Archive for March, 2020

• The Market Continues to Calm Down
  Eddy Elfenbein, March 31st, 2020 at 11:26 am

  I say this with some hesitation, but it looks as if the period of extreme volatility has passed. Over the last five days, the S&P 500 is up over 17%. There have been three days in the last eight where the daily change was more than 4%. In the eight days prior to that, all eight had daily changes of more than 4%.

  Here are some news items impacting our stocks:

  Cerner (CERN) talks about the possibility of having 27,000 employees work from home.

  Stepan (SCL) said it bought Logos Technologies’s NatSurFact business.

  Trex (TREX) provided an update on its business plans.

  An analyst at RBC called Danaher (DHR) a “break glass in case of emergency” type of investment.

  Disney’s (DIS) Chairman CEO Bob Iger said he will forgo his salary this year.

• Morning News: March 31, 2020
  Eddy Elfenbein, March 31st, 2020 at 7:08 am

  Nightmare Haunting Euro Founders May Be a Reality With Italy

  Oil Prices Are On Track for Their Worst Ever Quarter as Coronavirus Slashes Demand

  Huawei Warns China Will Strike Back Against New U.S. Restrictions

  Goldman Sachs Sees 34% Plunge in U.S. GDP and 15% Unemployment

  Explainer: What the Federal Reserve Has Done in The Coronavirus Crisis

  A Lot Is Riding on Stock Bottom Calls That Worked in a Bull Market

  U.S. Retail Crisis Deepens as Hundreds of Thousands Lose Work

  Strikes at Instacart and Amazon Over Coronavirus Health Concerns

  Banks Stuck With $23 Billion of Loans for T-Mobile’s Sprint Deal

  Ad Giant WPP Pulls Dividend, Buyback and Outlook as Clients Cut Spending

  Zoom is Under Scrutiny from the New York Attorney General for Its Privacy Practices

  USPS Warns it Might Have to Shutter by June as $2 Trillion Coronavirus Stimulus Package Provides No Funding

  Ben Carlson: Even Warren Buffett Can’t Nail the Bottom

  Howard Lindzon: How The Pandemic Will End

  Joshua Brown: What Small Businesses Need to Know About Accessing Forgivable Loans, How to Safely Take Money From Your Retirement Account Now, Three Reasons It’s Not 1929, What If GDP Falls More Than the Stock Market? & Not Depth…Duration

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• Extreme Volatility May Have Peaked
  Eddy Elfenbein, March 30th, 2020 at 10:57 am

  The market is up modestly this morning. It’s refreshing to see more normal price action today. The big news is that President Trump said the social distancing policies will last through April.

  Last week was the best week for the Dow since 1938. Healthcare stocks are particularly strong this morning. Johnson & Johnson said it’s working on a potential vaccine. Abbott Labs said it’s made a five-minute test for Covid-19. The FDA has given them emergency-use authorization.

  FactSet (FDS) is up another 6% so far today. Hershey (HSY) is less than 10% from its 52-week high. Not many companies can say that.

  Here’s a chart of the S&P 500’s daily volatility. It’s early to say this but the extreme volatility may have peaked.

  

• Morning News: March 30, 2020
  Eddy Elfenbein, March 30th, 2020 at 7:06 am

  Oil Hits New Lows and Stock Markets Signal Lingering Unease

  ‘We Will Starve Here’: India’s Poor Flee Cities in Mass Exodus

  China Rejoins Monetary Easing Wave as World Shuts Down

  European Stocks Edge Lower After ECB Calls for Banks to Halt Dividends Through October

  After Fed Unleashes Firepower, Washington Rearms Central Bank

  U.S. Stimulus Package is Biggest Ever, But May Not Be Big Enough

  Coronavirus Worries and Strife: Investors Fear Markets Not Out of Woods Despite Big Rally

  Mortgage Bankers Ask SEC to Save Them From Wave of Margin Calls

  The U.S. Tried to Build a New Fleet of Ventilators. The Mission Failed.

  Inside G.M.’s Race to Build Ventilators, Before Trump’s Attack

  Scary Times for U.S. Companies Spell Boom for Restructuring Advisers

  Michael Batnick: When Should I Rebalance?

  Roger Nusbaum: The Importance Of Perspective & Priorities & Did The Tide Just Go Out On 60/40?

