Investors, This Is Your Wake-Up Call
Watching television in the morning is verboten in our household. Early morning quietude is my moment of Zen.
If you want to lose money, heed the advice you hear on financial TV, especially those gabfests that are broadcast before the opening bell. One of the most powerful investment tools at your disposal is the “mute” button on your remote.
During this coronavirus crisis, beware of government officials and financial pundits who spew a lot of baseless optimism. “Happy talk” won’t make the pandemic go away and it won’t protect your portfolio. In January and February, many of these pundits were telling us with emphatic certainty that COVID-19 was contained and the economy would be fine.
Below, I provide a clear-eyed view of the dangers confronting investors. I also steer you toward an investment opportunity that confers the ability to make big money, even during this pandemic year.
Unless you think global capitalism is about to collapse (don’t worry, it won’t), a crisis is never so dire that you can’t position yourself to profit. But first, a coronavirus update.
As of May 7, the coronavirus has resulted in about 265,000 global deaths, with about 74,000 deaths in the U.S. alone. No amount of spin can hide these casualties. Indeed, many experts say deaths are being under-counted.
And yet, April was a terrific month for the stock market. The same is true so far for May. Stocks have been rising because investors are pricing in the possibility of more states easing social distancing restrictions and reopening businesses.
As of this writing Thursday morning, the three main U.S. stock market indices were all trading in the green. The technology-heavy NASDAQ composite has been the outperformer in recent days, as the first-quarter earnings of tech bellwethers beat expectations.
Problem is, recent job losses are massive and they’re becoming permanent. The latest employment reports are grim.
The number of U.S. jobless claims last week totaled 3.2 million, the Labor Department reported Thursday morning. That raises the seven-week total to more than 33 million. The consensus estimate was for 3 million claims.
ADP reported Thursday that private payrolls fell by more than 20.2 million in April, the worst drop in the ADP survey’s history. The total number of job losses for the month of April alone was more than double the total jobs lost during the Great Recession. Twenty years of job gains have been wiped out by the coronavirus pandemic (see chart).
According to research firm FactSet, the data provider for Investing Daily, the blended (year-over-year) earnings decline for the first quarter of 2020 is -13.7%, versus the five-year average earnings growth rate of 6.3%. In April, dividend cuts or suspensions outnumbered companies that announced increases or maintained payouts.
Six sectors are reporting year-over-year growth in Q1 earnings, led by the health care and consumer staples sectors. Five sectors are reporting a year-over-year decline in earnings: consumer discretionary, financials, industrials, materials, and energy. Because of coronavirus uncertainty, 47 S&P 500 companies (to date) have withdrawn annual earnings guidance for fiscal year 2020.
Corporate managers during first-quarter earnings season calls are expressing greater anxiety than 2008, as they brace themselves for more economic pain ahead.
A new study released May 5 by the Federal Reserve deployed a machine-reading program to sort through more than 600 earnings calls transcripts in April to analyze the coronavirus pandemic’s effect on corporate plans and confidence.
According to the Fed study, 42% of American non-financial public companies are discussing cutting investments, 27% are talking about equity payouts, and 17% are focused on drawing down on credit lines. At the nadir of the Great Recession, those percentages were 25%, 11% and 7%, respectively.
The study concludes:
“Corporate financing conditions have been rapidly evolving during the COVID-19 outbreak…We find that actions consistent with financial concerns spiked dramatically in April 2020. While these results do not address the magnitude of the drawdowns or payout cuts (intensive margins), the dramatic increase in the share of firms taking these actions indicates that financing concerns amid the COVID-19 outbreak are even more severe than they were in 2008.”
The lessons of history…
So why is the stock market rising? Markets are forward looking. The negative economic numbers tell us where we’ve been, not necessarily where we’re going.
Investors are optimistic that efforts to reopen economies, combined with fiscal and monetary stimulus, will offset the bad data and quickly restore growth. There’s also hope that a vaccine is around the corner. I’m an optimist by nature, but I find these sentiments delusional.
The global economy already was sputtering before the coronavirus outbreak. Financial steroids from central banks can’t get nervous consumers back into airplanes or restaurants. History is instructive.
During the Spanish flu pandemic of 1918-1919, the illness struck in three distinct waves, each deadlier than the first. A major reason for the successive waves? Individuals and businesses grew impatient with social distancing and simply abandoned it.
To maintain morale, government censors in countries around the world minimized reports of illness and mortality. The ultimate death toll of the Spanish flu is estimated to have been about 50 million, maybe as high as 100 million.
If you think the coronavirus pandemic of 2020 is waning, you need to wake up and smell the coffee.
Editor’s Note: I’ve just outlined the extreme hazards facing investors. But there are safe ways to make money, without having to worry about the virus-induced woes that bedevil investors. My colleague Jim Fink can show you how.
Jim Fink is the chief investment strategist of the premium trading service, Jim Fink’s Inner Circle. Jim has developed a way to quickly and predictably multiply the gains of regular stocks.
Jim is now making you a promise. If the recommendations you get from his Inner Circle advisory don’t give you the opportunity to turn $5,000 into $50,000 in the next year, simply give us a call and we’ll give you another year free of charge.
Jim has put together a new presentation, in which he discusses how to generate outsized profits, regardless of the pandemic. Want to build wealth and also sleep better at night? Click here for details.
John Persinos is the editorial director of Investing Daily. You can reach him at: firstname.lastname@example.org