Wall Street ended a volatile week on a down note as the Covid-19 pandemic kept a grip on market swings.
Oil also had its part to play in market direction, with huge spikes coming from expected production cuts, as did dour employment figures.
But away from the main headlines there were some startling moves for the stock of a French investment bank, some advice on how the auto sector may emerge from the lockdown economy and some data illustrating how consumers are ensuring they can still have a drink or two.
Here are three things that flew under the radar this week.
1. The Singular Affair of Natixis
The volatility caused by Covid-19 has thrown up some head-fakes, but few stranger than the one involving French investment bank and asset manager Natixis (PA:CNAT) over the last couple of weeks.
Investors in the stock have been twitchy ever since last June when it revealed that H20, its 51%-owned asset management arm, had an uncomfortably high exposure to illiquid, unrated bonds.
So, they feared the worst when it announced last month that some of its bond funds had lost over 50% in a few weeks. Morningstar castigated it for “repeated failures” of risk management. Natixis stock lost two-thirds of its value in the first two weeks of March.
Then the weirdness started.
Natixis was suddenly sucked into the basket of stocks tracked by at least one European dividend-based ETF, taking the place of real estate company Unibail-Rodamco (AS:URW) when it suspended its payout and disqualified itself from the fund’s benchmark index. Forced buying by passive investors then exaggerated an upward correction, driving the stock up over 100% over the next 10 days.
It was too good to last. Last weekend, European banking regulators recommended that the banks they supervise suspend their dividends to ensure their cash buffers are enough to weather the coming crisis. After a brief struggle with its conscience, Natixis acquiesced – promptly forcing the ETF-driven buyers to ditch it again. After a resounding 19% drop in Friday, the stock had fallen 47% in total this week, making it the worst performer of all European banks.
Efficient markets – gotta love ‘em.
2. Wall Street Looks to China for Auto Playbook
With the Covid-19 pandemic in the U.S. set for its darkest days yet in the coming weeks, many are worried about the road ahead for the auto sector. But some on Wall Street have turned to China for clues and see a recovery on the horizon as early as next year.
“China’s recovering auto sales offer a useful playbook for those plotting out the coronavirus cycle in Europe and the U.S.,” Evercore ISI said as first-quarter auto sales plunged in the U.S.
In the first quarter, Ford Motor’s (NYSE:F) sales slumped 12.5%, Fiat Chrysler’s (NYSE:FCAU) 10% and General Motors’ (NYSE:GM) 7%.
U.S. auto sales are on course for a 12% decline this year, followed by a quick rebound expected in 2021, underpinned by global stimulus and pent-up demand, Evercore ISI estimated based on auto sales in China following the outbreak.
China recorded an 80%-to-90% fall to a 3 million to 4 million seasonally adjusted annual rate (SAAR), a measure used in the automobile industry to account for car sales, in February following the lockdown. It then saw a climb in March to 11 million SAAR and is forecasting a further pickup to 15 million SAAR for April.
“We can use this China playbook — a big down then two to three months sequentially up — over a lengthier 4-to-6 month curve in the U.S. and Europe,” Evercore ISI said.
But the recovery in autos, much like in other sectors, hinges on how long the lockdown measures across the U.S. remain in place.
If the stay-at-home measures are lifted, a quick recovery may lie ahead, with the auto industry going back to “something resembling business as usual,” said Thomas King, chief product officer for J.D. Power, according to CNBC.
3. Drinking at Home
It appears there’s only so much streaming people can do to stay occupied during lockdown. Alcohol home sales spiked in March with bars and restaurants closed across the country.
Alcoholic beverage sales jumped 55% for the week ended March 21 from the same period a year ago, according to data from Nielsen.
Spirits were the beverage of choice (perhaps because they deliver more booze for less storage space for those stocking up for the long haul). Spirits sales surged 75% from the year-ago period, wine rose a healthy 66% and beer rose 35%.
Online sales of alcohol rocketed up 234%.
Indicative of customers not used to mixing up a few drinks at home, sales of pre-made cocktails jumped 106%. The top spirits were tequila, up 90% from the same period a year ago, and gin, up 89%. When customers chose beer, 24 and 30 packs were the big sellers.
But Nielsen Vice President Danelle Kosmal said the period in question may be the peak as people bought big to hunker down and data for the week ended March 28 would be a better indicator of demand, the AP reported.
Even with the spike, beverage stocks will continue to be under pressure, as a continued surge in home purchases couldn’t hope to make up for the wholesale trade, with from businesses from local bars to sports stadiums shuttered.
In the past month, Anheuser Busch Inbev (NYSE:BUD) and Constellation Brands (NYSE:STZ) are down around 25%, while Molson Coors Brewing (NYSE:TAP) has fallen 20%.
Diageo (NYSE:DEO) is down around 17% and Brown Forman (NYSE:BFb) is off about 13%.
Boston Beer (NYSE:SAM) is showing resilience, though, down just 2.4%.
Last updated on Sat. April 4, 2020.