WASHINGTON – After a generally positive April, we saw US stocks stumble last Thursday. Subsequently, stocks tanked badly to celebrate May Day 2020, even as the nation’s Commie tribe danced around maypoles festooned in Marxist red. That dismal Friday action on Wall Street marked an unfortunate beginning to the new trading month. Is more market pain ahead this week?
Stocks Stumble. Not with a bang, but a whimper
Something intangible in last week’s trading action bugged this columnist. It reminded me of the concluding lines of T.S. Eliot’s poem, “The Hollow Men”: “This is the way the world ends / Not with a bang but a whimper.” So, did Friday’s dismal dump-athon mark the beginning of another leg down for US stocks?
Maybe not. But Wall Street needs better evidence the US economy will recover sooner rather than later. And, all naysaying in the perpetually negative media aside, the jury’s still out in this issue. In the meantime, we’ll need to get used to watching rallies stall and stocks stumble again and again. Market pain could become a regular feature of summer 2020.
As noted, Friday’s nasty decline was a disappointing end to a massive April recovery move. The major averages have thus far have recovered roughly half the stunning loss that slammed the stock market in March. In the process, the Dow Jones Industrials and S&P 500 both notched their strongest one-month gains since the late 1980s. But they still have a long way to go to get us back to even. It will, unfortunately, be tough to regain the wildly positive action that marked the first two months of 2020.
Big, high-flying stocks take a May Day pounding
Disconcertingly, the biggest negative Friday was the beating sustained by the shares of three hugely important companies. Namely, Apple (trading symbol: AAPL), Exxon Mobil (XOM) and Amazon (AMZN). Speaking of watching stocks stumble, Exxon Mobil’s unusual money-losing quarter was, in many ways, typical of what’s going on in the oil patch. Oil-related companies, both large and small, live a world that’s been forced to stay home for the better part of 4-6 weeks now. With airlines also essentially grounded, and with most American cars parked at home and not moving, there’s simply no need for all that fuel.
As for the other pair of large-cap stocks, Apple and Amazon notched positive Q1 2020 earnings. But investors (as always) wanted more. Plus, Amazon fessed up to an additional short-term issue
That’s why Amazon, in particular, took a huge 7% tumble Friday. That nearly $200 beating in these expensive shares unfolded when Amazon’s Big Kahuna, Jeff Bezos, stated flat out that his priorities right now were to increase safety measures at Amazon’s huge shipping facilities and make massive new investments in improving inventory and delivery systems. That makes sense, since these systems are currently groaning under the weight of a hyperactive Wuhan coronavirus selling environment. But this just added to Wall Street’s May Day market pain.
More Bezos risk-taking ahead?
But Jeff Bezos wants to get his retail empire working like clockwork again. In particular, he wants to avoid disenchantment from valuable Amazon Prime customers who now pay $119 per year (more than a Costco membership) to get free next-day delivery. Which they’re not currently getting.
So to address this, Bezos is making a huge investment in improving all of the above. And whenever Amazon makes another move to conquer the universe, earnings – and Amazon’s shares – take a pounding. So Bezos’ announcement told investors that Amazon could take a big earnings hit in Q2. In times like the present coronavirus mess, investors really hate hearing that kind of news about a company they’ve invested in. Result: They dump mass quantities of shares, as they did on May Day 2020.
It’s remarkable to see this. But investors – led by those ever-impatient high-speed machines – react as quickly as you can hit the RETURN key. Bezos is simply taking a calendar quarter off from earnings to invest in the next phases of his eternal quest for World Domination.
So, after AMZN’s -$187+ per share hammering Friday, a roughly 7.5% loss, that the shares might be a screaming buy again when they conclude the rest of this waterfall decline. If any. When big stocks stumble in order to increase market share, they often create excellent buying opportunities.
Time for portfolio Perestroika?
I dumped the Amazon shares we owned mid-Friday. That way, our portfolios missed at least part of the shares’ decline while we still booked a substantial profit anyway. No point in losing it all if the stock continues to decline. But I’ll get back in whenever the coast looks clear. Amazon has been a consistent moneymaker for our portfolios.
Personally, I dislike Bezos for his cold-hearted management style and for allowing our local paper, the once-respectable Washington Post (which he personally owns), to transform itself into Pravda-on-the-Potomac. The paper’s partisan hackery these days is shameful, and the quality of journalism is pathetic.
But, as I’ve often advised readers, investing itself is a cold business (or should be). So if someone consistently makes you money, getting too moral about companies you invest in can help you lose money rather than make it. And in truth, that unlovable, massively wealthy Marxist Jeff Bezos makes investors money.
Customers love Amazon’s vast array of product choices and the fast shipping service. And the Amazon Prime cavalcade of cheap videos. (Lest we forget the cloud server farms and the space ships waiting in the wings. What the hell. We own tobacco king Altria (MO), the old Phillip Morris, too. If companies make you money, you want to own them.
Is it time to “Sell in May, then go away”?
Meanwhile, another trading week has just got underway. And it’s the first full week of May. Which gets us to our annual dilemma: grappling with the annual “Sell in May and go away” tradition. The avoidance of generally predictable market pain.
2020 is a tough call. We could be in for more heavy sledding this week. But, as the economy creaks back into action, which it will, and if we all “go away” from stocks right now, will we miss some swell but unaccustomed mid-summer rallying by Mr Market? Could be.
We read the following observation this morning in a note to investors appearing on the website of our brokerage firm. (No available link.)
“‘Stocks are likely to remain under pressure while the country begins to open on a state-by-state basis, and until signs of both virus and economic stability emerge,’ says Schwab Chief Investment Strategist Liz Ann Sonders. ‘Investors may be better served by avoiding trading on each data point and focus on longer-term asset allocation plans.’”
Which to this investor means raise some cash, (which I did with some vigor on Friday to lock in current profits). Then look for some new places to shift those assets. Places that either won’t take a hit in another market downdraft or shares that a negative market bias won’t effect too strongly.
Monday morning: More of the same market pain
Meanwhile, as expected, stocks opened down hard Monday morning as expected. Warren Buffet’s mass sale of all the airline stocks owned by Berkshire Hathaway gutted those shares this morning and gave a sour tone to Wall Street right at Monday’s opening bell. Oh, well…
Some new ideas coming up in the next column. Meanwhile, happy Monday.
– Headline image: Socialists demonstrating in Union Square, N.Y.C. on 1 May 1912.
From glass negative in the Bain Collection, US Library of Congress. Public domain.