Stocks Resume Their Drop, Unemployment Claims and COVID-19 Cases Surge
March mercifully ended after producing a global pandemic, a record 6.6M in weekly US initial jobless claims and a large drop in the stock market. By index type, March ranged from down 9% for big cap tech (XLK) with Microsoft and Apple steadier than most to -26% for our Panel Supplier Stock Index (PSSI) with AUO, Innolux and CSOT down at least 30%.
2020 Index Performance by Month
The first week of April produced low to mid-single digit losses, but there were actually some positives. The positives included:
- China’s economy rebounded in March with impressive gains.
- Business confidence jumped from 35.7 to 52;
- Manufacturing PMI rose from 40.3 to 50.1;
- Non-manufacturing PMI rose from 29.6 to 52.3;
- Services PMI rose from 26.5 to 43.
- Oil prices rebounded by 32% with the WTI crude price rising from $21.51 on 3/27 to $28.34 on 4/3 as OPEC and Russia agreed to meet to try and stabilize oil prices after pressure from President Trump. The hope is to reduce oil output by 10% of world supply or 10M barrels per day which is expected to restrain US output as well. Oil hit an 18-year low last week. A meeting for Monday the 6th was delayed to later in the week as they debate who was to blame. Reduced supply and higher oil prices will help the US economy which is being impacted by reduced oil demand and a liquidity crunch which would be worsened by a failing energy sector.
- A number EU countries instituted or increased their stimulus plans including:
- Germany: >€750B;
- France: >€350B
- Italy: >€25B;
- Spain: >€200B
- US economic data remained strong in March:
- ISM non-manufacturing index remained in expansion territory of 52.5;
- ISM manufacturing index was better than expected at 49.1 in March.
But there a lot of negative news:
- The number of COID-19 cases grew by 86% to over 1 million last week and is now at 1.1M. The number of deaths related to COVID-19 grew even faster at 120% to 59K. Unfortunately, the number of recovered cases grew only 73% to 229K. As a result, 5% of cases have led to deaths, 21% are still active and 74% have recovered.
- While the rate of recovery is at 94% in China, it is only at 4% in the US, 16% in Italy and <30% in Spain, Germany and France.
- While the US and UK had >100% increase in cases, none of the other countries in the table below had a triple digit increase. The US now accounts for 25% of all cases, up from 18% last week. 5 US states still have no shelter in place policies.
- Italy, Spain and Germany overtook China last week and France will likely overtake them next week.
- New York reached 103K cases, more than every country besides the rest of the US, Italy and Spain.
- 5 US states still have no shelter in place policies – Arkansas, Iowa, Nebraska, South Dakota and North Dakota.
- After voicing out against US citizens wearing masks, the CDC is now recommending it when you are outside of your home.
COVID-19 Cases, Deaths and Recovery Rates for Select Countries
In regard to the US economy:
- US non-farm payrolls fell by 701K in March as shown in the figure, but that is a reading from the 2ndweek of March. It should get much worse in April.
- Weekly initial claims reached 6.65M for the week ending March 28th, up 3.34M from the previous week. This is the highest number of claims to date.
- Liquidity is a major concern for a number of financial segments such as mortgage REITs which own mortgages of residential and commercial buildings/land and now municipal bonds which could escalate and bring down a lot of the US economy unless additional measures are put in place such as mark to market accounting in the commercial real estate space. Mark to market accounting played a big role in the US economic recovery in 2009 as the economy continued to fall rapidly after TARP and other stimulus efforts.
US Nonfarm Payrolls
Overall last week by index:
- Our equipment supplier index (ESSI) fell the most down 6% W/W and is now down the most YTD at -27% on weakness at chip equipment stocks;
- The semiconductor index (SMH) fell 3% last week and is now down 21% YTD;
- The US large cap index (SPY) fell 2% last week and is now down 23% YTD;
- Our panel supplier index (PSSI) fell 2% last week and is now down 20% YTD;
- The large cap tech index (XLK) fell 2% and is now down 16% YTD;
- The emerging market index fell 1% and is now down 26% YTD;
The $US gained ground last week as worldwide investors flock to the dollar for safety reasons. It rose:
- 2.3% against the Dollar Index to 100.57, and is up 4% YTD;
- 1.5% against the Korean Won to 1239 and is up 7% YTD;
- 0.4% against the Japanese Yen to 108.5 and is flat YTD;
- 0.2% against the Taiwan Dollar to 30.3 and is up 1% YTD;
- Flat against the Chinese Yuan at 7.09 and is up 2% YTD.
