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Hopes that a pandemic peak may not be far away and that governments are at least thinking of exit-strategies from damaging shutdowns are the positives to cling to ahead of a long Easter weekend — one that could keep the grim headlines coming.
“The difference between now and the start of the pandemic is that we can at least see the end. We can see that we have flattened the curve, and we can reasonably project when the pandemic will be brought under control,” Brad McMillan, chief investment officer for Commonwealth Financial Network, told clients. Granted, zero infections may still be weeks away.
Our call of the day looks at the outlook for dividends, suspended or cut by many companies as they brace for coronavirus fallout. It comes from Bank of America Merrill Lynch, which sees big-cap S&P 500 SPX, +3.40% in better shape to maintain dividends than in 2008/09, when investors saw a 24% peak-to-trough decline in those payouts.
“During the financial crisis, S&P 500 EPS fell 50% and more than 80 companies cut their dividends, with the biggest cuts in financials (which contributed a quarter of index dividends),” says a team of strategists led by Savita Subramanian.
Fast forward to the present, and technology and financials are the biggest contributors to index dividends, she says, and the plus is that both have fewer earnings-per-share fluctuations, payouts that are well below average and clean balance sheets.
“Tech has net cash, financials’ leverage ratio has never been lower,” Subramanian says.
So while the futures market is pricing in a 30% cut in S&P 500 dividends for this year, she expects closer to 10% and notes that market “grossly overestimated” in 2008/09 as well.
As for the risks, the bank sees share buybacks remaining under pressure, with financials and discretionary companies so far leading those suspensions. And smaller companies will struggle to maintain dividends, with expectations for 40% to 50% of those to cut versus around 13% of larger companies.
“Small cap leverage ratios are at record highs, debt maturities are half that of large caps, and small caps have the highest percentage of low-quality stocks ever,” says Subramanian.
The market
Ahead of what could be more awful jobless claims, Dow YM00, -0.26%, S&P ES00, -0.49% and Nasdaq-100 NQ00, -0.45% futures are dipping, and European stocks SXXP, +0.46% are mixed. Asian markets ADOW, +0.89% had a positive session. Oil prices CL00, +4.02% are climbing as a key conference between the Organization of the Petroleum Exporting Countries and its allies is due to get under way.
The chart
Torsten Sløk, chief economist at Deutsche Bank Securities, recently shared this chart showing who is bearing the brunt of job cuts right now:
The buzz
Federal Reserve Chairman Jerome Powell will speak early on Thursday, while we’ll also get producer price data, consumer sentiment and wholesale inventory data, outside of unemployment claims.
Global coronavirus infections reach 1.49 million, the Centers for Disease Control and Prevention has issued new back-to-work guidelines for exposed essential workers, the U.S. Senate may try to add $250 billion to small-business loans, infectious-disease expert Dr. Anthony Fauci says we should give up handshakes — forever, and Kansas Republicans overturned a large-gathering ban.
Californian fast-food workers from McDonald’s MCD, +1.08%, Burger King, Yum Brands YUM, +5.63% Taco Bell and elsewhere will strike on Thursday for protection on the job.
Costco COST, +0.77% shares could get a boost after the retailer’s sales surged on pandemic stockpiling.
Random reads
This coronavirus is “hit and run,” which should make the vaccine hunt easier.
Now for a timely Easter procession:
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