MarketBites Investment Newsletter for 10/19/2020
Your daily dose of stock market commentary and most important investment and business news. written by investment professionals at Taylor Hoffman Capital Management.
Quote of the Day
“Hindsight plays tricks on our minds.”
– Jeremy Siegel
Today’s Top Stories
- Shipping companies already feeling the crunch
- Consumer credit scores rise during tough times
What is driving the stock market today? – October 19th, 2020
– The S&P 500 fell for three straight days last week before closing slightly higher on Friday. The tech-heavy Nasdaq Composite posted its first four-day losing streak since September.
– Coronavirus cases are on the rise. In the United States, the daily case average has risen by more than 16% on a week-over-week basis to nearly 55,000. In Europe, cases are rising by about 97,000 per day, up 44% from the prior week.
– Stimulus talks continue, but a deal remains elusive. House Speaker Nancy Pelosi said Saturday evening that she is giving The White House 48 hours to reach an aid deal before the Presidential election on Nov. 3rd.
Top Story 1: Busiest Shipping Season We Have Ever Seen
What is Happening?
Further shipping capacity is nowhere to be found as we head into the holiday shopping season. We have heard of shipping horror stories in years past as e-commerce demand, and online deals continue to take market share from traditional brick and mortar shopping. With COVID-19 restrictions largely still in effect across the country, pricing power has swung to the carriers.
Why does this Matter?
On the most obvious note, consumers may want to order their gifts a little earlier this year. Beyond that, it will be interesting to see how increased shipping rates impact the end consumer. With Amazon Prime and many other services flaunting free, quick shipping, there is reason to believe consumers will negatively see an increase in shipping costs. To reduce cart abandonment, companies may have to cut into their margins and keep consumers happy.
Additionally, retailers are using their marketing budgets and promotions to retrain consumers to not wait for Thanksgiving weekend to get “the best deals”. Spreading out the holiday shopping season in this environment will be pivotal to the operation running smoothly. Even carriers such as FedEx and UPS have been using their budgets to market shopping early.
Carriers are doing all they can to fulfill every shipment in the most efficient manner possible. With that being said, it would behoove shoppers to get a head start this year and not sweat out the wait.
Top Story 2: What Should We Think About Credit Scores?
What is Happening?
Credit scores, on average, are at their highest ever. Although this is typically a lagging indicator for the health of the broader economy, there is a lot of insight that can be used here.
Lagging indicators are financial signs that confirm a long-term trend after the shift has taken place. Lagging indicators are not predictive instruments.
Why does this Matter?
US consumers have noticeably reevaluated their financial situations during the pandemic. Approximately 35% of individuals who received a stimulus payment used it to pay down outstanding debt, according to a study done by the New York Federal Reserve. Given that unemployment numbers have not substantially improved, there is potential for this trend of improving scores to reverse without a second stimulus.
From the lender’s side, credit providers are reassessing risk and proactively tightening their belts. Dormant accounts are seeing decreases in credit limits, and some are even being canceled completely. Lenders view dormant accounts as a potential “rainy day” or emergency funds, meaning that they would only be accessed once income has run dry. That debt is seen to be incredibly risky, and even consumers with credit scores above the national average see limits drop in response.
Consumers should look into their current credit limits to ensure it hasn’t changed in recent months. Beyond that, this data has proved to us what we have long considered true; Americans are trying to deleverage. It will be interesting to see how a second stimulus is deployed, should one be passed.
What else is happening:
|•||Target’s response to Prime Day – (read here)|
|•||Reviewing Peloton’s new Bike+ – (read here)|
|•||How do others feel about WFH – (read here)|
|•||Pressure on NYC commercial real estate – (read here)|
Deals & IPOs:
Earnings Calendar for October 19th and 20th: