From far away the market looks like a patch of green. But when you get close, you realize that a lot of that green is made up of weeds, in fact almost 3/5th of the entire market, as represented by the S&P 500, the traditional reference point, is made up of money losers.
That, frankly, is incredible, and explains a lot more about how the real economy is doing. The weeds are more representative, in fact they predominate and it's time to look at the more in tune stocks to get a sense of what this pandemic is doing to us and how it's getting worse, not better, as we go along. Much of the market's gains are made up by a handful of large tech companies, and they have managed to obscure the weeds. Who wants to talk about the 295 stocks that are down, an astounding number, when we can talk about how great Amazon (AMZN) , Microsoft (MSFT) , Apple (AAPL) , Facebook (FB) , and Alphabet (GOOGL) are doing?
It's a lot more fun to talk about Tesla (TSLA) , the tech company that makes cars among other things, with a stock that's up 375% this year, than it is to talk about Ford (F) and GM (GM) with stocks down 27% and 20%, respectively. Tesla's not a small company - about 50,000 work for it. But Ford and GM are bigger and have many more workers who could lose their jobs if the pandemic related recession continues much longer.
I know I have been harping upon about how we can't see the destruction that's been wrought in small business. Many of the small business brick and mortar retailers can't pivot to online fast enough and often their fixed costs are too great to do so. I love what Facebook, Etsy (ETSY) , Square (SQ) , PayPal (PYPL) , and Shopify (SHOP) are doing to help and create small businesses, but they are fingers in the dykes that threaten to burst without more stimulus. It's hard enough to try to get the Republicans to agree with the Democrats on anything but now there are factions within the Republican party that either don't favor more deficit spending, or after this week now believe that after blow out numbers from Target (TGT) , Walmart (WMT) , Lowe's (LOW) , and Home Depot (HD) , that main street's doing much better than people think. These opponents are not trying to gauge whether things are about to slump back now that there's no extra unemployment benefits or $1200 handouts. They are saying "enough is enough", and normally it would be if it were not because of the nature of the downturn. Everything's been turned upside down. There used to be a thing called the lipstick index which measured consumer spending. It was a great gauge because we tended to almost always see a pattern where sales of lipstick spiked when more expensive luxury goods got out of reach because of a recession.
But only a dolt buys luxury lipstick when you are wearing a mask all day. And who would risk going to a department store to try on lipstick or other make-up? Only a fool. No wonder Estee Lauder (EL) had a tough quarter. Until it transitions more to on-line it can't deliver the numbers it almost always seemed to do. Hence why the stock got hit so hard today.
So what do the weeds look like? There's so many of them it's hard to classify them all.
But if we just focus on the 25 worst performing stocks in the S&P we see some pretty pronounced groups: cruise ships, oils, pipelines, retailers, airlines, office real estate, investment trusts, and banks.
Hmm. When you think about it, that means there isn't as much a divide between Wall Street and Main Street, there's more a divide between digitization and everything else.
Lots of times we get caught up in talking about whether we are in a U shape recovery or a V shape or an L shape one. I told you this week that we have had a fabulous V shape recovery in the stock market. But we have nothing like a V shape rebound in the economy.
After looking at this weeds I think we have to rethink the whole terminology. It's like a whole alphabet of pain, one letter doesn't fit all.
If you work at Norwegian Cruise (NCLH) or Carnival (CCL) , the two worst in the S&P down 73% and 71%, you aren't thinking V, U, or W shaped recovery. You are thinking about a T economy, straight down after being flat. If you are in Occidental Petroleum (OXY) , the third worst, off 67% you are in the Y economy as in Why you be so stupid as to double down and pay a fortune for Anadarko Petroleum while oil was rolling over. If you own the stock of Coty (COTY) , the beauty company, down 65%, or Kohl's (KSS) , the retailer with a stock down 62%, you are in the M economy, meaning every time you think you are going up you get pushed right back down into the ground. If you work at United Airlines (UAL) , down 61%, or American Air (AAL) , off 56%, or Delta (DAL) which has shed 53%, I would say you are in a C economy, bottoming but not coming back any time soon. Simon Properties (SPG) , the big mall retailer down 56%? How about an X both lines grounded down, because it's trying to get out of buying Taubman (TCO) , another mall company, that it had decided to purchase before the pandemic.
Finally, there's Wells Fargo (WFC) , with a stock that's declined an astonishing 55%, where you're hoping and praying you have an L on your hands and not something worse.
When you go through the decliners you recognize that it's not just small and medium-sized untraded businesses that are hurting, its real businesses, too, that are in their own terrible cycles of pain.
What has to happen?
Without stimulus it's easy to say, don't worry about it, one day we will get a vaccine and in the interim just let the weeds grow, they will in the end not take over the patch of green, they aren't big enough and they don't represent as much capital. But they can and do represent a lot more people and when it comes to getting out of a recession faster you need the fewest number of people being thrown out of work as possible. This list of poorly performing companies, remember, is just an analogue. There are 290 others right behind these 10 with many similar characteristics that make you cry for stimulus. In the end, a weed-choked patch of ground will signal that the economy's not going to follow the V shape recovery of the five large companies that have pulled along the whole patch.
Now there's some other green here, that's not crabgrass. Housing's for real. I think Whirlpool (WHR) , Stanley Black & Decker (SWK) can be bought. I like Sherwin Williams (SHW) and (PPG) . There's fin tech, of course, who can keep PayPal or Square down. But then again, these last two are zero sum, with the extraction coming out of the hide of what was once one of the biggest sectors in the S&P, the financials.
So when you get down into the weeds, I mean literally get down into the weeds, what you see is that the beautiful sod's not going to overwhelm the rest of the patch. Because of covid, it's the opposite and now that there's no one in Washington willing to play gardener, it may just be a matter of time before the green chokes on the pestilence and the stock market stars don't even matter.