Jul 31, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

👋 Good morning. I'm filling in for Dion today. Happy Friday. Today's newsletter is 1,211 words, a 4.5-minute read.

💬 "You've got to get to the stage in life where going for it is more important than winning or losing." — See who said it and why it matters at the bottom.

1 big thing: Stimulus takes center stage — just as it runs dry

Illustration: Sarah Grillo/Axios

Big Tech was buoyed by the exact thing that prevented the dreadful GDP report from being even worse in the second quarter: the pandemic stimulus measures.

Why it matters: Stimulus is in the spotlight as a key provision is set to lapse despite coronavirus cases surging across the country, reimposed lockdown measures and more businesses shuttering.

What's going on: Personal income soared by a staggering 7.3% in the second quarter from the prior three months — a phenomenon that doesn't typically happen in the middle of a recession.

  • It was made possible by measures like the extra $600 in weekly unemployment benefits and the one-time stimulus checks, which made up for the collapse in wages.
  • Strip out government support programs and personal income fell 6.1%.

The big picture: Big Tech executives, whose companies have become a symbol for the deep divide between the soaring stock market and the downward spiraling economy, touted these stimulus measures as a reason why their businesses thrived in the second quarter.

  • What they're saying: The increase in demand for Apple products came down to a range of factors — including economic stimulus in the U.S, Apple CEO Tim Cook said during an analyst call on Thursday.

Worth noting: As the pandemic raged, these companies have come to represent a whopping 22% of the S&P 500.

  • Their combined market value jumped by $250 billion in late trading after their earnings were released, giving these companies a bigger hold on the stock market.
  • It's also a win for traders who have bet these so-far Teflon-protected companies would come out even bigger in the midst of the economic collapse caused by the pandemic.

Yes, but: Big Tech companies, along with others, are expressing concerns about what happens to the economy — and their business — after the stimulus runs dry.

  • "We don’t know what the subsequent economic stimulus will look like. And to the extent that stimulus decreases in the future and recession lingers, that could impact consumer purchasing power for advertisers in areas like e-commerce," Facebook CFO Dave Wehner said on the company's analyst call.

Driving the news: The enhanced employment benefits millions of Americans are relying on will lapse.

  • The Senate adjourned until next week, without a deal to extend the benefits (or even replace them with an alternative amount).
  • There's also little progress on negotiations so far on a broader, supplemental stimulus package.

The bottom line: Hopes for a swift economic rebound are being downgraded, with analysts paring back estimates for Q3 growth as additional stimulus hangs in limbo.

Go deeper: Check out Facebook, Alphabet, Apple and Amazon earnings.

Bonus chart: The hole we fell into
Data: Bureau of Economic Analysis vis FRED; Chart: Andrew Witherspoon/Axios

Five years of U.S. economic growth vanished in the span of three months.

  • The decline between April and June brought the U.S. GDP back to levels last seen in 2015.
  • While we fell into the hole swiftly, economists are dashing hopes of an equally swift recovery. They warn it could take years for the U.S. to recover.

Meanwhile, record-breaking economic drops are being recorded across the globe.

  • Massive economic contractions happened across the European Union, data out this morning shows: Spain's economy fared the worst with a 18.5% drop from the prior quarter.
  • Mexico’s Q2 GDP fell 17.3% from the prior quarter — the biggest quarterly contraction on record, according to data released yesterday.
2. Catch up quick

The S&P 500 fell as much as 1.7% on Thursday, but reversed the losses to close just slightly (0.4%) lower. (CNBC)

Families are filing the first lawsuits against companies like Walmart, Safeway, Tyson Foods and some health care facilities over pandemic-related worker deaths. (WSJ)

New Fed data shows outstanding loans in its Main Street lending program rose to $82 million — a $68 million jump from the prior week — though volume still remains low. (Reuters)

3. More proof of PPP inequality

There's more evidence that the government’s flagship small business loan program was distributed unequally across racial lines.

Why it matters: Minority-owned companies are faring much worse — and the fate of their businesses is much more bleak — than white-owned ones, as the pandemic slams Main Street.

What's going on: Congressional districts with the highest Black populations cinched $13 billion less in Paycheck Protection Program (PPP) funds than districts with smaller Black populations, according to a new study by Accountable.US, an advocacy group, first reported by Reuters.

  • By the numbers: The 10 congressional districts with the lowest Black population received over 64,000 more PPP loans than the 10 districts that have the highest Black population.

A separate analysis of Small Business Administration data released by Bloomberg yesterday shows that the first tranche of PPP funds went overwhelmingly to the whitest parts of the country in its first two weeks, "leaving firms in mostly Hispanic and Black areas to wait until a second tranche of funds was made available."

  • Roughly 27% of small businesses in majority white neighborhoods got PPP loans within that timeframe, but only 17% of small businesses in predominantly minority districts got the funds.
  • Bloomberg found that the second round of PPP funds had more comparable lending in districts.

Between the lines: Time was of the essence for cash-strapped small businesses that in some cases saw revenues come to a standstill when the pandemic hit. A lag in receiving support "could have contributed to layoffs or closures of businesses in minority neighborhoods," Bloomberg points out.

  • Of note: The government set aside $10 billion in the second round of PPP funds to be lent by Community Development Financial Institutions, which specialize in lending in rural, minority and other underserved communities.

The bottom line: The trove of PPP loan data released earlier this summer doesn't give a clear picture of how many Black-owned businesses received loans. The "race/ethnicity" column for businesses was more often than not blank. (And there were errors in the database, anyway.)

  • But other data continue to show piles of evidence that inequality in the PPP loan process disadvantaged Black-owned businesses.
4. The demographics of telework

Data from the Bureau of Labor Statistics illustrates how the pandemic's forced work-from-home phenomenon cuts across education levels, race and gender.

By the numbers: Looking at the latest figures from June...

  • More educated workers were more likely to have teleworked because of the pandemic. A measly 5% of workers with less than a high school diploma worked from home versus 54% of workers with a college degree or higher.
  • Women were more likely (36%) than men (27%) to have worked from home because of the pandemic.
  • 49% of Asian people teleworked because of the pandemic — higher than white people (31%), Black people (26%), and Hispanics (21%).
5. Airlines make up for plunging revenue by flying cargo

Illustration: Annelise Capossela/Axios

It could be several years before passenger air traffic returns to normal, but the global demand for medical supplies, along with disruptions in manufacturing supply chains and increased e-commerce, means airlines have a chance, at least temporarily, to offset some of those losses by transporting more freight, Axios’ Joann Muller writes.

Driving the news: United Airlines said cargo revenue was a bright spot in an otherwise dismal second quarter.

  • Total revenue plunged 87% in April, May and June, but cargo revenue was up 36% as United flew 3,800 international cargo-only flights during the period.
  • "I mean, who would have ever thought we could do something like that?" CEO Scott Kirby said on an investor call, praising employees' resiliency.

What to watch: The cargo business is notoriously erratic — even more so now — and the head of the International Air Transport Association warned in a statement this week of continued turbulence ahead.

  • The rush to get personal protective equipment (PPE) has subsided and the economic recovery remains slow.
  • “Cargo is, by far, healthier than the passenger markets but doing business remains exceptionally challenging," said Alexandre de Juniac, IATA's director general and CEO.

Read more

Dion Rabouin

Have a great weekend.

Quote: "You've got to get to the stage in life where going for it is more important than winning or losing."

Who said it: Arthur Ashe, who became the first Black athlete to play on the U.S. Davis Cup tennis team 56 years ago tomorrow.

  • Ashe was among the first professional athletes to be involved with political and social causes, including speaking out and marching against apartheid in South Africa.