U.S. Shrinkage, Box Office Trolls, Boeing Blows
Country Jerome and the Fed
And it’s a one, two, three … what are we buying for? Don’t ask me, I don’t care a wit; next stop is a bull market.
And it’s a five, six, seven … open up the pearly gates. Well there ain’t no time to wonder why, whoopee! Stocks are gonna fly.
You get the point. This song lyric thing of mine is a sickness, really.
In case you don’t know what I’m talking about here, U.S. gross domestic product fell 4.8% in the first quarter, according to the Commerce Department. It was the U.S. economy’s biggest contraction since the 2009 financial crisis and the first since 2014.
One more quarter of negative growth, and we officially get a recession. Two more, and we win a set of Ginsu steak knives!
The U.S. economic shutdown wasn’t even in full effect in the first quarter, and yet consumer expenditures dropped 7.6%, durable goods spending plummeted 16.1% and services spending was off 10.2%.
As for the current quarter, economists predict the economy to contract anywhere from 37% to 65%.
So, come on all of you big strong men, Uncle Sam needs your help again. The U.S. economy’s in a terrible fix, right here at home in the stock market. So put down your masks and head back to work; don’t’ worry ‘bout those virus quirks. And it’s …
When it comes to investing, there’s a mantra I started repeating to myself lately: The stock market is not the economy.
The economy is clearly in pretty bad shape.
The stock market? Not so much.
This may seem like a major disconnect to many new investors, but it’s actually par for the course.
Right now, many Americans are focused on day-to-day operations. What about my job? What about food? Rent? Mortgage payments?
With the lockdown in effect, and the virus still rampaging across the country, there’s little else we can do but focus on the day to day.
Meanwhile, Wall Street is already looking past COVID-19 … past the current economic woes. It sees a light at the end of the tunnel. It sees a U.S. market rebounding with ferocity from this setback.
The Federal Reserve’s promise of unlimited stimulus takes no small part in this overwhelming optimism.
The divergence between Wall Street and Main Street is a frustrating one … to put it mildly. Even here at Banyan Hill, this crazy market has led to a variety of both boom and bust predictions. But who’s right and who’s wrong? Honestly, we don’t know yet.
There is a fair amount of evidence for both sides.
It’s true that the economy is tanking and that this situation should hurt the stock market. But it’s also true that, through government and Federal Reserve actions, many companies trading on Wall Street have more financial support than they’ve ever had.
I get it, Gary G. … the growing cacophony of “Buy! No, Sell!” makes it hard to sort out your financial future. But, speaking purely as an investor here — your average Joe, in all seriousness — the best thing you can do is this:
- Take a deep breath. You’re not expected to predict the future 100% of the time.
- Pick a strategy you trust.
- Stick with it.
Remember, it is possible to know that the U.S. economy is on fire but still make money in the stock market.
Even a forever-bull like Paul Mampilly has a “rebound” method to spot opportunities when markets are irrational to the gills.
So, why not let Paul Mampilly and his team do the heavy lifting and find opportunities for you?
Going: Boing, Boing Boeing
The situation at Boeing Co. (NYSE: BA) is bad … but clearly not as bad as industry analysts expected.
The maker of the flightless 737 MAX reported a first-quarter loss of $1.70 per share on revenue of $16.91 billion. Both figures whiffed Wall Street’s expectations by a mile. And yet, BA stock was in rally mode today.
Why? Because Boeing promised to pull out all the stops in order to survive. During the post-earnings investor call, Boeing announced plans to cut 10% of payroll using “involuntary layoffs as necessary.” I think most of us call that “being fired.”
The company also promised it was “exploring all of the available options” to acquire additional liquidity. In other words, Boeing is looking for more cash … and it doesn’t care how. Given that the company burned through $4.3 billion in negative cash flow last quarter, Boeing might want to start picking pennies up off the sidewalk.
Going: OK, Google…
So, here’s another Bizarro World hot take for you. Google parent Alphabet Inc. (Nasdaq: GOOGL) beat Wall Street’s revenue expectations, missed on earnings and issued a profit warning. And the stock jumped nearly 9%.
By the numbers, Alphabet missed the consensus earnings target by $0.51 per share, but it beat revenue expectations by nearly $1 billion. What’s more, the company said performance was strong in the first two months of the quarter, but that March saw “a significant slowdown in ad revenue.”
That doesn’t sound too bad, right? Everyone is warning about significant slowdowns right now. However, ad revenue accounts for about 82% of Alphabet’s profit. That could be problematic for GOOGL investors.
Still, at least Alphabet didn’t pull its 2020 guidance like so many other companies.
Gone: Trolling AMC
I’ve been saying it for a while: Once the major movie studios got a taste of direct-to-consumer revenue without the movie theater middleman, they would never go back to the old model.
This week, Comcast Corp.’s (Nasdaq: CMCSA) NBCUniversal announced that, going forward, it would simultaneously release movies direct-to-consumer and in theaters. The announcement came after Trolls World Tour raked in $100 million in three weeks for NBCUniversal.
By comparison, the previous Trolls movie made $154 million in five months, but NBCUniversal only made $77 million after movie theaters took their cut.
But the world’s largest theater operator is mad — hopping mad.
AMC Entertainment Holdings Inc. (NYSE: AMC) said today that, because of the direct-to-consumer move, it will no longer show NBCUniversal movies at its theaters:
Shh … shh … do you hear that?
That’s not just a major hissy fit by AMC, that’s the sound of the theater business model dying.
Last week, we talked about staying entertained during quarantine — be it while you’re stuck home, stuck working or just feeling “stuck.” Stick with Great Stuff and Banyan Hill, and we’ll stick by you too no matter how long we’re all … well, stuck.
Anyway, by and large, most of you are catching up on household chores and to-dos — 30.9% of you, if we’re getting technical. (When you start going ‘round the house to tighten and dust all the light bulbs … that might be too far.)
24.6% of Great Stuff readers are spending the quarantine playing ketchup with TV and movies, and I mustard a guess that many of you also clicked that “snacking” option! (I, for one, exercise vicariously through the 12% of you staying fit … that counts, right?)
This week, we’re talking hot-button topics and reopening prospects. We love hearing about your perspective from your neck of the woods. So tell us: What do you think about some places starting to reopen? Take the poll below and let us know!
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Until next time, be Great!
Editor, Great Stuff