Market Share Newsletter Vol 2 Issue 13

The Economy

• In March, personal income declined by 1.7% and spending declined by 7.5%. This data was not surprising, but the increase in the U.S. savings rate is noteworthy. Household savings as a percentage of disposable personal income increased to 13.1%. This is the largest percentage since November 1981. The U.S. consumers’ willingness and ability to increase and maintain savings will help provide ‘a floor’ for the current economic crisis.
• TSA checkpoint travel numbers at airports have improved over the past week. There was an increase of 29.7% for the week ending May 4 and an increase of 50.3% from two weeks ago. Despite these small, notable increases and “green shoots”, the more relative data is not good. TSA checkpoint numbers for the week ending May 4 were only 6.3% of last year’s weekly total from the same week.
• France reported a first-quarter GDP of -5.8% last week. This is an estimated 4% decline, as household consumption shrank by 6.1%, and capital investment fell by 11.8%. This is the largest drop on record for capital investment.

 Source: Bloomberg

Equities

• Two of the largest technology and communication companies reported strong first-quarter sales and profits last week. Alphabet (Google’s parent company) and Facebook both beat sales expectations by 14% and 17%, while earnings fell due to increased customer acquisition costs, capital expenditures, and COVID-19 related expenses. The stock of both companies reacted positively to this news.
• Air travel and leisure companies continue to struggle despite the large government stimulus and liquidity that has been directed their way and the ability of a few of them to raise large amounts of capital. Norwegian Cruise Lines released a statement indicating that they may not be able to meet their financial obligations and Berkshire Hathaway, famed airline investor, recently sold their major stakes in Delta Air Lines, American Airlines, Southwest Airlines, and United Airlines.
• Small-cap equities have been a drag on returns despite the month-long rally in the equity markets when risk-on took over. The Russell 2000, a major index for 2,000 small-cap companies, has returned 26.3% since the close of trading on March 23 yet has still underperformed the S&P 500 by 100 basis points. Year-to-date through May 4, the Russell 2000 is down more than double the S&P 500.

Source: Bloomberg

Fixed Income

• The U.S. Treasury plans to borrow $3 trillion during the second quarter, more than five times the previous record, as the government ramps up spending to offset the economic crisis. For the first time in approximately 30 years, the U.S. Treasury plans to issue 20-year securities as part of the borrowings.
• For the week ending April 29, after two consecutive weeks of smaller inflows, municipal bond mutual funds experienced $1.25 billion of net outflows. The Bloomberg Barclays Municipal Bond Index has lost 1.35% this year while the Investment Grade Corporate Bond Index has gained 0.91%. The 226 basis point out-performance could create some crossover buying from corporate bonds to municipal bonds.