The Afternoon Audit
Wednesday | 5.13.2020

Stocks Fall Sharply

Catch Up Quick

• The DOW falls for a third straight day after top-ranking Fed official issues warning

• Undisclosed White House data show COVID-19 infection rates hitting new highs— cities like Des Moines, Iowa, and Amarillo, Texas, while Charlotte and Kansas City have seen 200% increases over the prior week

• House Democrats released a $3 trillion phase 4 coronavirus relief plan that would provide additional aid to state and local governments, hospitals and other priorities

• The NY Fed's new weekly economic index fell to a level three times worse than the Great Recession

My Wednesday Opinions

• People are incorrectly prioritizing privacy during the pandemic— only a minority of Americans say they are likely to use a contact tracing system, which is a key to letting people get back to their lives

• Tolerance of social distance is dwindling— nearly two thirds of college students say they would participate in in-person classes this Fall, virus or not, according to a new collegereaction.com poll

• Even after a bloody day in U.S equity markets, I think stocks remain overvalued— U.S. companies' price-to-earnings ratios are the highest since the dot-com bubble burst

A Sector To Watch

Predicting Herd Movement

• This is one of my favorite patterns to looks for in the stock market

• Certain group of companies share many different attributes, such as end customers, geography, valuation, cyclicality, among others

• Within these groups, when one reports earnings before the others, it gives highly valuable insights into the earnings of the others before they report themselves

• This makes sense given the group as a whole is affected by very similar systematic factors

• This past summer, I successfully did this within e-commerce and the restaurant sector

Chinese E-Commerce

• For the next week or so, I am definitely going to be watching Chinese e-commerce

• Many Chinese consumers have obviously turned to online shopping in the midst of the global health crisis

• What's even more interesting is that investors have been historically terrible at pricing in the scalability of Chinese markets

The Bottom Line

• With JD.com (JD) reporting earnings on 5.15, Pinduoduo (PDD) on 5.18, and Alibaba (BABA) on 5.20, I think an interesting opportunity could be under way

• Perhaps the market is already pricing this in, given these stocks rose today while almost everything else fell

• I opine the push to online shopping combined with the size / scalability of China leaves a huge upside for Chinese e-commerce in the short-term, but it might be best to wait until JD reports to make any serious moves