Monthly Archives: May 2020

U.S. stock futures fall, with Wall Street set to give back some of May’s strong gains

A view of the Fearless Girl with New York Stock Exchange in Wall Street in the backdrop amid Coronavirus Pandemic on April 5, 2020.

John Nacion | NurPhoto | Getty Images

U.S. stock futures fell on Sunday night as Wall Street was set to kick off June trading on a sour note after consecutive monthly gains.

Dow Jones Industrial Average futures traded 217 points lower, or 0.9%. S&P 500 and Nasdaq 100 futures slid 0.9% each. 

The S&P 500 and Dow each gained at least 3% last week while the Nasdaq Composite advanced 1.8% to close out May. Those gains were propelled by increasing bets by traders that the global economy will successfully reopen after the coronavirus forces a shutdown of most economic activity.

Last week’s gains led the major averages to their first back-to-back monthly advances since late 2019. The Dow and S&P 500 gained 4.3% and 4.5%, respectively, for May while the Nasdaq Composite advanced 6.8%.

“The main downside risk facing stocks is a second wave of the disease,” said Peter Berezin, chief global strategist at BCA Research, in a note to clients. “If fears of a new outbreak were to escalate, risk assets would suffer.”

Berezin added, however, he recommends a “modest overweight” portfolio allocation to stocks, noting: “Even if a vaccine does not become available later this year, increased testing should allow for a more economically palatable approach to containment strategies.”

More than 6 million coronavirus cases have been confirmed globally, including over 1.7 million in the U.S., according to Johns Hopkins University. However, Novavax said last week is started Phase 1 clinical trials for its coronavirus vaccine candidate while Moderna said May 18 its early stage vaccine trial had yielded positive results.

U.S.-China tensions rise

But while the outlook on the coronavirus and the economic reopening seem to be improving, traders are also grappling with rising tensions between the world’s largest economies.

President Donald Trump said Friday the U.S. would end its special treatment towards Hong Kong. The announcement came after China had approved a national security bill that would increase the mainland’s power over the city.

However, Wall Street breathed a sigh of relief as Trump did not say he would pull the U.S. out of the phase one trade deal reached earlier this year.  

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Investors are dangerously downplaying coronavirus and trade risks, Wilmington Trust’s Meghan Shue warns

Just as the economy is trying to reopen, the market is facing a new risk: Renewed trade tensions with China.

Wilmington Trust’s Meghan Shue warns the threat is putting the strong rebound off the March 23 low in jeopardy.

“We are definitely worried about U.S.-China tensions escalating. We’ve seen them bubbling up in recent days and weeks,” the firm’s head of investment strategy told CNBC’s “Trading Nation” on Friday. “There are a number of risks that I don’t think are adequately priced into the market that could see a resurgence.”

President Trump has been looking to take action against China in connection the coronavirus. He has been questioning the country’s forthrightness regarding the severity of the outbreak.

On Friday, the President said he’d look to eliminate special treatment toward Hong Kong after China imposed a law that would prohibit political protests. 

“There’s not much room on the political stage for anyone that is seen as going soft on China,” said Shue, a CNBC contributor. “We think the tension with China is going to ramp up.”

Shue, who went slightly underweight in stocks last winter as the market was selling off on virus fears, contends there’s more trouble ahead on that front, too.

“We see the economic hit being very dramatic — probably 40% on GDP for the second quarter,” said Shue. “It looks like the market to me is pricing in a pretty robust V-shaped recovery, and we just don’t see that as likely.”

The S&P 500, Dow and tech-heavy Nasdaq are coming off two months in a row of gains. With one month left in the second quarter, the market is seeing its best quarter since 1998.

According to Shue, the market’s strong showing suggests investors are dangerously downplaying the risks.

“The market is priced pretty much to perfection right now. A lot has to go right,” she said. “Any misstep on a number of fronts whether it’s to the vaccines or businesses that are not able to reopen as many anticipate — that would be reason for the market to give back some of these gains.”

Shue warns the virus remains the biggest overall risk to the market.  Even though that could wipe out gains, she is encouraging long-term investors with at least a 12 month time horizon to stay in the stock market.

“That doesn’t mean you have to get overly negative on stocks. But it does mean that you should be properly diversified and not expect the market to go up in a straight line,” she added.

Shorter-term, she believes the market’s risk versus reward will continue to get murky.

“The market needs to be pricing in a little bit more of that downside risk for me to get really excited about stocks at the moment,” Shue said. 

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Report: Jeff Bezos is buying a stake in UK digital supply chain startup Beacon

Jeff Bezos, founder and CEO of Amazon, pictured on September 13, 2018.

