Barron’s Weekend Summary: Despite coronavirus-related economic turmoil, the housing market may prove to be more resilient than expected; The pandemic is reshaping the economy in a way that benefits tech companies in a range of sectors
* Cover story: Despite the real threat to our economy from the coronavirus, the housing market could end up being more resilient than many homeowners and would-be buyers expect, because recessions don’t always lead to dropping home prices; Though the housing market is on a “timeout” now, there are reasons to be optimistic long-term: The supply of houses available is the tightest it has been in decades, and most owners had a healthy amount of home equity heading into the pandemic, though the next several months and even years will be challenging for buyers and sellers.
* Tech Trader: At least 20 million Americans have lost their jobs amid the worst economic decline since the Great Depression and yet the Nasdaq is near its February all-time high—underscoring how Covid-19 is reshaping the economy in lasting ways that will benefit broad swaths of the tech sector, including giants such as AAPL, AMZN, FB, GOOGL, and MSFT, as well as smaller companies in a range of businesses.
* Trader: As long as currently held assumptions about the path of Covid-19 and the economy hold true, the market should keep working its way higher, and Big Tech looks less economically sensitive than energy and industrial firms that were market giants long ago; While holding cash can be reassuring for households needing to meet short-term obligations, it can be detrimental to investment portfolios when it isn’t earning anything—and with interest rates now near zero, savers are again being penalized.
* Interview: Ivy Zelman of Zelman Associates, one of the most influential independent research firms in the country, follows macro trends in the housing and mortgage markets and covers a wide range of housing-related stocks; She is upbeat now on home builders and mortgage insurers, but bearish on several multifamily real estate investment trusts.
* Profile: Thomas Atteberry and Abhijeet Patwardhan, co-managers of FPA New Income, stress-test every security they’re analyzing to see if it can withstand the most punishing conditions; Lately, they’ve adjusted the portfolio as bond markets sold off and yields picked up.
* Features: 1) The economic reality is much worse than recent jobs numbers suggest, in part because of the unusual nature of this recession—one that’s been induced within the span of roughly a month to stem a public health crisis—but also because of how government statisticians calculate the employment figures; 2) A new report from the University of California’s California Policy Lab suggests that many of the recent job losses are temporary and could quickly reverse—at least under the right conditions—making the current situation different from the slow recoveries of the 1990s, early 2000s, and the 2010s; 3) The US has lost nearly 40% of its banks since the financial crisis, largely due to industry consolidation, yet many industry observers see the consolidation trend resuming, and even accelerating, once the nation’s health crisis passes and economic activity begins to normalize, with banks trading at a relative discount to peers on price-to-tangible book value the most likely to be snapped up; 4) Positive on BYD: The company faces the same near-term hurdles as most gambling companies, but Boyd is helped by a geographically diversified portfolio of 29 properties across 10 states and sufficient financial flexibility, and appears to be a good pick for investors willing to be patient; 5) Many real estate stocks have lost a third of their value as the coronavirus transforms America into a work-at-home, digitally-focused country, but better times could be ahead—many stocks in the sector, mostly real estate investment trusts, have rallied lately, a sign that investors are anticipating a revival as states ease up on stay-at-home orders; 6) Proponents of the “financial independence, retire early” movement—who pursue their goals by saving aggressively and creating large nest eggs at a young age—seem largely unfazed by the coronavirus crisis, and the movement continues to draw new adherents looking to be self-sufficient.
* European Trader: The coronavirus pandemic has separated weak European companies from those able to seize an opportunity to thrive—the survivors in a range of sectors will be firms with strong balance sheets, the ability to use technology to build scale, and those that benefit from government spending.
* Emerging Markets: Positive on Tencent Holdings, JD, Meituan Dianping: Chinese tech stocks have rallied over the past six weeks, and may push even higher despite resurgent US-China political tension, while BABA—which has lagged behind to due logistical snafus because of China’s coronavirus lockdown—could also present a buying opportunity.
* Commodities: Meat-processing plant closures in the US weakened livestock demand and led to concerns over a possible shortage of beef and pork, creating price volatility for cattle and hog futures; Fundamentals are “bleak” in the short term for higher futures, says Daniel Hussey of Zaner Financial Services, but “surprisingly good” longer term.
* Streetwise: Nielsen says sales growth in boxed wine has accelerated from five percent before the pandemic to 44 percent during it—sales of 1.75-liter bottles of liquor have rocketed from two percent to 47 percent growth as liquor and wine drinkers increase spending and the quantities they’re consuming.