By Paul Vigna
With the start of a new quarter, the market entered another
stretch of volatility.
The Dow Jones Industrial Average fell more than 4% Wednesday and
swung more than 700 points from its high to its low Thursday before
finishing the session up more than 2%. Crude oil once again
approached $20 a barrel, before jumping 25% in a single session
Thursday. Treasury yields fell back near their lows.
The market is absorbing information that was inconceivable
before the coronavirus pandemic. It appears that state stay-at-home
orders will likely to be measured in months, not weeks, and the
rise in unemployment is unprecedented. There have been nearly 10
million new claims in the past two weeks.
As always, though, the market produced winners and losers this
week.
Winner: "The 30 Green"
When the first quarter ended Tuesday, there were 30 stocks in
the S&P 500 in the green through those first three months.
The biggest gainer was Regeneron Pharmaceuticals Inc., up 30%.
The narrowest gainer was Microsoft Corp., up 0.01%.
Some of the other stocks will seem obvious. Clorox Co., up 13%,
makes products that are in high demand. J.M. Smucker Co. (6.6%) and
Hormel Foods Corp. (3.4%) are helping to feed us.
Gilead Sciences Inc. (15%) and Eli Lilly & Co. (5.6%) are
health-care companies on the front line of developing treatments or
vaccines for Covid-19, the illness caused by the novel
coronavirus.
Netflix Inc. (16%), Amazon.com Inc. (5.5%) and Activision
Blizzard Inc. (0.1%) are entertaining Americans while we hunker
down. And tech companies like Nvidia Corp. (12%) and Akamai
Technologies Inc. (5.9%) are building the infrastructure toward a
cloud-based future.
A lot of these stocks are "recession blue-chips," said Shawn
Snyder, head of investment strategy at Citi Personal Wealth
Management.
Consumer staples, health-care companies and mature tech
companies have some traits in common, he said. They have few, if
any, unprofitable quarters, and they have comfortable levels of
cash on their balance sheets.
Twenty of the first quarter's winners pay dividends. Most of
them have reasonable price-to-earnings and enterprise
value-to-sales ratios. They don't trade at unreasonably high
valuations. In short, these are fundamentally sound companies.
If the stock market was an Aesop's fable, these 30 would be the
tortoises to the racing hares. We are learning again, painfully
this time, that winning the race is about being slow and steady,
not fast and cocky.
Loser: Macy's
This week, Macy's Inc. took the painful step of furloughing most
of its workforce. With its stores closed and no money coming in, it
didn't have much of a choice.
The market reacted as one would expect. Shares fell Wednesday to
a low of $4.43. Fitch downgraded the company's debt. It was removed
from the S&P 500.
Macy's certainly isn't alone among retailers. Tapestry Inc.,
which owns Coach, and Capri Holdings Ltd., which owns Michael Kors,
were also downgraded. Gap Inc., Neiman Marcus Group Ltd., and mall
operator Simon Property Group also furloughed thousands of
employees.
There is a real possibility some retailers won't survive this
crisis. There is something different about Macy's, though.
The chain was founded in 1858, the first department store, and
became an iconic American business. Santa Claus worked at Macy's in
"Miracle on 34th Street." The annual Thanksgiving parade in New
York is sponsored by Macy's and ends at its doors. Its flagship
store in Herald Square is possibly the most famous retail outlet in
the world.
And right now, it is a company that exists more in name than in
reality.
To be sure, brick-and-mortar retail has been in a three-decade
downtrend. Like every other retailer, Macy's has been trying to
survive in a world for which it wasn't built.
Sales and earnings have been down in four of the past five
years. Its cash position has gone down in four of the past six
years, according to data from FactSet. At the same time, it has
spent money on capital expenditures every year and has about $4
billion in debt.
Macy's was essentially living paycheck-to-paycheck and trying to
reinvent itself. It just couldn't do that and build up any kind of
real buffer to get it through a crisis. Then a crisis hit. Which,
if you think about it, makes Macy's pretty much like most
Americans.
Looking ahead: Eye on Oil
The market will again be most closely focused on anything
related to the coronavirus pandemic.
The Energy Information Administration's weekly petroleum status
report comes Wednesday. The key here is to see the degree to which
oil is moving through the sales pipeline, or just being stored in
tanks.
On Wednesday, Costco Wholesale Corp. is set to release its March
sales report, which should shed some light on the business as
Americans stocked up on toilet paper and other necessities.
Write to Paul Vigna at paul.vigna@wsj.com
(END) Dow Jones Newswires
April 03, 2020 07:14 ET (11:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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