In regard to the display industry, Reuters an interesting story with stated:
- No one is talking about manpower or material shortages in China anymore. Now, everyone is looking at whether demand from US and Europe can keep up.
- The story identifies a display supplier, probably Samsung Display, which commented that they had anticipated shipping 70M iPhone displays this year, but is now considering reducing that target by 17% to 58M. The company is planning to reduce its workforce at its Apple-dedicated production lines in Vietnam.
- The article also said that the production ramp-up for its new 5G phones has stalled, but Apple could still launch as scheduled this fall.
- Separately, Apple is expected to launch its new iPhone SE any day now according to 9to5Mac and other sources. It is expected to have a similar design to the iPhone 8 with a 4.7” LCD, a home button, Apple’s latest A13 processor, 3GBs of RAM and priced at $399 with 64GBs of storage. It will be a good test for online iPhone demand and online marketing. Apple has said it plans to open its US stores in phases as conditions improve. The target market is likely current owners of iPhone 8 and earlier designs looking to make an upgrade. I say iPhone 8 as the SE will be $50 cheaper and have a faster processor and the iPhone 8 will likely be longer be available.
It was a mixed week for panel maker stocks, with several winners in Taiwan but most of the China panel makers down for the week. This week we add CSOT to our PSSI index; CSOT’s panel business forms most of the revenue for TCL Technology Group, traded on the Shenzhen Exchange. By adding CSOT our PSSI becomes even more heavily weighted to Chinese panel makers, with 81% of the index composed of the Chinese players, and the panel makers from Taiwan, Korea, and Japan combined only 19%.
The Taiwan exchange was closed on Thursday and Friday of the week for their national holiday, and the three Taiwan panel makers were the best performers for the week, jumping on the news early in the week that Samsung would exit the LCD panel business. Most of the panel makers were down for the week, though, and our PSSI dropped by 2.2% for the week. Note that the YTD PSSI figures are recalibrated to include CSOT, which is the best performing stock for the year. Our reformulated PSSI is now down 20% for the year.
Among individual panel stocks:
- HannStar was up 6.9% for the week with a big jump on Wednesday, the last trading day in Taiwan. HannStar is now down 30% for the year.
- Innolux also jumped on Wednesday to end up 5.6% for the week and is now down 32% for the year.
- AUO increased 2.8% for the week and is now down 31% since the beginning of the year.
- CEC Huadong was the lone China stock to gain value, up 0.6% for the week, and is now down 19% for the year.
- CSOT was down 1.9% for the week, but CSOT is the best performing stock in the industry, down only 3% since the beginning of the year.
- Tianma was down 2.6% for the week and is now down 19% for the year.
- BOE was down 3.2% for the week, and no longer is the best-performing stock now that CSOT is included. BOE is now down 17% since the beginning of the year.
- LG Display did not get much help from Samsung’s announcement, and was down 3.6% for the week and is now down 39% for the year. KTB Investment & Securities cut LGD target price from KRW 20,000 to KRW 13,000. The stock closed on Monday at KRW 10,650.
- Visionox dropped 5.4% for the week and is now down 31% year to date.
Weekly Stock Price Performance by Display Supplier
YTD Stock Price Performance by Display Supplier
Looking at large-cap display equipment stocks, they were mostly down with only Han’s Laser up. The semiconductor focused players were down significantly with AMAT down 6%, TEL down 9% and SCREEN down 12%. YTD, Wuhan Jingce leads the pack with flat results and the others down between 18% and 52%. We would expect to see them snap back once COVID-19 is under control.
Large Cap Equipment Company W/W Results
Large Cap Equipment Company YTD Results
Looking at the small cap equipment companies last week, there was much stronger performance with 12 companies showing W/W growth. Most of the Korean equipment suppliers have posted their Q4’19 results and analysts have published commentary on Q1’20 and 2020 forecasts leading to more confidence in these companies. The Japan suppliers were the laggards though down 14% and 18% respectively. On a YTD basis, Toptec is the best performer after a tough 2019. No other supplier is positive with the remaining suppliers down between 15% and 54%.