The Afternoon Audit
Friday | 6.05.2020

A Big Day For U.S. Stocks

Catch Up Quick

• Non-farm payrolls rose by 2.5M in May dropping the unemployment rate to 13.3%

• Snapchat said it will no longer promote Trump's account on its Discover Page

• Joe Brusuelas (Chief Economist at RSM International) says "the market is broken"

• Trump will prohibit Chinese passenger carriers from flying to the U.S. starting on 6.16.20

• Las Vegas casinos reopened at partial capacity yesterday

• Hedge funds are preparing for a market downturn, growing uneasy about surging prices, but apprehensive about short positions (Financial Times)

My Friday Opinions

• Earnings per share of S&P 500 companies have fallen 28% during the first 5 months of 2020— it isn’t uncommon for the stock market to ignore economic data such as high unemployment rates, but overlooking EPS data is much more questionable, given EPS is how stockholders get paid (in theory)

• The CDC is encouraging people to drive to work alone to minimize the spread of the coronavirus— this could cause an unprecedented rise in traffic and carbon emissions, especially in crowded areas such as LA and NY, where people are also hesitant to use public transportation

• ZoomInfo, a SaaS platform for sales, marketing, and recruiting data, raised $935 million in its IPO— this could be a highly attractive short-term stock pick, as it will likely get a trading boost from confusion with Zoom Video Communications (I am not kidding, this has happened multiple times in the past with Zoom Technologies)

• A huge structural problem closely related to law enforcement brutality is a legal doctrine known as “qualified immunity” which makes it impossible to sue police officers— this instills moral hazard and reduced accountability

Thought of the Day

• One sector that has quietly thrived during the pandemic is retail banking

• This may seem highly unintuitive, given loan repayments and credit statistics face difficulties during sharp economic downturns

• In this case, however, during quarantine, it has been hard to spend money

• The U.S. personal savings rate hit 33% in April— a historic rate

• Big banks hauled in $1.85T of new deposits in 2020 Q1

• Today in the market:

• Citigroup ($C) +5.86%

• JPMorgan ($JPM) +4.50%

• Bank of America ($BAC) +4.97%

The Bottom Line

• Sectors that initially look risky or unattractive but have potential upon deeper analysis can see huge returns and high alpha, given many will sell it off, making buy ins cheaper and upside higher