Stocks Rally as Virus Case Growth Slows, Fed Provides More Help

Published April 13, 2020

Stocks rallied last week with our indexes rising 2% - 14% as shown below led by our equipment supplier index (ESSI) with our panel supplier index (PSSI) up the least due to under-performance by the large Chinese players. On a YTD basis, these indexes are now down as little as 7% and as much as 21%.

Last Week’s Index Performance

Weekly/YTD Index Performance

Why did they really? Markets interpreted the slowdown in # of cases and # of deaths from COVID-19 as good news. Last weekend, April 4th and 5th, there was a meaningful drop in cases as shown below. Deaths grew significantly, but the markets interpret deaths as a lagging indicator. The slowdown in cases caused the White House to begin talking about re-opening the economy again. The White House also revised the # of deaths expected from 100-200K to ~60K citing a University of Washington Study. While not the beginning of the end, we may be nearing the end of the beginning to quote Churchill. To really re-open the economy, we are still going to need much more widespread testing, antibody tests which are already being used in China, Germany and Finland and contact tracing which Apple and Google are reportedly making progress. The US government is even considering issuing certificates of immunity for people who show evidence of antibodies in their blood to enable them to get back to work faster. Antibodies are expected to last at least a year.

Daily COVID-19 Related Cases and Deaths

Source: Worldometers

If we look at our global chart by country, we see that:

  • The # of cases grew 55% last week vs. 86% the prior week.
  • The # of deaths grew 74% vs. 120% the prior week.
  • The # of people that have recovered grew 64% vs. 73% the prior week.
  • 21% of those inflicted have recovered, 5% have died and 74% are still active.

So, there was a real slowdown in cases and deaths, although a slower rate in those that have recovered.

By country:

  • The US widened its lead in # of cases and now accounted for a 30% share vs. a 25% share the week before.
  • NY now accounts for more cases than any other country excluding the US.
  • By April 11th, the US now also leads in # of deaths, overtaking Italy.
  • I (Ross) added 7 more countries to the chart this week, Turkey, Belgium, Switzerland, Netherlands, Canada, Brazil and Portugal. Those countries have accounted for a significant number of cases, but show a wide variation in death rates and recovery rates. Turkey and Brazil grew over 100% in # of cases last week and have very low recovery rates indicating it is going to get a lot worse there before it gets better. On the other hand, Belgium, Switzerland and Canada have very high recovery rates already which hopefully means their growth rates will continue to slow.
  • Japan also saw very high growth in # of cases last week as did Singapore. While Malaysia and Thailand saw declines in recovery numbers indicating that the virus has re-emerged in those previously believed to have recovered.

COVID-19 Cases, Deaths and Recovery Rates for Select Countries

In terms of the display industry, we thought it would be interesting to report what it is like for anyone being quarantined in China upon arriving from another country which many display engineers from Japan, Korea and the US are being forced to do. This also applies to Chinese citizens upon their return from overseas. In both cases, they must stay in a no frills China hotel for 2 weeks and pay $60/day at their own expense, not covered by insurance, until the 14-day period ends.

In regard to the US economy:

  • Weekly jobless claims came in well above consensus at 6.6M with nearly 17M people filing unemployment claims over the past 3 weeks.
  • US unemployment is already believed to be at 13%, the worst since the Great Depression.
  • US consumer confidence plummeted 18 points to 71 according to the University of Michigan’s study, its largest drop ever. It also fell to the lowest level since 2011, potentially forecasting a pullback in spending that could lead to a further cascade of business closings and layoffs.

Weekly Initial Jobless Claims

On April 9th, shortly after the poor jobless claims data was released, the Federal Reserve then announced additional actions to provide up to $2.3 trillion in loans to support local businesses and governments as the U.S. economy continues to work through the disruptions from the novel coronavirus. The Fed’s new program makes use of funds recently authorized by Congress to buy municipal bonds and expand corporate bond-buying programs to include some lower-rated and riskier debt. Doing so will keep credit flowing through the economy, including to companies and state and local governments that might otherwise struggle to get access to it. The federal bank regulatory agencies also announced an interim final rule to encourage lending to small businesses through the Small Business Administration's Paycheck Protection Program (PPP). According to a press release by the Federal Reserve, the actions taken are intended to:

