Companies hunker down for worst-case economic scenario
Illustration: Aïda Amer/Axios
What a difference a month makes.
Then: The nation's largest companies were on top of the world — buying back stock, watching their share prices flirt with all-time highs and hiring in droves.
Now: Corporate America is prepping for what could be a very lengthy and severe recession.
The big picture: The never-before-considered scenario of revenues coming to an absolute standstill is now a reality for a slew of companies from a cross-section of industries. And it's threatening millions of jobs.
- Companies are going to lengths to preserve the cash they have — and seeking ways to raise more.
- They're fortressing their balance sheets and, in some cases, looking to federal bailouts.
Flashback: The S&P 500 hit an all-time high on Feb. 19 — an indication that investors were confident in the state of the economy even as the coronavirus outbreak worsened around the world. (The bond market was less confident.)
- Now stock prices are plummeting, amid one of the worst bouts of volatility in stock market history.
- The S&P 500 closed down more than 5% today — nearly 30% below that all-time high.
- J.P. Morgan estimated today annualized Q1 GDP growth would fall to -4.0%, and -14% in Q2.
Driving the news: A stimulus proposal from the White House on Wednesday suggests that many suffering companies could get help from Congress, though it could come with some strings attached.
- That's already leading to bad P.R., with citizen watchdogs asking why these now ailing industries spent so much money on stock buybacks in recent years. But even the most prolific forecasters couldn't see this coming.
- "The setup going into the last 30 days took 10 years to develop," Nicholas Colas, co-founder of DataTrek Research and a long-time market research analyst, tells Axios, referring to how companies positioned themselves (or didn't) for a crisis.
What's going on: A wave of companies —including airlines and banks— are putting share repurchase and capital expenditure programs on hold. They're letting go of workers, or asking for government help so they can making payroll.
- Boeing, Hilton, SeaWorld Kraft Heinz, and beer giant AB Inbev are among the companies that have tapped billion-dollar credit lines in recent days.
- Others, including Coca-Cola, Verizon, and ExxonMobil, issued debt on Tuesday to raise a total of $25 billion in cash, as the Financial Times reports.
The bottom line: Preparing for an economic slowdown is one thing. Preparing for a never-before-seen halt in economic activity is another.