  Jeff Carter: Some Things We Might Be Learning & We Can’t Go On Forever Like This

  Ben Carlson: The Hardest Part of a Buy & Hold Strategy & Some Questions I’m Pondering During the Crisis & A Short History of Dead Cat Bounces

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• Today’s Webinar
  Eddy Elfenbein, March 27th, 2020 at 12:13 pm

  Please join me today at 4 pm ET.

  You can register here.

• CWS Market Review – March 27, 2020
  Eddy Elfenbein, March 27th, 2020 at 7:08 am

  ”We’re not going to run out of ammunition.” – Fed Chairman Jerome Powell

  This week, the stock market staged a quick and massive rebound. We still have one day to go, but the Dow Jones Industrial Average is on pace for its best week since 1932. On Tuesday, Wednesday and Thursday, the Dow had its biggest three-day gain since 1931.

  On Tuesday, the Dow surged more than 11% for its single-best day in 87 years. (Notice how many of these records are since the 1930s. The Great Depression was really bad.)

  

  This quick rally is welcome relief from the nasty bear market that’s run roughshod over Wall Street for the previous five weeks. But does this mean that the downdraft is over? Not at all.

  We have to face certain facts. The coronavirus is still uncontained, although we are making concrete gains. The S&P 500 is still well below its 50- and 200-day moving averages. That’s often a warning sign. Also, the Volatility Index is very elevated.

  Worst of all, the economy is a mess. On Thursday, the initial-jobless-claims report came in at 3.28 million. That’s off-the-charts bad. It’s literally more than four times the worst week in history. In this week’s issue, we’ll talk about where we are and some possible scenarios for what we’ll face in the coming weeks.

  I’ll also cover the strong earnings report from FactSet. The stock gapped up more than 10% on the news. In fact, several of our stocks have been up strongly since Tuesday. On Wednesday, shares of AFLAC gained more than 26%. Is this rally for real, or just a head fake? Let’s take a look.

  The Bulls Strike Back

  What prompted the market’s reversal of fortune was this week’s news of the government’s stimulus package. The details have yet to be worked out, but it appears to be in the neighborhood of $2 trillion. That’s huge. It’s interesting that the market finally responded to news of a fiscal stimulus after failing to rally a few times after the Fed announced monetary stimulus.

  The problem with this economic halt is that it punishes many of the most vulnerable. I think of folks in the service sector who live paycheck to paycheck. Many large businesses will pull through, but many small businesses will not. Many workers aren’t being merely laid off; their employers are being forced out of business.

  The key for any stimulus is to get money in the hands of the folks who need it. Earlier this week, Goldman Sachs upgraded shares of Ross Stores. The people at Goldman ran the numbers at Ross and found out what we knew along: the company has a strong enough balance to ride out the storm.

  The Federal Reserve has not only lowered interest rates to 0% but has also promised to buy an unlimited number of bonds. While the Fed’s actions won’t help the economy directly, they will help prevent the banking system from becoming so injured that it would be harmful to the broader economy.

  So how bad is the economy right now? That’s hard to say. A lot of folks are tossing around numbers of Q2 GDP crashing by 15% or 20%. Some say even more. I won’t make any predictions except to say that whatever happens, it will be historic.

  We got a taste of that on Thursday when the jobless-claims report came out. Lately, the weekly jobless-claims reports have been around 200,000 to 230,000, give or take. A few times recently we hit 50-year lows for jobless claims. But Thursday’s report was an earthquake. For the week, 3.28 million Americans filed first-time jobless claims. That’s more than 11 times the previous week, which was already showing some of the impact of the economy’s shutting down.

  

  This isn’t a recession, or even a depression. It’s an ice age. The U.S. economy has come to a standstill. I was near the White House earlier this week, and I can’t recall seeing the streets of Washington so deserted.

  It’s still unclear how much longer the economy will remain shuttered. President Trump said he hopes we’ll be in the clear by Easter. I’m afraid that may be overly optimistic. The key, of course, depends on the coronavirus itself. We’ve all heard the phrase “bend the curve.” Things will change once the number of new cases increases by a decreasing rate. It will happen.

  In the meantime, this strategy is designed to buy us more time. More time to get more tests. Lots more tests. Also, more hospital beds and more ventilators. We saw what happened in Italy when the healthcare system was simply overrun. We may be seeing a repeat of that in New York state right now.

