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Markets in 2019: Record Stocks, Lower Rates, So-So IPOs

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NEW YORK — On January 3, the S&P 500 sank 2.5% when Apple warned of sagging demand for the iPhone, an inauspicious start to 2019 following a 14% drubbing in last year’s fourth quarter.

On January 4, Federal Reserve Chairman Jay Powell said the central bank would be “patient” with its interest rate policy following four increases in 2018. The S&P 500 soared 3.4% and by the end of the month was up nearly 8%.

January’s swing helped set the tone for a year in which the market responded to every downturn with a more sustained upswing. Along the way, stocks kept setting records — 32 of them for the S&P 500 by Dec. 20, and 19 for the Dow Jones Industrial Average.

By its final policy meeting in December, the Fed had completely reversed course and cut rates three times in what Powell called a pre-emptive move against any impact a sluggish global economy and the U.S.-China trade war might have on U.S. economic growth. The stock market, and most Fed observers not named Trump, approved of the Fed’s actions.

Investors’ uncertainty over trade policy eased by December as Washington and Beijing reached a modest, interim agreement that averted a new round of tariffs on $160 billion worth of Chinese imports and reduced existing import taxes on about $112 billion in other Chinese goods.

While the pact left unresolved some of the thorniest issues between the two countries, investors appeared happy to have a de-escalation in trade tensions now and push off lingering concerns until 2020.

Through it all, the U.S. economy and consumers’ appetite for spending remained resilient, supporting the market’s record-shattering, year-end rally.

ALMOST EVERYTHING’S A WINNER

Investments around the world were winners in 2019 as central banks unleashed more stimulus to bolster the global economy against the damage created by President Donald Trump’s trade war. Not only did U.S. stocks rise, so did high-quality bonds, low-quality bonds and foreign stocks. Among the few losers: junk bonds with the very lowest credit ratings, but a better performance from bonds with bad but not the worst ratings meant high-yield indexes still generally made gains.

KEEPS ON TICKING

The U.S. economy withstood a number of challenges in 2019. President Trump’s trade war with China intensified as both sides increased tariffs. Fears of recession spiked in late summer and fall as exports fell and businesses, facing higher costs on imported goods, cut back spending on new machinery and equipment. Overseas economies also stumbled, with Germany nearly falling into recession and growth in the U.K. slowing amid Brexit uncertainty. Still, the U.S. consumer kept spending as the unemployment rate hit a 50-year low and wage growth picked up for workers outside managerial ranks. Most economists expect modest growth in 2020.

MIXED REVIEWS

For initial public offerings, 2019 was like a year in Hollywood: There were some phenomenal successes and some notable flops. Ride-hailing giant Uber and rival Lyft were huge disappointments. Video-conference company Zoom and workplace messaging company Slack each soared on their first day of trading, but while Zoom kept zooming Slack, well, slacked off after that. For non-tech companies, Beyond Meat and its plant-based burgers hit the spot while SmileDirectClub produced mostly frowns. WeWorks’ botched IPO signalled a change in IPO investors’ mindset.

TECH IS CHIPPER

Technology stocks soared in 2019 and far outpaced every other sector in the S&P 500. Chipmakers, including Advanced Micro Devices and Lam Research, made some of the biggest gains, despite a trade war that threatened business in China. Apple and Microsoft had their biggest share gains in a decade and each topped $1 trillion in market value. Energy stocks gained the least amid concerns that oil supply is outpacing demand.

EARNINGS EASE UP

Corporate profits hit the brakes in 2019, a year after a big tax cut helped juice results. On top of no longer getting the benefit of the first year of lower tax rates, a slowing global economy weighed on company revenues. If S&P 500 companies end up reporting four straight quarter of declines for 2019, as analysts expect, it would be the first time that’s happened since 2015-16. Still, analysts tend to set low expectations that most companies are able to beat, so investors aren’t panicked by the slower profit growth.

CAN NEGATIVE BE A POSITIVE?

