US stock market recovery: winners and losers so far

Our head of markets looks at performance stateside and how the pandemic has affected some household names.

We find ourselves at a point where market volatility has subsided slightly, although most of the major indices remain in negative territory for the year to date. We’re already half-way through the second quarter of the year which, in terms of company results, is likely to be even more difficult than the first quarter.

The previously firing Nasdaq is now up 2.9% in the year to date. Technology shares have been among the better performers and have a large weighting in not only the Nasdaq but the S&P 500 – in the Nasdaq, for example, just five stocks (Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL) and Facebook (NASDAQ:FB)) account for 40% of the index.

The Dow Jones is down 14% and the S&P 500 down 8.6% year-to-date.

The oil price has stabilised, but Brent Crude remains down 48% so far in 2020, and could be starting to factor in the very gradual return of demand as some countries begin to ease lockdown restrictions.

Extraordinary monetary support from central bank intervention and fiscal support from governments has cushioned some of the economic blow, but concerns remain.

Markets have been unable to build on recent gains, as investors digested reports of fresh resurgences in coronavirus infections in a number of countries that have relaxed their economic and social restrictions, and amid concern around the speed at which parts of the US were reopening their economies.

Dr Anthony Fauci, director of the US National Institute of Allergy and Infectious Diseases, warned the Senate last week that the country could see additional outbreaks if states lift their restrictions too rapidly.

In any event, economic data remains weak. In the US, for example, unemployment is now over 20 million and the unemployment rate over 16%. In the UK, we are more than likely in the middle of a deep (but hopefully relatively brief) recession. 

With the first-quarter reporting season now behind us, some themes have perhaps unsurprisingly been emerging.

For example, Warren Buffett-run conglomerate Berkshire Hathaway (NYSE:BRK.B) finds its shares down 25% this year.

Its results in early May showed a loss of nearly $50 billion, with most  of Berkshire's 90-plus businesses suffering some kind of hit from the Covid-19 outbreak - revenues slowed considerably in April. 

First-quarter earnings, when stripping out investment gains or losses, Mr Buffett’s preferred view of performance, rose by just under 6% to $5.87 billion. Losses for its railroad, utilities and energy businesses were more than offset by gains in insurance related business.

The share price performance may suggest that investors are growing impatient with the company’s inability to find a home to invest its $137 billion cash mountain, despite repurchasing $5 billion of its own stock in 2019. Mr Buffett turning 90 later this year is also raising questions regarding management succession plans. 

Over at Walt Disney (NYSE:DIS), the shares are also down 25% in the year to date.

The company suspended its dividend as it estimated the overall hit to profits from Covid-19 to be $1.4 billion, with theme park closures accounted for $1 billion of the profit hit, with the balance spread across other operations including film production and cruises.

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More positively, Covid-19 lockdowns helped subscriber numbers for its Disney+ streaming service jump from 26.5 million at year-end to over 54 million in early May.

Apple (NASDAQ:AAPL), meanwhile, has had a rather more positive time, with the shares standing up 5% since the turn of the year.

Its recent update reported sales up under 1% to $58.3 billion, exceeding estimates of around $55 billion, buoyed by both a 22% jump in wearable sales, such as its air pods, and a 16% improvement in Service revenues.

Population lockdowns helped drive a new record in Service sales as consumers turned to products such as Apple music.

For investors, concerns over what might take up the slack from slowing iPhone device sales persists. Uncertainty regarding Covid-19 and its potential to further sour US China relations also needs to be considered.

On the upside, Apple’s cash balance and recent change towards funnelling cash back to shareholders offers a clear positive.