Hopes that a pandemic peak may not be far away and that governments are at least thinking of exit-strategies from damaging shutdowns are the positives to cling to ahead of a long Easter weekend — one that could keep the grim headlines coming.
“The difference between now and the start of the pandemic is that we can at least see the end. We can see that we have flattened the curve, and we can reasonably project when the pandemic will be brought under control,” Brad McMillan, chief investment officer for Commonwealth Financial Network, told clients. Granted, zero infections may still be weeks away.
Our call of the day looks at the outlook for dividends, suspended or cut by many companies as they brace for coronavirus fallout. It comes from Bank of America Merrill Lynch, which sees big-cap S&P 500
in better shape to maintain dividends than in 2008/09, when investors saw a 24% peak-to-trough decline in those payouts.
“During the financial crisis, S&P 500 EPS fell 50% and more than 80 companies cut their dividends, with the biggest cuts in financials (which contributed a quarter of index dividends),” says a team of strategists led by Savita Subramanian.
Fast forward to the present, and technology and financials are the biggest contributors to index dividends, she says, and the plus is that both have fewer earnings-per-share fluctuations, payouts that are well below average and clean balance sheets.
“Tech has net cash, financials’ leverage ratio has never been lower,” Subramanian says.
So while the futures market is pricing in a 30% cut in S&P 500 dividends for this year, she expects closer to 10% and notes that market “grossly overestimated” in 2008/09 as well.
As for the risks, the bank sees share buybacks remaining under pressure, with financials and discretionary companies so far leading those suspensions. And smaller companies will struggle to maintain dividends, with expectations for 40% to 50% of those to cut versus around 13% of larger companies.
“Small cap leverage ratios are at record highs, debt maturities are half that of large caps, and small caps have the highest percentage of low-quality stocks ever,” says Subramanian.
futures are up, and European stocks
are mixed. Asian markets
had a positive session. Oil prices
are climbing as a key conference between the Organization of the Petroleum Exporting Countries and its allies is due to get under way.
Torsten Sløk, chief economist at Deutsche Bank Securities, recently shared this chart showing who is bearing the brunt of job cuts right now:
The Federal Reserve has set up new loan programs and boosted existing ones that it says will provide $2.3 trillion in support for the economy. Chairman Jerome Powell is also due to speak. Data showed a 6.6 million jobless claim figure, for a total of 15 million workers who have lost their jobs.
Global coronavirus infections reach 1.49 million, the Centers for Disease Control and Prevention has issued new back-to-work guidelines for exposed essential workers, the U.S. Senate may try to add $250 billion to small-business loans, infectious-disease expert Dr. Anthony Fauci says we should give up handshakes — forever, and Kansas Republicans overturned a large-gathering ban.
This coronavirus is “hit and run,” which should make the vaccine hunt easier.
Now for a timely Easter procession:
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