  I don’t want to sound overly pessimistic. I’m happy to say that one of our stocks may play an important role. In 2016, Danaher (DHR) bought Cepheid. The FDA just approved a quick-acting COVID-19 test. Instead of waiting a few days to get the result, patients only need to wait 45 minutes. Let’s hope this gets to doctors as soon as possible.

  As good as the last three days have been for the market, there’s a strong possibility that the bears will attack again and take back most of the gains. That’s simply how bear markets work. Bear market rallies are always frustrating because they lull you into believing the coast is clear.

  In addition to the news, we also want to see the internals of any upward move. If it’s a big spike of just a few stocks, then it’s unlikely to hold. Bear-market bottoms are usually quiet, and it takes some time before you realize what happened.

  For now, I urge investors to remain calm. This is a good opportunity to put free money to work. Some Buy List stocks that look particularly good right now would be Hershey (HSY), Church & Dwight (CHD) and Ansys (ANSS).

  FactSet Beats the Street

  On Thursday morning, FactSet (FDS) reported fiscal Q2 earnings of $2.55 per share. That beat Wall Street’s consensus of $2.49 per share, and it’s an increase from $2.42 per share one year ago.

  Quarterly revenue rose 4.2% to $369.8 million. I should add that this was for the quarter that ended on February 29, so coronavirus didn’t have a noticeable impact on their operations.

  For FactSet, the key stat to watch is Annual Subscription Value, or ASV. For Q2, that stood at $1.44 billion. ASV is growing at more than 4%.

  “We performed well in our second quarter and continued to execute successfully against our three-year investment plan,” said Phil Snow, FactSet’s CEO. “I am most proud, however, of the way the FactSet community has united to support its members and our clients during this challenging period. While we proceed with caution for the remainder of the year due to the heightened impact and uncertainty surrounding the coronavirus pandemic, our commitment to our team and our clients remains absolute.”

  At the end of the quarter, FactSet’s client count reached 5,699, and the user count is up to 128,896. Annual ASV retention is over 95%.

  During the quarter, FactSet bought back 267,500 shares for $74.2 million. That works out to an average price of $277.28 per share. The company just increased the current buyback authorization by $220 million. There’s now $300 million available to buy back shares.

  Now for guidance. FactSet prefaced its guidance by noting that their “actual future results may differ materially from these expectations.” That’s an understatement. Still, with that major caveat, FactSet stood by its previous guidance. The company still sees full-year earnings between $9.85 per share and $10.15 per share.

  FactSet had been one of our better-performing stocks. Still, the shares crashed from over $300 in mid-February to less than $200 during the day on Monday. FDS jumped more than 13% on Tuesday and another 10.7% after the earnings on Thursday. If the company’s guidance is accurate, then this is a good time to add shares of FactSet.

  This week, I’m lowering my Buy Below price on FactSet to $275 per share.

  

  Buy List Updates

  RPM International (RPM) is our only stock to report between now and the beginning of Q1 earnings season in mid-April. RPM is due to report on April 8. Last Friday, RPM said it expects to report earnings at the high end of its guidance.

  Thanks to the lousy market, many of our Buy Below prices are out of whack. There are a few I want to adjust this week.

  Shares of Middleby (MIDD) got clobbered, but the stock had three straight impressive days on Tuesday, Wednesday and Thursday. In those three days, MIDD gained 40%. I’m moving our Buy Below to $72 per share.

  Ross Stores (ROST) was upgraded this week by Goldman Sachs. They noted that Ross has a strong balance sheet that can tide it over in tough times. Over the last three days, Ross gained 36%. I’m dropping our Buy Below down to $100 per share.

  On Monday, shares of Danaher (DHR) got a boost after the FDA approved a quick-acting COVID-19 test. The current tests take several hours and have to be shipped off to a hospital, but Danaher’s takes 45 minutes and can be done right there. I’m moving Danaher’s Buy Below to $150 per share.