Would you pay someone to lend money to them? The practice has become more common around the world — $13 trillion in bonds globally had negative yields as of November, according to Deutsche Bank. Much of that total is from Japan, France and Germany, countries that account for nearly a quarter of all the world’s bonds. It’s the result of shock-therapy by the European Central Bank and others to try to jolt their economies and inflation higher.

THE FED’S U-TURN

The Federal Reserve changed course on interest rate policy this year, cutting its benchmark rate three times after more than two years of increases. Chairman Jerome Powell portrayed those cuts as “insurance” against a slowdown resulting from weak global growth. Prior to late 2015, the Fed had been keeping rates at a record low near zero to stimulate the economy. In December, the Fed said it was prepared to keep rates low at least through next year.

“HOME” RUN

A strong labour market and a steady decline in mortgage rates stoked demand among would-be homeowners this year, driving U.S. home sales higher. A persistently limited supply of previously occupied homes for sale at a time when millennials are increasingly seeking to become homeowners also helped to stoke demand, even though affordability remained a challenge in many markets. The housing trends favoured U.S. homebuilders, whose shares surged well above the broader market.

CLICKS AGAIN OUTSHINE BRICKS

Retailers had a mixed year as they continued beefing up their online sales strategies amid declining foot traffic. Department stores, and Macy’s in particular, fell sharply. Specialty retailers did much better, with electronics retailer Best Buy, car dealership chain CarMax and home improvement retailers Home Depot and Lowe’s among those making sharp gains. As the year wound down, retailers were hoping that low unemployment, higher wages and the record-setting stock market would translate into robust holiday shopping.

PROTEIN PUSH

Plant-based meat has gone mainstream. Beyond Meat, which makes burgers and sausages from pea protein, had one of the most successful IPOs of the year. Burger King’s soy-based Impossible Whopper was a big hit. Tyson Foods, Nestle and Kellogg all introduced plant-based meats. Health and animal welfare concerns are driving the trend. U.S. plant-based meat sales jumped 10% this year, to nearly $1 billion; traditional meat sales rose 2% to $95 billion in that same time, Nielsen says.

Stan Choe, Seth Sutel, Paul Harloff, Damian Troise, Dee-Ann Durbin, Chris Rugaber and graphics artist Joseph Paschke contributed to this report.© 2019 The Canadian Press. All rights reserved.

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Sorry AOC, Billionaires Haven’t Made $434B During Pandemic

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Sorry AOC, Billionaires Haven’t Made $434B During Pandemic

Nation’s Billionaire’s See Net Worth Jump $434B in First Two Months of Pandemic

It was an eye-opening headline, and fairly drew the frustrations of a lot of us. This is especially true for the 38+ million Americans who have lost their jobs since the coronavirus pandemic shut down. Our country has been at it a little more than two months ago.

How dare they get richer while we suffer?

Chuck Collins, director of the Institute for Policy Studies Program on Inequality, the co-author of the report, expressed his piece. He said, “The surge in billionaire wealth during a global pandemic underscores the grotesque nature of unequal sacrifice.”

Meanwhile, Frank Clemente, the executive director of Americans for Tax Fairness which co-authored the study, also shared his opinion. He said, “The pandemic has revealed the deadly consequences of America’s yawning wealth gap, and billionaires are the glaring symbol of that economic inequality.”

Democrat Alexandria Ocasio-Cortez didn’t want to miss the opportunity to inject her brand of socialism into the public discourse. “Really great system we got here. Can’t imagine why anyone would question how beneficial or sustainable it is for the working class,” she tweeted. This is in response to CNBC running the headline.

The Study’s Flaws

The top five US billionaires explicitly mentioned in the article are all Democrats. These include Warren Buffett, Bill Gates, Jeff Bezos, Mark Zuckerberg, and Larry Ellison. But setting that irony aside, the problem is that the article is simply dishonest, points out MarketWatch columnist Steve Goldstein.

