The safe haven sector that’s tearing past tech stocks and the S&P 500 this year
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Good morning, everyone. We’re back from a long weekend, and all eyes are on Apple and, in the banking world, HSBC. We delve into that, and more.
Let’s start out east. The Asian markets are down across the board. But one significant segment of the Chinese economy is finally getting back to business. The Macau casinos are set to reopen on Thursday.
Here in Europe, the major bourses are down, as are the U.S. futures. Crude is falling too. Gold and the dollar are up.
The big news overnight came from Apple, which issued a rare sales warning. The culprit? Yep, coronavirus. Elsewhere, shares in HSBC fell 4% in early trading Tuesday as the troubled bank gave more details about its planned job cuts and pressed the pause button on buy-backs.
Meanwhile, the latest coronavirus data shows the outbreak is getting…well, no worse. The global infection tally has topped 73,000, and the death toll hit 1,868. That’s an increase of nearly 500 deaths since this time Friday.
Let’s look further into the numbers.
Bull Sheet today is one-month-old. But an even bigger anniversary happened yesterday—it’s been one month since Chinese authorities came clean about the coronavirus outbreak, setting off the global markets.
In that period, exchanges in Hong Kong (down 5%) and Shanghai (down 3%) are hurting. But the major European and U.S. indexes are in the green, even after today’s weak start.
It hasn’t all been smooth sailing on this side of ground zero. Drill down a bit further, and clear winners and losers emerge.
Care to guess which sector is the biggest loser?
There’s something in this chart that jumped out at me. I’ll get to that in a moment. First, let’s go the lone red line in the S&P 500. Yes, it’s the S&P Energy sector, which is down 9.78% (down 10.2% YTD).
Such a fall is probably to be expected when the global demand for oil tanks, along with the price of crude. But the decline in energy stocks predates 2020. The sector is down 23% over the past three years, and down nearly one-third over the past five years. A slowing global economy and the gradual greening of industry are two mega trends that will continue to weigh on this sector long after the coronavirus has run its course.
What caught my eye is the biggest gainer of the bunch: utilities. As any fund manager will tell you, utilities are a classic safe haven. They pay fat dividends, and so look awfully attractive when uncertainty is high. That’s the textbook answer. There’s something else going on though. With bond yields so low, investors are looking for something—anything—safe that packs a decent return. And that makes utilities doubly attractive.
There’s a third explanation, particularly pronounced in Europe, that could explain the market’s newfound love for utilities. The transition from the burning of fossil fuels to electrification makes even stodgy old companies in the power plant business suddenly exciting again. Without utilities, your Tesla isn’t going anywhere, the thinking goes.
This recent charge in utility stocks will be something to watch.
I’ll see you here tomorrow.
Fracking threat. Cheap gasoline and diesel prices at the pump—you can thank coronavirus for that—belie bad news for the U.S. fracking industry, writes Erik Sherman in Fortune. Oil prices have already sunk to a point where new fracking is barely profitable, if at all. Some experts see parallels with the opposite situation 20 years ago when a massive shock reduced production, sending oil prices soaring over the next decade.
Apple miss. As we mentioned above, Apple doesn’t expect to meet its revenue guidance for the March quarter due to work slowdowns and lower demand caused by the coronavirus outbreak in China. The company said that the iPhone, which generates the bulk of its revenue, is temporarily constrained due to production ramping up more slowly than anticipated. Not only that, but demand for iPhones has dropped because stores in China have been closed or operating with reduced hours, the company said. Apple, which had forecast revenue of $63 billion to $67 billion for its second quarter ending in March, didn’t provide an updated estimate.
Chemical reaction. The first U.S. trial over a herbicide called dicamba has landed Bayer and its German rival BASF with another potentially multi-billion-dollar problem. Jurors in federal court in Missouri awarded $265 million Saturday to a farmer who blamed the herbicide for destroying his peach orchards. The companies now face more than 140 lawsuits over allegations that dicamba wreaked havoc across the Midwestern U.S. when it drifted onto crops that weren’t engineered to resist it. Separately, Bayer is seeking to settle thousands of lawsuits claiming exposure to its Roundup weedkiller causes cancer.
Turn on, tune in, cash out. The likes of psilocybin, ketamine and a handful of other advance psychedelics are emerging from the darkness "as a potential elixir for a murderers’ row of psychiatric afflictions, including OCD and PTSD, opioid addiction, alcoholism, [and] eating disorders," Jeffrey O'Brien vividly details in Fortune. And all that buzz is attracting deep-pocketed financiers aiming for IPOs, not to mention VCs starting psychedelic funds. Do yourself a favor and read this feature. It's a wild ride.