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Market Commentary for the week ending September 19th, 2020

Summary

  • Small U.S. stocks rallied while large tech and others faced continued selling pressure.
  • Retail sales continue higher topping pre-pandemic levels.
  • Oil rallies above $40 per barrel on shrinking supplies.

 

The Changing Composition of Retail Sales

How and where Americans shop has been evolving for more than two decades and the pandemic has further accelerated the trends. One obvious and stunning illustration of these trends is the comparison of e-commerce sales, sales on the internet, compared to department store sales.

As illustrated below, in June 2004 sales in these two categories were nearly equal with each making up about 6% of total retail sales. During the next 16 years e-commerce sales multiplied while sales in department stores fell by nearly half! Today department store sales account for just a small portion of total sales, about 2%, while sales on the internet are more than 44% of the total.

Retail sales June 2004 - June 2020

Source: www.YCharts.com

The following graph shows the change in both categories of sales during this 16-year period. At the far right, in the most recent quarter you can see the spike higher in online sales, jumping +44.5% compared to the same period a year earlier while department store sales fell -16.6% during the same period.

E-Commerce versus department stores total sales

Source: www.YCharts.com

The impact of these trends on investors has been wildly significant creating winners such as Amazon.com (AMZN) while many bricks-and-mortar retailers have faced their demise.

Interesting Numbers

-15%

In the most recent month sales at bars and restaurants increased by +4.6% compared to the prior month as people continue to engage in more pre-pandemic behavior. The bars and restaurant sector has been among the hardest hit by COVID-19 with today’s sales level about -15% below where it was the same time last year.

$66.4 billion

Snowflake (SNOW) became one of the hottest Initial Public Offerings (IPOs) in history this week with its stock surging on the opening day giving it a total value of $66.4 billion. Showflake is a data cloud platform company, storing and analyzing data, with just $402 million in revenue during the past 12 months and losses of -$342 million. This stock’s success illustrates the thirst for high growth companies by today’s investors!

This Week’s Performance Highlights

Market Indexes week ending September 18, 2020

Source: www.YCharts.com

Stocks were mixed in the U.S. with small stocks rallying sharply and large stocks lagging as the biggest tech names continued to face selling pressure and falling stock prices. Helping the returns of well-diversified portfolios was strength in international markets as well as a big rally in the price of oil on news of supplies declining.

  • U.S. large stocks, as measured by the S&P 500, closed the week down -0.6% but are holding onto a year-to-date gain of +4.2%. The tech-heavy NASDAQ Composite faired the same losing -0.6%. As the accompanying table shows, big tech stocks have suffered double-digit declines from recent highs including a -20.4% drop in Apple’s (AAPL) price in less than 3 weeks while the S&P 500 is off just -5.9% during the same time. In spite of the tech selloff, all of these stocks are still holding onto very nice gains for the year.

    Big tech selloff

    Source: www.YCharts.com

  • Energy stocks, the worst performing sector for the year with a loss of -42.0%, were the best performing sector this week gaining +3.0%. A couple of the biggest winners were Occidental Petroleum (OXY) and Diamondback Energy (FANG) up +14.1% and +14.0% respectively but still down for the year by -71.7% and -63.6%.
  • The big action was in small U.S. stocks this week posting a gain of +2.8%. Of the roughly 2,000 stocks in the Russell 2000 Index, the small stocks index, there are always extreme winners and losers such as Cassava Sciences (SAVA) and NextDecade (NEXT) up +203% and +141% respectively. A more familiar name to many and considered a small U.S. stocks, Eastman Kodak (KODK), jumped +89% on a report that an internal investigation shows it did not break any laws earlier this year when it granted stock options to its CEO.
  • International stocks were all higher with developed markets gaining an average of +0.6% though performance was mixed among the regions with Japan up +1.2% and the Eurozone was off -0.3%. Emerging markets posted better gains up +1.3% and are almost back to breakeven for the year. A couple of the better performing emerging markets this week were both South Korea and Taiwan up +2.4% and +2.2% respectively.
  • The less traditional asset classes generally helped well-diversified portfolios this week with Commodities posting one of their bigger gains of the year up +3.0% this week fueled by a jump in the price of oil by more than $3 per barrel to close at $40.97. Gold inched higher once again gaining +0.4% and is up more than +28% for the year.
  • Real estate stocks were overall unchanged for the week in spite of the biggest mall owner, Simon Property Group (SPG), rallying +8.9% on the report of strong retail sales.
  • Bond prices were little changed this week down -0.1%.

Economic Indicators

Retail Sales are at an all-time high surpassing pre-pandemic levels falling another monthly gain in August of +0.6%. Core retail sales, another measure corresponding most closely with consumer spending that excludes such items as auto sales and gasoline, fell -0.1%. Although the month-over-month numbers are slowing, total retail sales are still +2.6% above the same period last year.

Industrial Production increased by +0.4% in August after jumping a revised +3.5% the month before. Of the three components making up industrial production, manufacturing was the only winner up +1.0% while mining and utilities declined by -2.5% and -0.4% respectively. The accompanying graph shows how utility production remained relatively stable through the pandemic while both manufacturing and mining suffered and manufacturing is coming back stronger.

Industrial production components

Source: www.YCharts.com, www.fed.stlouisfed.org

New weekly Jobless Claims inched lower coming in at 860,000 for the week compared to 893,000 the week before. The total number of people receiving benefits though increased by 100,000 to 29.77 million. One concern is that some of the more recent layoffs are more permanent whereas those earlier in the pandemic were hoped to be more temporary.

Consumer Sentiment, a measure of how people feel about the economy, rose to 78.9 from 74.1 the month before. This is certainly trending in the right direction but is far below the February number above 100.

Upcoming Economic Reports

  • Durable Goods Orders
  • Jobless Claims
  • New Home Sales
  • Existing Home Sales

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