“The study… examines billionaires’ wealth between March 18 — the rough start date of the pandemic shutdown, when most federal and state economic restrictions were in place — and May 19. It relied on the Forbes’ billionaire list, which itself is built around stock-market performance.”

The flaw, as Goldstein points out, is that the beginning and end dates used for the study are incorrect.

“Think about that in the market context. The pandemic did not start March 18 (nor, of course, had it ended on May 19), and certainly market concerns about the pandemic did not start March 18. Far from it.”

He says that to see a true picture of how much money the billionaires made – or lost – during the pandemic, they need to expand the date range.

“A more logical way to think about whether billionaires got richer, or not, is to think about the performance from the Feb. 19 peak in the market, after which more investors began to get concerned by the novel virus. You then get to see who got richer even in the face of the crippling economic blow.”

If you use this revised date range, Goldstein says the truth is that billionaires have actually lost money since the market peaked and the pandemic began

“Cumulatively, the top 50 billionaires lost $232 billion between the market’s peak and this Tuesday. If the remaining billionaires on the Forbes list lost wealth at the same roughly 12.5% rate that the top 50 experienced, that’s another $200 billion–plus wiped out.”

So while it’s easy to run a headline that bashes billionaires, the truth lies somewhere in the middle.

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American Consumers Will (Or Won’t) Drive The Economic Recovery

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American Consumers Will (Or Won’t) Drive The Economic Recovery

If you are wondering how the stock market has climbed nearly 30% from the March 23 lows while the country has lost 20 million jobs in April, you’re not alone.

It’s head-scratching to try and think of a scenario where stocks are worth as much or almost as much as they were back in February when the country had a 3% unemployment rate compared to 14.7% today.

A common refrain from analysts and Wall Street veterans is that the stock market is forward-looking. So everything bad happening today has already been priced in. Or perhaps with parts of the country slowly reopening, that the economy will quickly spring back to life. Maybe there’s justifiably a belief that no matter how bad things get, the Federal Reserve will step in and flood the market with liquidity, effectively removing any downside risk.

Consumers

Whatever the real reason is for the surge in stock prices since late March, there’s one thing that many analysts say will either spur the market higher or send it crashing back down to the March lows: you and me, the consumer.

“It’s all going to come down to consumer spending. If we’re all sitting inside and not out spending money in September-October, the market’s not going to like that — the market will go down,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute, in a recent interview.

Consumer spending accounts for roughly 65% of our country’s GDP. So if consumers don’t feel comfortable leaving their homes and getting back out to shopping centers, malls or restaurants, it’s going to be nearly impossible for a sustained economic recovery.

Richard Cordray was the first director of the Consumer Financial Protection Bureau. He says consumers “are likely to come out of the covid-19 crisis no longer able, or willing, to bear the same load as before. That means that Wall Street investors counting on ordinary families to continue propping up the business cycle are likely to be sorely disappointed.”

“First, the rapidly deteriorating job market will hurt consumers badly, and for many the damage will not be temporary. Until last month, unemployment was at historic lows: It was 3.5 percent in February. More hours worked meant more income for most families while pushing the wage curve higher. All that positive momentum is gone. Unemployment is certain to spike above 15 percent soon, and many small businesses that operate on thin margins will go bankrupt.

“Second, many businesses will not regain the same vigor because they are dependent on strong consumer demand. Inevitably, some Americans will remain unemployed longer than others. Those who go back to work quickly are still likely to emerge from their experience of sheltering at home with less ability to resume spending at the same levels. Large numbers of households are falling behind on major debt obligations, such as rent or mortgage payments, auto loans, and credit card bills. Even those who return to pre-crisis jobs will have to cope with the burden of this overhanging debt, which will constrain their discretionary spending for months or even years to come.

“Third, the wrenching experience of the covid-19 pandemic is likely to change many consumers’ behavior. As happened in the Great Depression, this crisis has reminded people of the fragility of their financial situations, making them more cautious about borrowing and spending. Social changes, too, are likely to linger. Until people feel sure about an effective vaccine and manageable treatment for the virus, they may be reluctant to travel or even to circulate as widely as they used to, producing lower levels of economic activity overall.”

