May 6, 2020

Axios Markets

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🎙 "My saving grace was that I always knew when to leave the party." See who said it and why it matters at the bottom.

1 big thing: The coronavirus-driven gold rush

Illustration: AĂŻda Amer/Axios

Having been conditioned for years by financial pundits to see the next recession as their opportunity to get rich after largely missing out on 11 years of a surging bull market, young people are viewing the coronavirus-driven stock market crash as their golden ticket.

What's happening: Thanks to zero fees, easy access afforded by the internet, and an unexpected glut of free time on their hands, millennials and Gen Z are opening online brokerage accounts at a record pace.

  • Finance apps have seen a 55% growth in usage time from the end of 2019 to the week ended April 18, according to a new survey from Robinhood and App Annie.
  • TD Ameritrade reported a record 608,000 new funded accounts in the first quarter and more than three times the number of users in March compared to March 2019.
  • Brokerages like Schwab, Fidelity and E*Trade also reported record new users.

"The way we can see that a lot of these people are newer to investing is because they are accessing our educational resources at a rate that is three to four times what we’d normally see," Steven Quirk, EVP of trading and education at TD Ameritrade, tells Axios.

  • "And the courses they’re accessing are explainer video series about investing principles, investing basics, 'How do I buy a stock?'"
  • "Our investing courses are laid out as a journey and a lot of them are hitting the ones that are the first part of the journey."

Driving the news: Despite two separate embarrassing outages on critical trading days this year that could have sunk its business, millennial-focused trading app Robinhood has seen its valuation rise to $8.3 billion, while investing platform Stash got a new $112 million infusion that took its valuation to $800 million.

Yes, but: In their thirst for a piece of the expected market rebound, these new investors may be ignoring the economic reality of the moment.

  • The Fed, IMF and an army of the world's foremost economists predict the recession will be long lasting and many companies are expected to go bankrupt or dissolve entirely over the next year.

The last word: Those who have used their new accounts to buy the dip since late March have done quite well.

  • But if equity prices don't continue to defy gravity, the downturn could destroy already fragile savings gains for millennials who have largely been priced out of home ownership and are just starting to build wealth, wreaking further havoc on the broader economy.

Go deeper: How the stock market can lie to you

2. Catch up quick

Evidence is mounting that after many mistakes in the beginning, and despite a month of extreme social distancing, the U.S. is steamrolling toward a nightmarish failure to control the coronavirus. (Axios)

The coronavirus pandemic is outlasting the government's spending packages, which instead of acting as bridges to reopening, may end up being remembered as bridges to nowhere. (Axios)

Beyond Meat reported a net income of $1.8 million compared with a net loss of $6.6 million a year ago and revenue soared 141%. The company says it plans to temporarily cut prices this summer. (Reuters)

3. Services sector prices jumped in April as index crashed
Data: Institute for Supply Management; Chart: Axios Visuals

U.S. services businesses saw their steepest drop in activity in April since the Great Recession with the Institute for Supply Management’s non-manufacturing index falling to 41.8, its lowest reading since March 2009.

  • However, the survey's prices paid index jumped to its highest since January and firms said they had seen the highest percentage of price increases since May 2018.

Why it matters: Despite the destruction in overall demand and waves of job losses, prices are not only holding firm they are rising.

But, but, but: ISM's data show price increases have been largely in the health care sector where the COVID-19 pandemic has increased shipping costs as demand has skyrocketed and the number of flights, largely from China, carrying medical supplies has plunged.

  • The price increases also were noted in other areas, however, such as cleaning products, disinfectants and alcohol.

What's next: “When we come out of this lockdown, I don’t project or anticipate a V-type recovery, so I don’t know how prices will correlate to demand levels,” Anthony Nieves, chair for ISM's non-manufacturing business survey committee, said during a call with reporters.

4. The Fed now has the world's largest balance sheet

Reproduced from BofA Global Research; Note: Banks included are US Federal Reserve, European Central Bank, Bank of Japan, Bank of England, Bank of China and Reserve Bank of Australia; Chart: Axios Visuals

By the end of this year, analysts at Bank of America Global Research estimate the Fed's balance sheet will have risen to nearly $10 trillion and the world's six largest central banks will have taken their holdings from around $15 trillion to $25 trillion worth of assets.

The big picture: The Fed now has the largest balance sheet of all central banks, having surpassed the European Central Bank and Bank of Japan.

  • The U.S. central bank's holdings are now equal to 34% of U.S. GDP and are expected to reach 48% by year-end, according to BofA's data.

State of play: To put the size of Fed asset purchases this year into perspective, BofA analysts note that "a few weeks ago it was buying the same quantity per day as it was per month during the [global financial crisis]."

What they're saying: This is "monetary policymaking on steroids," Michael Arone, chief investment strategist for State Street Global Advisors, says in a note to clients.

  • "This evolving, new approach to monetary policy during a crisis may never be walked back."

Why it matters: We could already be seeing the Fed's impact.

  • The stock market, bond market and rising home values may be evidence of distortions and asset price bubbles rather than a reflection of confidence or an expected rebound for the economy.

The bottom line: "The disconnect between an investment’s underlying fundamentals and its price make investors uneasy," Arone says.

  • "As a result of the Fed’s new programs, this tension is now most evident in the credit markets. Sadly, investors may have no choice but to dive in."
5. Why Disney is the stock to watch

Deserted Disney resort in Kissimmee, Fla., on May 5. Photo: Daniel Slim/AFP via Getty Images

New CEO Bob Chapek had quite a first earnings call on Tuesday, announcing that Disney had seen its earnings fall by 90% in the first quarter.

  • Still, Chapek asserted the company was "confident in our ability to withstand this disruption."

Why it matters: Disney is perhaps more representative of the global economy than any other company on earth and its stock has been one of the few that seems to reflect the damage the COVID-19 pandemic has done.

What it means: Roughly half of Disney's revenue is directly tied to industries that have been shut down, like parks and resorts, advertising and film.

  • As the New York Times notes, the Mouse also has "four TV studios that together produce about 70 shows; 42,000 hotel rooms and time-share units across three continents; the world’s largest licensing business, with annual merchandise sales of $55 billion; a publishing arm that churns out children’s books, magazines and digital products in 68 countries and 45 languages; a chain of 25 Disney English schools in China."
  • That has resulted in Disney's stock falling by around 32% this year.

The intrigue: Disney beat analysts estimates for revenue, at $18 billion, but fell well short of earnings estimates, which at only 60 cents per share were well below expectations of 91 cents and less than half of what analysts were expecting a month ago.

  • The big earnings miss came despite having already taken major steps to cut costs, including furloughing 100,000 employees.

Yes, but: The one bright spot has been Disney+, which Disney now says has 54.5 million subscribers.

  • That less than one-third of streaming rival Netflix, but Netflix's stock is now four times the price of Disney's and Netflix has no other revenue streams, temporarily shuttered or otherwise.
  • Netflix's market cap has now grown to $186.8 billion, exceeding Disney's $182.5 billion, according to FactSet data.

Thanks for reading!

Quote: "My saving grace was that I always knew when to leave the party."

Why it matters: The quote is from Iman, born Zara Mohamed Abdulmajid, the Somali fashion model, actress and entrepreneur who was a muse for designers Gianni Versace, Halston, Calvin Klein, Donna Karan and Yves Saint Laurent.

  • She is the widow of the late David Bowie, whom she married in 1992 and with whom she likely attended a few parties.

Editor’s note: This top story was corrected to take out a reference to Robinhood as partnering in a survey from App Annie, which representatives for App Annie had misstated.