Monday Market Recap: July 13, 2020
Market Recap
Highlights
Los Angeles Unified School District announces it will begin the school year fully remote in the Fall.
5 companies now account for 25% of the S&P 500 in market cap as markets rise to new highs.
In search of yield, investors look to credit and other lending areas not visited since 2008.
The rush to credit over the last several months is not a bet on yield, but on return. The Federal Reserve is buying more assets relative to U.S. GDP than in the three rounds of quantitative easing that followed the global financial crisis combined. The Fed and European Central Bank look to purchase roughly the equivalent of all the net supply across European and U.S. sovereign and corporate debt this year, according to calculations by Blackrock. To date, these purchases have mostly been government debt, but the credibility of central banks’ corporate debt backstop has helped underpin credit markets. As a result, investors have easily digested the highest run rate of new bond issuance since 1980 in global investment grade credit. Issuance should ease over the summer, providing a strong technical backdrop for credit.
Valuations in investment grade credit had cheapened significantly as of mid-April, and looked set to be less of a drag on future returns than they were in late 2019. This effect more than outweighed the negative drag from an expected rise in losses resulting from corporate downgrades and defaults. In high yield, valuations swung to a modest tailwind for expected returns. Valuations have since risen, but still look fair.
What I’m Reading – How Early Do You Have to Get Up to Swim With the Sharks?
This article from 1997 profiles the top business and political leaders to understand the competitive advantage of something we do everyday: the morning routine. There are clear patterns. They are highly competitive, will do anything for an edge and are willing to raise the level of preparation not just for themselves, but everyone else around them.
As the world slows down what effect will this have on top level performers? Will we see a decline in productivity? Possibly an increase? With most office openings still a ways away, the morning routine is becoming less visible, and this could lead to some widespread shifts in behavior among top performers.
What I’m Watching - America Is Reopening. But Will it Stay Open?
Business is open, but this still comes with an upward trend in cases in many states. This graphic from John Hopkins shows a color-coded map of new cases under a 3 day moving average. This is an indicator I am using to predict which states/counties may be susceptible to re-closing or prolonged restrictions on business. For instance, California is approaching 10,000 cases/day and has just announced LAUSD will be fully remote during the fall. Check how your state is doing here.
What I’m Listening To – Michael Lewis Against The Rules: The Coach Effect
Going to college can be the lottery ticket to social mobility, yet the problems first-generation students face are large. While applying and being accepted into college is one problem, staying there and graduating is entirely another. Only about 1 in 9 first-gen students finish college on schedule within 4 years. In this episode Michael Lewis explores how coaching could help fix many of the problems first-generation college students face. While colleges may do a good job of attracting first gen applicants, there seems to be a lack of resources to support those students and ensuring they stay. How is a homeless “Straight A” track star to adjust and thrive in a college environment?
Listen to her story here.
Quick Take – OpenTable Vs. Stock Market
While the US has outperformed the rest of the world in market performance since the beginning of the Coronavirus lows, market performance since May 14th has actually greatly favored that of developed nations. Take a look at the chart below. For countries that have been able to maintain their dining reservations, compared to the US, performance has significantly favored those who dine. For instance, Germany currently has 200,000 confirmed cases and 9,000 deaths compared to the US which has 3,300,000 confirmed cases and 135,000 deaths. More than 15x the amount. A surge in cases in a given county or state can have a dramatic impact on the ability for restaurants to remain open and a willingness from customers to visit. In the long run, this may favor markets in areas where the disease is contained and the risk for closure is minimized.
Quote of The Week
"Think for yourself, not of yourself. Think of others, not for others." - Naval Ravikant