The Effects of Job Loss

And Avi Dan, the CEO of Avidan Strategies, says the damage from the unprecedented job losses could last for years in what he calls “America 2.0”

“After most recessions had ended, consumers’ attitudes and behaviors often return to “normal” within a couple of years. This time it may be different. Given the unprecedented extreme events we are witnessing, consumers’ optimism just might be replaced by a heightened sense of economic vulnerability. Caution might replace consumerism, and this could persist for a decade or longer.

“Given these facts, there is a good possibility that consumer attitudes and behaviors, shaped during this recession, will linger substantially beyond its end, as we enter a new national phase, America 2.0. The majority of consumers may well retain the different consumption habits developed during the recovery with what they’ve adapted to during the recession.”

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Unemployment Rate Balloons To 14.7%, Expected To Get Worse

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Unemployment Rate Balloons To 14.7%, Expected To Get Worse

April’s jobs report is out, and it shows a stunning 20.5 million jobs were lost last month, ballooning the unemployment rate to 14.7%. This mirrors Wednesday’s report from ADP that showed 20.2 million private-sector jobs were lost.

Economists expected a reading of 21.5 million jobs lost, according to Dow Jones.

The 14.7% unemployment rate is the highest our country has faced since the end of World War II.

“This is the biggest and most acute shock that we’ve seen in post-war history. It’s a dramatic loss of output in a very short period of time,” said Michelle Meyer, head of U.S. economics at Bank of America.

Meyer anticipated a loss of 22 million nonfarm payrolls and an unemployment rate of 15%. The industry hit hardest by job losses was the service industry. About 8.6 million jobs were lost in leisure and hospitality, and Meyer warns that it’s unknown how quickly those jobs will come back.

“In recession, the service side tends to be a lot more resilient. This time around, the services are in the epicenter, given how the Covid pandemic has impacted the economy,” she said. “Usually it’s the cyclical, more externally oriented parts of the economy. There’s a question of how quickly the service sector can come back after this.”

Expected Peak

Mark Zandi, chief economist at Moody’s Analytics, expects that job losses will peak in the coming weeks, but the headline unemployment rate could be an eye-popping 20% in May.

He says that if we don’t get a second wave of infections as the country re-opens, the unemployment rate will quickly drop by the fall, but doesn’t expect a full recovery until there’s a vaccine.

“Then we’ll get a bounce if we don’t get a second wave [of infections] in the summer months. The unemployment rate will be cut in half by Election Day. Then we go nowhere fast until there’s a therapy we all feel good about — not only a vaccine but one that’s widely distributed.”

He expects the economic impacts to linger and companies will be forced to make hard decisions about opening or permanently closing, and what their staffing needs will be.

“It’s just the pervasive uncertainty. The virus is still out there and can come roaring back. People just won’t be traveling, business won’t be investing. There won’t be the same kind of global trade. People just won’t get back to normal. People will be distancing,” said Zandi.

He added, “There’s going to be a lot of business failures and bankruptcies. You can already see it. They’re going to be in such a weakened state they aren’t rehire the people they had before.”

Not a Clear Picture

Minneapolis Federal Reserve Bank President Neel Kashkari was on NBC’s Today Show yesterday. There, he warned that today’s jobs report doesn’t give the clearest picture of job losses amid the coronavirus pandemic.

“That bad report tomorrow is actually going to understate how bad the damage has been,” Kashkari explained, adding that the reported unemployment rate could be as high as 17% — a brutal number, no doubt — but he says the true number may be as high as 24%. “It’s devastating,” she then said.

Meyer, for her part, hopes the number is lower, for no other reason than our nation’s psyche.

“There are a few metrics that Main Street pays attention to. One is the S&P 500, and the second one is what is the unemployment rate,” she also mentioned.

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