18 May 2020

1) The federal government has warned that the financial sector faces significant vulnerabilities because of the coronavirus pandemic. Both businesses and households are struggling with fragile finances and will be for the foreseeable future. So far, the banking system has withstood the initial downturn, but there are significant risk if the virus crisis proves to be lengthy and/or more sever than hoped for. The financial stress will continue to build if the crisis persists from households and businesses being deprived of wages and revenues. No sectors would be immune from the risk they face from default on debt, being forced to sell off assets, bankruptcy or having value of assets dwindled. Forceful early interventions have been effective in resolving liquidity stresses. There are fears that what might start out as a cash crunch could spiral into something worse, that few if any parts of the economy are safe.

2) The retail industry has been devastated by the coronavirus crisis with April sales diving down 16.4% (Manufacturing is also down by 13.7%) with major retailers such as J.C. Penny, J Crew and Neiman Marcus filing for bankruptcy recently. However, discount retail chains such as Dollar General and Aldi seem to be thriving as consumers cut back on discretionary spending while continuing to spend on food and household essentials. The Dollar style stores are gaining because of their low prices and close proximity to customers, with people buying things they have run out of between their larger routine shopping trips. In recent years, the Dollar style stores have significantly increased their number of stores thereby enabling them to capture more retail sales from the traditional retailers.

3) Some are predicting that the pandemic has permanently changed the auto industry, with some automakers made stronger while others are left too weak to survive. The pressure from the electric automobiles will become stronger with fewer conventional automakers able to make the transition. There are fears that people have discovered they need to travel much less, that they can get a surprisingly amount done from home. This translates into lower demand for automobiles. Demand for new cars was expected to be low before the pandemic, now things are expected to get very brutal for survival of some automakers.

4) Stock market closings for – 15 MAY 20:

Dow 23,685.42 up 60.08
Nasdaq 9,014.56 up 70.84
S&P 500 2,863.70 up 11.20

10 Year Yield: up at 0.64%

Oil: up at $29.78

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