  • Bolster the effectiveness of the Small Business Administration's Paycheck Protection Program (PPP) by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses. The Paycheck Protection Program Liquidity Facility (PPPLF) will extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value;
  • Ensure credit flows to small and mid-sized businesses with the purchase of up to $600 Billion in loans through the Main Street Lending Program. The Department of the Treasury, using funding from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) will provide $75 Billion in equity to the facility;
  • Increase the flow of credit to households and businesses through capital markets, by expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) as well as the Term Asset-Backed Securities Loan Facility (TALF). These three programs will now support up to $850 Billion in credit backed by $85 Billion in credit protection provided by the Treasury; and
  • Help state and local governments manage cash flow stresses caused by the coronavirus pandemic by establishing a Municipal Liquidity Facility that will offer up to $500 Billion in lending to states and municipalities. However, it only applied to cities with more than 1M people and counties with more than 2M people. According to Barron’s, there are only 10 cities and 16 counties that meet the Fed’s criteria. The Treasury will provide $35 billion of credit protection to the Federal Reserve for the Municipal Liquidity Facility using funds appropriated by the CARES Act.

Following the announcement, Wall Street rallied again. In terms of the $US, it was weaker last week. The $US fell:

  • 2.2% against the Korean Won to 1212 and is now up 5% YTD;
  • 1.0% against the Dollar Index to 99.52 and is now up 1% YTD;
  • 0.8% against the CNY and is now up 4% YTD;
  • 0.7% against the Taiwan Dollar to 30.06 and is now flat YTD;
  • 0.1% against the Japanese Yen to 108.4 and is now flat YTD;

In terms of the panel suppliers, it was a generally strong week for panel maker stocks, as the Taiwan stocks all did well both before and after reporting March revenues. The China panel makers were mixed, with smaller gains and some losses. It was a short week for two important exchanges as China’s Shenzhen Exchange was closed on Monday for the Tomb Sweeping holiday, and the US market was closed on Friday for Good Friday. Our PSSI edged up by 0.7% for the week, pulled by strong gains outside of China.

Among individual panel stocks:

  • HannStar was the best performer for the second week in a row, up 5.6% for the week. HannStar reported a strong rebound in March revenues from a February low (see separate story). HannStar is now down 27% for the year.
  • Japan Display was up 5.2 % for the week but is still the worst performer year-to-date, down 40%. JDI is due to release its Q4 earnings which have been delayed by investigation into accounting fraud by a former employee.
  • AUO increased 4.1% for the week, reporting March revenues on Thursday (see separate story), and AUO is now down 26% since the beginning of the year.
  • Innolux increased 3.1% for the week after reporting a 39% M/M increase in revenues for March. Innolux is now down 27% for the year.
  • Tianma was the best performing Chinese stock, up 1.7% for the week and Tianma is now down 17% for the year.
  • CSOT (traded as TCL Technologies) was up 1.1% for the week, and CSOT remains the best performing stock in the industry, down only 2% since the beginning of the year.
  • BOE edged up 0.3% for the week, and BOE remains down 17% since the beginning of the year. BOE has not yet released its Q4 and full year 2019 financial statements.
  • Visionox declined 0.8% for the week and is now down 32% year to date.
  • LG Display lost 1.5% for the week and is now down 33% for the year. Major shareholder LG Electronics announced preliminary Q1 revenues down 1.2% Y/Y with operating income up 21% from a year ago.
  • CEC Huadong was the worst performer of the week, down 2.7%, and is now down 21% for the year.

Weekly Stock Price Performance by Display Supplier and Index

W/W Stock Price Performance by Display Supplier and Index

Looking at large-cap display equipment stocks, all the companies outside of China rallied. Han’s Laser and Wuhan Jingce, which haven’t released Q4’19 financials yet, were flat to down. On the other hand, the other large cap equipment stocks gained at least 12% as semi stocks rallied on expectations for demand to return sooner than previously forecasted as well as memory demand and prices continuing to recover from data centers. On a YTD basis, Wuhan Jingce is still the best performer down just 1%, TEL is now down just 5% with the rest of the large cap players down 19% - 46%.

Large Cap Equipment Company W/W Results

Large Cap Equipment Company YTD Results

Looking at the small cap equipment companies last week, every company enjoyed growth with 12 companies experiencing double-digit growth led by Top Engineering and SNU at 18% and 16% respectively. Toptec is now up 51% YTD with no other company positive. The next closest company is Top Engineering down 5% and SNU down 7%. The other companies are down between 16% and 50%.

Small Cap Equipment Company W/W Results

Small Cap Equipment Company YTD Results

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Written by

Ross Young