Bloomberg | Getty Images

Jeff Bezos is investing in U.K. digital freight forwarding and supply chain finance firm Beacon, Sky News reported Sunday, without stating its sources.

The Amazon CEO and world’s richest man is taking part in Series A fundraising worth $15 million for the British startup, Sky reported. 

Freight forwarding is a trillion dollar industry, and Beacon aims to act as the booking agents between importers and exporters while facilitating trade logistics and finance, its website says. 

Based in London and founded in 2018, Beacon’s investors already include executives from Uber, Google and Amazon, according to its site. Its chief technology officer, Pierre Martin, was formerly head of software engineering for Amazon’s package and freight transport technology. 

The backing from Bezos, who has invested in numerous startups, would be a major boost for the company in its stated mission to be a global leader in logistics and trade finance. 

Bezos himself owns a 12% stake in Amazon. The global e-commerce and cloud software giant is in regular competition with technology hegemons Apple, Microsoft, and Google parent Alphabet for the title of the world’s most highly-valued public company. 

Amazon’s market cap at the close of trading on Friday was $1.215 trillion. 

  

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House bill gives small businesses more time to use PPP loans and lets them spend less on payroll

Wine store employees catalog a new shipment of alcohol on May 28, 2020 in New York City. Government guidelines encourage wearing a mask in public with strong social distancing in effect as all 50 states in the USA have begun a gradual process to slowly reopen after weeks of stay-at-home measures to slow the spread of COVID-19. (Photo by Alexi Rosenfeld/Getty Images)

Alexi Rosenfeld

A bill that passed yesterday in the House of Representatives has some sought-after changes to a forgivable loan program for small-business owners.

The new legislation, the Paycheck Protection Program Flexibility Act, addresses entrepreneurs’ concerns around loan forgiveness, one of the main attractions of the Paycheck Protection Program. It passed the House on Thursday in a 417-1 vote.

Some loan recipients, like the self-employed and others whose largest costs are non-labor expenses, stand to benefit more than others.

The PPP, created by the $2.2 trillion coronavirus relief law known as the CARES Act, began issuing forgivable loans to small businesses in early April.  

Loan funds must be used a certain way, otherwise business owners risk the loan not being fully forgiven and incurring at least some debt.

PPP loan forgiveness

The bill extends the length of time businesses have to use the loans, to 24 weeks from eight weeks, and pushes back a June 30 deadline to rehire workers.

It also reduces the share of funding that must be directed toward payroll costs, to 60% from 75%.

“The [legislation] grants small-business owners urgently needed flexibility by extending the loan forgiveness period and reducing the payroll limitation of the program,” said Kevin Kuhlman, vice president of government relations at the National Federation of Independent Business, a trade group.

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The bill’s passage comes amid debate between lawmakers over the contours of a potential future round of financial relief. The coronavirus pandemic pushed broad swaths of the economy to shut down in mid-March and nearly 41 million Americans to file for unemployment.

Business owners who received a PPP loan have expressed concern that they will be unable to use their funds in a manner consistent with current loan-forgiveness rules.

Lawmakers meant the loans as bridge funding to help keep people employed and cover operational costs until the economy reopened and business activity resumed, said Paul Becht, CPA, a partner at accounting firm Margolin, Winer & Evens.

But the original eight-week time frame has proven to be too short for many businesses, since many are still idled.

“People thought two months was probably going to be enough to get it done,” Becht said. “It turned out, it’s not.”

This is especially true for businesses in states and regions like the New York metropolitan area that have moved more cautiously to reopen their economies.

Hospitality businesses like restaurants and recreational facilities such as gyms that may reopen in later phases — and likely won’t see a quick return to their prior customer base, amid social-distancing concerns — also stand to benefit most from a time extension to use money and rehire workers.

The current PPP terms also require 75% of funds to be used for payroll costs, in a bid to tamp down on already widespread layoffs. The remainder can be used for other expenses like rent, mortgage interest and utilities.

However, it may prove challenging for small businesses with low payroll costs relative to other expenses to meet the 75% threshold.

That’s especially true for the self-employed, those with few employees and businesses in metropolitan areas that have high rent payments, Becht said.

The PPP Flexibility Act would grant more leeway, so 40% of the loan could be directed toward non-payroll costs.

Of course, it’s an open question as to how enacting new PPP forgiveness measures would help early movers who may have gotten their loans at the beginning of April. Those who have been spending money according to the original forgiveness terms may have nearly depleted their funding already.

Some business owners decided not to spend their aid and, if legislation passes, may be rewarded for that risk, Becht said.

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