Market Commentary for the week ending March 27th, 2021
- Stocks were mixed as bond yields eased.
- Two legacy media companies see nearly half of their value wiped out.
- Housing numbers softened with concerns rising that higher mortgage rates could take a toll.
Mainstream Media Stocks Plummet
ViacomCBS (VIACA), the media conglomerate including CBS, 28 local television stations, MTV, and much more saw its stock plummet by -49.1% this week. As illustrated in the accompanying graph, the stock had been on a meteoric rise from its pandemic low of $14 to its close on the Monday of this week above $100.
ViacomCBS, like other legacy media companies is pushing into the streaming business including their recently launched Paramount+. The challenge for these companies is that their core business, driven by cable TV, has been suffering subscriber losses with no end in site. ViacomCBS also decided to take advantage of its recently high stock price offering as much as $3 billion in new stock. On top of it all, it was reported a large hedge fund facing performance problems had to sell millions of shares of ViacomCBS to mitigate further financial problems.
Discovery Inc. (DISCA), the company operating the Discovery Network, TLC, and Animal Planet among others, saw its stock price plunge -45.8% for the week. Similar to ViacomCBS, Discovery’s stock has surged during the last 6 months. The drop this week is again being blamed on the liquidation of the same troubled hedge fund that was selling ViacomCBS stock.
This Week’s Performance Highlights
- It was a tale of two worlds for investors in U.S. stocks with large stocks gaining and small stocks adding to their prior week’s loss. At the week’s close the S&P 500, a measure of large stocks, was higher by +1.7%, the Dow Jones Industrials was just shy of that up +1.4%, and the NASDAQ Composite fell -0.6%. Small U.S. stocks were down rather sharply off -2.6%.
- Although the broad market indexes such as the S&P 500 and NASDAQ were mixed, every sector but one was higher. Consumer Stables, those that tend to be more stable and conservative, performed the best including gains for Dollar General (DG), PepsiCo (PEP), and Procter & Gamble (PG) up +8.2%, +6.1%, and +5.8% respectively.
- Technology stocks have struggled throughout 2021 to keep up with the rest of the market but had a good week gaining +2.6% putting them back into positive territory for the year.
- International stocks were mixed with developed country stocks up fractionally and emerging markets down. Developed markets gains +0.2% but it varied among regions with Japan’s market off -0.8% while markets in the Eurozone and Australia gained +0.6% and +1.5% respectively.
- Emerging markets were down -1.5% hurt by a -2.8% drop for Chinese stocks leaving them up just +0.5% year-to-date. Stocks in Turkey, although a relatively small market, collapsed -19.5% following the firing of its Central Bank Chief by the President Erdogan. Foreign investors are concerned the central bank has lost its independence from political influence.
- The alternative asset classed were mixed with real estate stocks turning in a strong gain of +2.7% for the week while both gold and commodities were lower by -0.6% and -0.4% respectively.
The price of lumber is one component of overall commodity prices. As the accompanying graph shows it has risen by roughly +120% since the start of 2020 driven by strength in the housing market and new home construction.
- Bond prices inched higher this week up +0.4% providing some relief to the recent rise in yields and concerns about potentially higher interest rates. The benchmark 10-Year U.S. Treasury yield hit a low for the week of 1.595% and at 1.685%
The activity in the luxury Manhattan housing market is showing signs of recovering from the pandemic’s impact. Year-to-date there have been 343 closing for homes priced at $4 million or more which is a +60% increase over the same period last year. This strength is in spite of very few foreign investors who had been driving a large portion of the market’s strength prior to the pandemic.
Zoom Video (ZM), the widely popular web conferencing platform, has seen its stock drop -43.7% from its mid-October high. This stock was the poster child for those benefiting from the pandemic and economic lockdown. Other “lockdown” stocks, shown in the accompanying table, have also seen their stocks fall from highs but all of them remain up sharply from their lows.
Existing home sales in February fell by -6.6% compared to January to an annualized 6.22 millionand short of economists’ estimate of 6.50 million. The slowdown is being blamed on a limited number of homes for sale with roughly a 2-month supply when 6-months is considered average. Compared to the same period last year sales are still higher by +9.1% and the average price is $313,000 or +16% above year-ago levels.
New home sales also fell short of economists’ estimates coming in at rate of 775,000 annually. That was down sharply from the month before level of 948,000 due partially to bad weather, a temporary problem, but rising mortgage rates could also be slowing down activity. The supply of new homes is much great than existing homes at 4.8 months. Year-over-year total sales are higher although only in the Midwest and South while the Northeast and West are weaker.
Orders for goods not intended for immediate consumption such as washing machines and cars, known as durable goods, were down -1.1% in February compared to a big gain in January and expectations that growth was going to continue. The weakness was broad-based with every category except commercial aircraft lower. Like other weak economic reports for February, bad weather is being blamed. There are signs growth has resumed helped by more vaccinations and stimulus checks on their way.
Initial Jobless Claims fell to their lowest level since the start of the pandemic at 684,000 in the most recent week. The number of jobless claims has been widely questioned but the trend is certainly indicative of the improvement employment market. The full monthly employment report, a much more reliable indicator, will reported this coming Friday.
Upcoming Economic Reports
- Employment Report
- Case-Shiller Home Price Index
- Consumer Confidence Index
- Initial Jobless Claims