a recession that will ultimately become a liquidity crisis for many businesses, families, and individuals.
Still, the policy response was swift, with the Federal Reserve and other central banks stepping in with extraordinary policy measures. Stimulus efforts are also helping bridge the gap for those most impacted. Curiously, the stock market response has been similar to 2009 (chart above). Ultra-low interest rates following a steep correction in equities has led to a similar surge, which has recently leveled off.
The one sector that is lagging, however, is financials. Banks' profits margins are crimped when interest rates are this low, and they are bracing for bankruptcies and defaults. chart courtesy MorganStanley  Small Businesses Feel the Pinch Those bankruptcies may be coming from the small business sector. Social distancing has crippled small businesses, particularly restaurants, retail, and services. Unlike retail giants, they don't have as much of an online presence and operate on razor thin margins that make it hard to turn a profit, even in good times.
According to a survey from The Small Business Roundtable with Facebook, one-third have stopped operating entirely, one-third have moved sales online, and 55% of owner managers say they won't rehire workers when they open.
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(chart courtesy YCHARTS)  Shares of United are up by 21% after the airline announced that it's hoping to resume flights to and from China by June. Similarly, Norwegian's stock price rose over 17.5% after CEO Frank Del Rio reported that the cruise line is already planning a phased return to service upon being cleared for relaunch.  Shares of Campbell Soup are down by nearly 5% after the fund management company, Third Point, exited its position in the processed food and snack company. Shares of Clorox fell 2.8% today as some investors may think sales of its cleaning products may fall if vaccines are coming to the market Word of the Day Business CycleIn essence, business cycles are marked by the alternation of the phases of expansion and contraction in aggregate economic activity and the comovement among economic variables in each phase of the cycle. Aggregate economic activity is represented by not only real (i.e., inflation-adjusted) GDP—a measure of aggregate output—but also the aggregate measures of industrial production, employment, income, and sales, which are the key coincident economic indicators used for the official determination of U.S. business cycle peak and trough dates.  Image courtesy ancestry.co.uk Today in History May 18th, 1801: Well over a century after stock trading began in Britain, the cornerstone of the stock exchange building is finally laid in the City of London.
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Monday, May 18, 2020
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