Stocks Slump As Earnings, Virus, Dollar Weakness Create Investor Doubt

Maturity of mind is the capacity to endure Uncertainty. John Finley

Citizens living on the planet Earth are going through a very unique period. The most obvious situation is the emergence and spread of a virus which has infected and killed too many people. The virus has also exposed the cracks of the relationship between many of the mature powers across the globe.

Quite a few of the issues are related to China and the way they have handled the virus. Australia, England, and the United States are not very pleased with their Coronavirus actions, or should I say, lack thereof. If we add in China’s approach to expansion in the Asian peninsula and throughout Eastern Europe and Africa, well, there is plenty of tension in the world about China’s future plans.

In the event your eyes are watering up and aren’t you able to focus on China, let’s make it easier for you and turn our attention to what took place in Europe this week. European leaders put the finishing touches on a 750 billion Euro package to aid countries across the Euro zone help businesses and citizens recover from the severe economic consequences which are taking place. About two thirds of the money is in grants, and one third in loans. The unique fact about the package is that it is the first time the Eurozone issued debt that is backed in unison by the Eurozone, as opposed to bonds that are issued by a singular country within the Eurozone. The other piece of the agreement which stood out was the northern countries were seen as stingy (Austria, Netherlands, Sweden, Finland, Norway) while the southern group is viewed by some as fiscally profligate (spendthrifts). The key country of the zone is Germany, with a bit of France thrown in. Ultimately, the hope is the nearly $1 trillion of debt being issued will help all twenty seven economies recover sooner rather than later. Time will tell.

Here in the United States, with the virus increasingly flaring up across the entire country, more mandates about mask wearing and further restrictions on service-based industries are putting plenty of economic pressure on citizens in nearly every state. All investors are focused on the negotiations between the House and Senate on another aid package which would cover many issues: more unemployment insurance payments to supplement state aid, business liability waivers for workers and customers, another payment of $1200.00 and more for citizens and children (limited by income thresholds), and state and city financial assistance to bridge funding needs because of lower tax collections. Estimates are the package will range from one to three trillion. No matter the final figure with the EU bond issuance, it is clear how markets took these events. Undoubtedly, investors believe, and for good reason, the dollar would weaken. Guess what happened? It did. Imagine that.

The biggest beneficiary of the weaker currencies are the metals, specifically gold and silver. Gold trades at an all time high of 1902.00 per ounce and silver right at 23.00. Both have appreciated significantly during the last three months. Usually, commodities like oil would also benefit from currency weakness. Investors aren’t believers of black gold because of the poor demand for travel, especially in the air. Another issue to add to the cocktail of the virus and plenty of debt issuance is political uncertainty in the United States. With 100 days to election, and a summer of protests, riots, vandalism, and now controversy between cities and federal authorities, there is little to no visibility on a great many important topics. Money craves predictability and certainty. For investors, uncertainty is traditionally despised. As such, equity multiples should contract the more uncertainty there is. As always, time will tell.

On the earnings front, the avalanche of reports rolled in as Coke and IBM started the week off while Intel ended it with a big miss. Microsoft beat but it’s cloud area saw a bit of slowing, while Snap guided its numbers down. Southwest Airlines beat estimates but we all know the state of affairs with anything related to travel. Chevron announced a huge deal by buying Noble. Tesla beat but sold off, although it remains in a stratosphere beyond comprehension. Las Vegas Sands told investors to write off 2020 as far as Las Vegas is concerned. Big oil will report earnings next week, along with Apple and hundreds of others. Much uncertainty remains, and you should it expect it to be with us for the foreseeable future. Of course, I am sure your mind is well developed and quite mature, so you will handle it quite well. On that note, enjoy the long summer days.