  That’s all for now. The first quarter comes to an end next Tuesday. On Wednesday, ADP will release its payroll report for March. I expect it to be dismal. We’ll also get the ISM Manufacturing Index, which should be little better. Then on Thursday, the jobless-claims report comes out. That leads up to the big jobs report on Friday. I can’t sugarcoat it. I expect the numbers to be terrible. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

  – Eddy

• Morning News: March 27, 2020
  Eddy Elfenbein, March 27th, 2020 at 7:02 am

  Migrant Farmworkers Whose Harvests Feed Europe Are Blocked at Borders

  Argentina Sacrifices Economy to Ward Off Virus, Winning Praise

  Russia Calls for New Enlarged OPEC Deal to Tackle Oil Demand Collapse

  Trump Didn’t Calm the Oil Markets. Now It May Be Too Late

  The Second Virus Shockwave Is Hitting China’s Factories Already

  U.S. Stock Futures Dip After Three-Day Rally as Virus Cases Grow

  The Coronavirus Economy: When Washington Takes Over Business

  Massive Unemployment Claims During Coronavirus Crisis Have California Officials Scrambling

  How Multi-Strategy Funds Are Faring as Coronavirus Slashes Returns

  I Became a Disciplined Investor Over 40 Years. The Virus Broke Me In 40 Days.

  Nick Maggiulli: The Greatest Investment Quotes of All Time

  Howard Lindzon: The Perfect Trade – Marcus Aurelius Joins Me On ‘Panic With Friends’ to Discuss ‘Crisis Chasing’

  Ben Carlson: Surviving Your Very First Market Crash

  Michael Batnick: The Best Books about Financial Panics & Why The Stock Market Rallies on Bad News

  Joshua Brown: It Doesn’t Always Have to Make Sense & The Bravery of Jon Boorman

  Be sure to follow me on Twitter.

• The Dow Is on Pace for Its Best Week Since 1932
  Eddy Elfenbein, March 26th, 2020 at 11:30 am

  The market’s rebound is continuing into today. This is the first rebound of note since the market started to break over a month ago. In fact, the Dow is on pace for its best week since 1932.

  This morning, FactSet (FDS) reported fiscal Q2 earnings of $2.55 per share. That beat Wall Street’s forecast of $2.49 per share. The stock is up about 5% in today’s trading. FDS also reiterated its full-year guidance range of $9.85 to $10.15 per share but also said that its results may differ significantly.

  This is good news but don’t think the coast is clear. The major averages are still well below their 50- and 200-DMAs. Expect to see a lot more volatility ahead.

• Morning News: March 26, 2020
  Eddy Elfenbein, March 26th, 2020 at 7:09 am

  Europe’s Leaders Ditch Austerity and Fight Pandemic With Cash

  The Gold Market Is Being Tested Like Never Before

  Unemployment Claims Expected To Shatter Records

  Senate Passes $2 Trillion Virus Rescue Plan; Sends Bill to House

  A $2 Trillion Lifeline Will Help, But More May Be Needed

  U.S. Corporate Crisis Bailouts May Prove Bonanza for Insider Trading, New Study Warns

  U.S. Senate Offers $58 Billion Aid to Airlines As They Struggle to Stay Airborne

  Coronavirus Shock Is Destroying Americans’ Retirement Dreams

  JPMorgan’s Equity Derivatives Haul Soars to $1.5 Billion

  Essential? Retailers Like Guitar Center and Michaels Think They Are

  Don’t Dash For Cash: Authorities Say There’s No Need To Empty The ATM

  Michael Batnick: What is Happening in the Stock Market? & What Do You Do Now?

  Ben Carlson: How Did We Ever Get to The Roaring Twenties? & Animal Spirits: The First Thing to Go in a Crisis

  Jeff Carter: Sledgehammers or Scalpels

  Joshua Brown: The Economic Stimulus Bill Explained & No Bottom Until the Virus Tops

  Be sure to follow me on Twitter.

• AFLAC Jumps 26% in One Day
  Eddy Elfenbein, March 25th, 2020 at 7:58 pm

  This was another remarkable day for the stock market. The S&P 500 gained 1.15% which means the market did something it had not done in over a month: it registered back to back gains. It’s refreshing that after Tuesday’s big gain, the market didn’t immediately give back all of its gains.

  Our Buy List gained 2.55%. It was led by AFLAC (AFL) which gained 26.2%. That’s astounding. Both Middleby (MIDD) and Ross Stores (ROST) gained over 13%. Ross had been upgraded by Goldman Sachs. They said that Ross has enough cash on hand to keep operations going.

  Tomorrow we’ll get the jobless claims report and it will be historically bad.