Stocks Rebound on Stimulus, Volatility Continues, US Now #1 in Coronavirus Cases at Over 100K

Published March 30, 2020

The stock price volatility in March continued as the Federal Reserve and Congress implemented more monetary and fiscal stimulus efforts to try to combat the recessionary impact of COVID-19 on the economy. While previous efforts were largely ignored by the stock market, these bigger and bolder efforts finally gave us back to back gains which we hadn’t seen since February. Have we bottomed? We likely need the pace of COVID-19 to slow and it is still accelerating as testing catches up with the number of real cases out there. The US jumped from #6 last week to #1 this week in number of cases with over 100K now on a 445% W/W increase. The number of cases will likely reach between 200 – 250K in a week in the US and the infrastructure is still insufficient in terms of ventilators and personal protective equipment (PPE). The growing number of state by state and country by country lockdowns has stifled demand for many products including TVs, smartphones, automotive monitors, etc. On the other hand, there are reports that PCs and monitors may actually benefit as workers need hardware to work effectively from home.

What efforts were made last week?

First, on Monday the 23rd, the Federal Reserve announced an unlimited expansion of bond purchasing programs to backstop the US economy. This effort ensures that there will be sufficient liquidity for businesses, individuals and local governments to get loans until the economy rebounds. The Fed is spending billions per day with no limit on buying Treasury bonds and mortgage backed securities. Last week, the Fed was expecting to purchase $375B in Treasury Securities and $250B in mortgage securities. The Fed also announced it will buy certain corporate bonds for the first time ever and will soon announce a Main Street Business Lending Program which would help both small and large companies and be on top of any efforts by Congress. The Fed is doing its part to ensure that the recession we now find ourselves in does not become a depression. Unemployment claims filed last week reached 3.28M, easily exceeding the previous record of 695K. Some believe unemployment can reach as high as 30% unless the virus is slowed or the government props up the economy, incentivizing companies to not layoff employees. The Great Depression was arguably about the Fed moving too slowly, so the current Fed is not going to be at fault again.

Economists and financial analysts began publishing data on how bad the situation can get with Goldman Sachs predicting Q2’20 GDP of -24% and Morgan Stanley predicting -30%.

The Senate, then the House and finally the President signed the $2 trillion coronavirus relief bill which provides:

  • One time direct payments to taxpayers scaled based on their income;
  • An additional $600/week in unemployment insurance per unemployed person for 4 months on top of what they normally receive from states and expands eligibility to self-employed people and independent contractors;
  • $350B in loans for small businesses to cover salary, wages and benefits, worth 250% of an employer’s monthly payroll, with a maximum loan of $10M;
  • Include a tax credit for retaining employees, worth up to 50% of wages paid during the crisis, for businesses forced to suspect operations or that have seen gross receipts fall by 50% from the previous year;
  • $25B in grants to airlines, $4B to cargo carriers to be used exclusively to pay wages with another $25B and $4B in loans and loan guarantees;
  • $17B in loans and loan guarantees for unspecified businesses critical to maintaining national security.
  • $117B into hospitals and veteran’s health care;
  • $16B for the strategic national stockpile of pharmaceutical and medical supplies;
  • Require group health plans and insurance providers to cover preventative services related to coronavirus without cost sharing;
  • Delay payroll tax for employers, requiring half of required tax to be paid by the end of 2021 and the other half by the end of 2022;
  • Ban companies that take government loans from buying back stock until a year after the loan is paid back;
  • Ban employees or executives who made at least $425K last year from getting a raise if they receive government loans;
  • Suspend federal student loan payments through September 30thwith no accrual of interest on those loans.

As a result of this crisis, investors have been pouring money into cash with $260B entering money market funds last week, a 3rd straight week of record inflows. On the other side, stock-based funds saw $14B in outflows, taxable bond funds saw $62B in outflows while tax-free municipal bonds saw $14B in outflows, both records for 2 weeks in a row.

So, how did markets do last week? The US large cap index (SPY) rose 11% last week and gained for 3 days in a row as shown below. It was the largest one-week gain since 2009. March’s extreme volatility continued through last week with at least a 1.5% move each day and a 3% or more move in 3 days. So far in March:

  • 15 out of 20 trading days had more than a 3% move;
  • 13 out of 15 trading days had more than a 4% move including 8 in a row which is a record;
  • There have been 11 down days and 9 up days and March is down a total of 14% so far;
  • It took until March 25th for the market to log two positive days in a row.

Daily Changes in March to the US Large Cap Index

In terms of other indexes:

  • Our equipment supplier stock index (ESSI) rose 21% W/W led by the large semi equipment names from Japan. It is still down 22% YTD.
  • Our Panel Supplier Stock Index (PSSI) fell 3% Q/Q and is now down 22% YTD as the large Chinese names performed poorly due to (take your pick) – reduced demand, delayed ramps or falling prices from April.
  • The concentrated semiconductor index (SMH) rose 14% W/W on strong results from Micron and as investors are willing to take more risks helped by the previously mentioned stimulus efforts. The SMH is still down 19% YTD.
  • The big tech XLK index rose 10% W/W and is down just 14% YTD, the best YTD performance of the indexes we cover.
  • The emerging market index (EEM) rose at a slower rate, just 6% W/W and is now down 26% YTD, despite a weaker dollar.

