The Afternoon Audit
Wednesday | 5.06.2020

S&P -0.70% | NASDAQ +0.51%

Catch Up Quick

• Uber plans to to lay off 3,700 employees, or about 14% of its workforce

• U.S. private payrolls drop by 20.2 million in April, the worst job loss in the history of the ADP report

• The Trump administration is in "preliminary discussions" to wind down its coronavirus task force, possibly in early June

• Airbnb plans to lay off nearly 1,900 employees, or about 25% of the company

• Norwegian Cruise Line says there is “substantial doubt” about its ability to continue as a “going concern” as the coronavirus pandemic wreaks havoc on the industry

My Wednesday Opinions

• Remote work will increase permanently for some industries and verticals, as companies realize cost-savings and employees realize convenience

• The coronavirus pandemic will outlast the duration of the government's spending packages, which instead of acting as financial bridges to a reopened society, may end up being bridges to nowhere

• An Axios-Ipsos poll revealed that over 60% of democrats think the actual number of deaths are higher than the reported number of deaths, while 40% of republicans think the actual is lower than reported— this proves how partisanship has hindered our collective ability to trust institutional sources and agree on science and facts

Are Markets Losing Efficiency?

Earnings Guidance

• As earnings season ensues, companies publicly reveal recent metrics such as sales, profit, and EPS

• Typically, they also provide a short-term future outlook involving both business-specific and macroeconomies factors— this is called guidance

• Recently, a vast majority of companies have not reported their guidance given the global health crises and the bleak future outlook

Determining Stock Prices

• In a highly abbreviated form, the efficient market hypothesis, a piece of finance theory infamous in the investment realm, states that all public sources of information are used by rational investors to trigger buying or selling activity which in turn flows into equity prices

• As the internet began to take over the world, markets become more efficient because information about company fundamentals was widely disseminated and thus quickly used by investors

The Bottom Line

• As companies pull guidance from earnings report, a crucial bit of information about the future of their business disappears, leaving investors uncertain about the future

• Therefore, markets become less efficient and there is a greater chance that stock prices fail to reflect fundamental business performance