How Many Times Will The Fed Cut Rates In 2020?

Guidance Ratio Is Falling

2020 was supposed to be the year where earnings recover. That was the implication of the strong rally in 2019. However, because of the coronavirus, EPS growth in Q1 will be below that of Q4. As you can see from the chart below, the average guidance ratio is the weakest since 2015. The time to get long is when guidance and analysts overcorrect to the downside. It’s up to you to determine if we’re there yet, but recognize that many big firms are just starting to understand the impact the virus will have on their earnings.

United Airlines and Mastercard recently put out press releases on how the coronavirus will/has hurt their business. United stated, “As a result of COVID-19, we are currently seeing an approximately 100 percent decline in near-term demand to China and an approximately 75 percent decline in near-term demand on the rest of our trans-Pacific routes.” Mastercard stated “we now expect that if the trends we have seen recently — primarily in our cross-border drivers — continue through the end of the quarter, year-over-year net revenue growth in the first quarter will be approximately 2-3 percentage points lower than discussed on our January 29, 2020 earnings call.” Mastercard and Visa are widely held by growth oriented hedge funds. Let’s see how much courage they have in their convictions as these stocks are hurt by the virus.

Temporary Staffing Demand Falls

Most economic data have been solid outside of the reports where the coronavirus is having an impact. The chart below shows an exception as the 4 week moving average of temporary staffing demand is down yearly. This isn’t a new trend which is why we say it’s not related to the virus. Temp staffing is important because these jobs are the most impacted by demand. If a firm sees weakness in demand, it can more easily let go of temp workers than full-time ones which require mass layoffs. It’s tougher to re-acquire new full-time workers than temp workers.

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