Index Performance

How weak was the $US last week? It fell:

  • 4% against the Dollar Index to 98.3, but is still up 2% YTD;
  • 3% against the Japanese Yen to 108.1 and is down 1% YTD;
  • 3% against the Korean Won to 1221 and is still up 6% YTD;
  • 0.3% against the Taiwan Dollar to 30.21 and is up 1% YTD.

It was flat against the Chinese Yuan at 7.1 and up 2% YTD.

Despite the stimulus efforts, the US and a number of other countries still have a long way to go in fighting COVID-19 which puts the global economy at risk. As shown in the table below:

  • The number of cases worldwide grew by 115%, the # of deaths rose 137% and those who recovered grew by 46%. So far, worldwide, 22% have recovered, 5% have died and 73% are still active.
  • There are now 199 countries and territories which have reported COVID-19 cases.
  • The US is now #1 in total cases at 104K, rising from #6 last week. It also has the highest % of active cases, which is likely even higher than shown. 44% of US cases are in New York followed by New Jersey, California, Washington and Michigan. New York, Washington and Louisiana lead in deaths. NY Governor Cuomo indicated peak demand for hospital beds is still likely 3 weeks away with a need to more than double hospital beds and increase ICU beds by 10X.
  • Italy widened its lead in deaths which more than doubled last week to over 9K. Those who recovered in Italy grew more slowly than those who died, but it is said that the # of cases may have peaked in Italy.
  • 9 countries are shown with greater than 100% W/W increases in # of cases with 8 countries showing over 100% increases in deaths.
  • Fortunately, 19 countries showed >100% increases in recoveries.
  • Some countries which were thought to have contained the virus showed sharp increases such as Singapore, Hong Kong and Taiwan and re-instituted lockdown policies.

Changes in Coronavirus Cases, Deaths and Recoveries Over the Past Week

Source: Worldometers, compiled by DSCC.

In terms of how the display industry is being impacted:

  • The lockdown policies around the world are limiting display demand. A detailed summary of the revisions to our unit and revenue forecasts for LCDs and OLEDs and by application is shown in another blog. In summary for 2020:
    • Display area – reduced our 2020 forecast from +4% to -5%;
    • Display Revenues -reduced our forecast from +2% to -7%;
      • LCDs – lowered our outlook from +5% to -17%.
      • OLEDs – lowered out outlook from +23% to +21%;
  • It should be noted that this forecast assumes Apple will launch its new 5G smartphones in September as usual. Last week it was rumored that the coronavirus could push the launch back by a few months. If this is the case, our OLED forecast would come down further.
  • Display fabs in Wuhan are moving increasingly closer to full staffing with the travel restrictions expected to be removed in full from April 8th.
  • DSCC is showing BOE ramping its new G10.5 fab B17 in Wuhan at ~1.7K substrates per month in Q1’20 due to the coronavirus followed by 15K in Q2’20, 37K in Q3’20 and 55K per month in Q4’20. They previously had expected to be at 90K in Q4’20. Equipment installations continue to be delayed by quarantining of Japanese and Korean equipment engineers upon their arrival in China and those same engineers are quarantined upon their return to their home countries.
  • LG Display chartered a flight on March 26ththrough Asiana Airlines to Guangzhou, China to get its key engineers to its new WOLED fab safely. However, they are still expected to be quarantined for 2 weeks first as the Chinese government has required and have other companies have reported. The Korean Ministry of Foreign Affairs and LG Display requested that the Guangzhou government except the LG team from the quarantine, but the request was rejected. There are reportedly more than 100 staff from LGD going on this trip. DSCC expects their new ramp schedule to be 20K/month in Q2’20, 50K/month in Q3’20 and 60K/month in Q4’20 which is well below their previous target.
  • Foxconn issued a statement this week that recruitment goals have been reached ahead of schedule at its plants in China, and it has secured enough workers to meet seasonal demand. Foxconn and Wistron suspended production at its plants in India, including production of iPhones, in compliance with the nationwide lockdown ordered by Prime Minister Narendra Modi.
  • Lenovo will resume 60% of production at its plant in Wuhan, China by the end of March, with full production by mid-April, according to a company statement. Lenovo’s production at its India plant has been suspended until April 15th, in compliance with that country’s lockdown.
  • Samsung Electronics announced on March 25th that it will cease production at its TV plant in Hungary; with the prior closure of a plant in Slovakia, all Samsung TV production in Europe is on hold.
  • After opening its 42 stores in China, Apple is moving towards re-opening its 458 retail stores outside of China on a staggered basis as conditions warrant in each community.
  • In the US, our contacts have indicated that cellular carriers have been constrained in supply of some Apple iPhones. Now that those carriers have been shutting down stores, those constraints are going away. Some carriers are seeing consistent demand from online business, but others less so. Large declines are expected in iPhone sales Q1’20.
  • Japanese Prime Minister Shinzo Abe agreed with the International Olympic Committee’s recommendation to postpone the Summer Olympics by around year.
  • Computex Taipei was delayed and shortened from June 2nd – 6th to September 28th– 30th.
  • The Digital Signage Expo, originally scheduled for April in Las Vegas, has been rescheduled for September 15-18 in the same city.
  • UNESCO has reported that almost 1.4 billion students worldwide are being kept from schools and universities due to the pandemic. As of March 23, 138 countries had ordered national school closures while many more had localized closures.
  • While many US retail businesses are closed or greatly reduced, selected businesses are hiring large numbers of workers. Walmart, Amazon, and CVS Health are among a dozen companies looking to hire 500,000 workers in coming weeks, according to the Wall St. Journal. These businesses face increased demand and a need to account for sick leave for workers. Separately, grocery-delivery company Instacart plans to add 300,000 workers over the next three months, as its orders have more than doubled since the outbreak.

