US epicenter & Dividends

The US is becoming the epicenter of the Covid-19 outbreak. Trump has been downplaying the virus in the beginning and currently has to come back on that. He is becoming more and more unbelievable with the minute. Slowly he is risking his re-election. His impulsiveness can become very costly. An example is him saying last week that with the Eastern weekend all shops should reopen again. How can he say that when the outbreak of Covid-19 in the US is in the early or middle phases and can still take months to be solved??. He should not try to make promises and he should take the disease more seriously. He also made a joke of himself a couple of weeks back saying that Wall Street would be thrilled with the FED cutting rates, after which the market tanked over 5%. In the past he came away with all his impulsive speeches as the economy was doing well and unemployment was very low. He always did measure his success with the success of the economy. He can do that now again, but then he has to admit that he failed. He won’t do that.

No dividends in 2020

As expected, companies are having a rough 2020. Lots of companies will not make profit and should not pay dividends this year. Companies are being helped a bit by pension funds and large institutions asking them to skip the dividend. This makes it easier for all of them to skip it. Normally it is a big deal for a company to disappoint the shareholders, but now the shareholders will understand it. Nearly all banks will suspend their dividends and share buybacks and I also expect a lot of other companies that are hit by Covid-19 and are paying significant (read: over 4-5% dividend) to skip the dividend this year. Also, the ECB has asked banks to skip the dividend till at least the 1st of October of this year, to strengthen the balance sheet in these difficult times.

US Jobs Report

Interesting to watch this week is the job report from the US. The report will be published on Friday and will show how many jobs were lost in April. The expectation is 300k jobs have been lost in March, but the big declines still have to come in April onwards. Also, there are expectations that the unemployment will rise from 3.5% before the crisis towards double digits during this year! These are important possible developments for the stock market. But the most important for the current week is to see if the US, and primarily NYC, get the disease somewhat under control. If not, more severe measures need to be taken and the stock market has significant room on the downside. High volatility is expected to remain and it will be another exciting week!

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