In line with many of the general stock markets, it was a good week for panel maker stocks, at least for those outside of China. Three of the four Chinese panel makers lost ground for the week, but prices for all others increased. Japan Display was the best performer for the second week in a row after losing nearly half its value two weeks ago, as the company completed its refinancing through a share offering to Ichigo Trust, which now is the largest and majority shareholder of the company. A curious fact about this week’s stock prices is that the companies with the biggest YTD losses (JDI, LGD) performed the best for the week, and the companies with the best YTD performance (least losses, BOE and Tianma) performed the worst. Our PSSI, weighted to the larger market value of Chinese stocks, decreased by 2.7% for the week and is now down 22% for the year, and every panel maker is down year-to-date.

Among individual panel stocks:

  • JDI was up 22.6% for the week on the successful refinancing, but JDI remains down 37% since the beginning of the year.
  • LG Display was up 9.5% for the week and is now down 37% for the year, despite a price target cut from Korea Investment & Securities, which reduced LGD’s target price from KRW 21,000 to KRW 15,000. The stock closed on Monday at KRW 11,250.
  • HannStar was up 4.4% for the week after reporting a small net loss in its Q4 earnings report (see separate article). HannStar is now down 35% for the year.
  • Visionox was the only Chinese panel maker up for the week, up 2.1% and Visionox is now down 27% year to date.
  • AUO increased 1.8% for the week and is now down 33% since the beginning of the year. AUO released its annual report to the US SEC on Friday.
  • Innolux was up 1.7% for the week and is now down 35% for the year.
  • CEC Huadong dropped 2.3% for the week and is now down 20% for the year.
  • Tianma was down 4.8% for the week after reporting a net loss in its Q4 earnings release (see separate article). Tianma is now down 17% for the year.
  • BOE was down 6% for the week, but BOE remains the best-performing panel stock as it is “only” down 15% since the beginning of the year.

Weekly Stock Price Performance by Display Supplier

YTD Stock Price Performance by Display Supplier

Looking at large-cap display equipment stocks, Chinese companies were down while Japanese companies soared. TEL and SCREEN led the way with 33% and 30% gains respectively as investors gained confidence in semiconductor equipment stocks which had been beaten up significantly. TEL was down 33% YTD on 3/20 and is now down just 10% YTD on 3/27. Wuhan Jingce has the best YTD performance with flat results followed by TEL, Nikon and AMAT. SCREEN, ULVAC and SFA have the worst performance YTD, down 36% - 45%.

Large Cap Equipment Company W/W Results

Large Cap Equipment Company YTD Results

Looking at the small cap equipment companies last week, Korean equipment companies Top. Engineering, Viatron, KC Tech and HB Tech had the best performance. They all released their Q4’19 financial results last week as shown in our Quarterly Display Supply Chain Financial Health Report. Of these 4 companies, HB Tech was the only one to enjoy impressive Y/Y growth with Viatron and HB Tech enjoying strong Q/Q growth. Jusung also released their Q4’19 financials last week and their revenues were the lowest since Q3’18 with gross margins the lowest since Q4’13 on weakness in displays after a strong Q3’19.

On a YTD basis, Toptec is up the most so far this year up 4% YTD and is the only display equipment company enjoying YTD growth. It is followed by Philoptics down 18% and SNU down 19%. Invenia is down the most at -49% followed by Jusung at -44%. There are a lot of good values among small cap equipment companies, although the delays in installations from the coronavirus are weakening the sector. As the quarantines are removed in China, their revenues and stock prices should quickly rebound.

Small Cap Equipment Company W/W Results

Small Cap Equipment Company YTD Results

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Written by

Ross Young