ValuePickr Forum

Great learnings from JP Morgan Analyses of US reopening

I came across a series of great analyses from JP morgan regarding the US economy reopening mentioned below:

  1. The US reopens: reopening, mobility, production and spending
  2. US recovery marches on; why deaths are diverging from sharply rising infections
  3. Overall JP morgan research resources for Coronavirus

The learnings are incredible. It presents a precisely quantifiable extent to which various sectors have been impacted by covid and how much they have recovered.

Reference point (before covid): 19 feb
After-covid point: 8 July
Some key things I learned from 1st pdf:

  1. US new job openings are down from 80 to 30 (treating 23rd march as the 0). This means that businesses are only hiring half the number of new employees as they were in beginning.
  2. Department store sales are down from 90 and have recovered only to 10.
  3. GPS workplace mobility is down from 100 to 30.
  4. Production of steel, coal, electricity is down from a high of 90 (march beginning) to 40.
  5. Rail traffic (Consumer goods) has recovered to pre-covid levels.
  6. In store credit/debit card spends are down 20% (5th july) from beginning of march. More importantly the spending seems to be roughly stagnant between 20 june and 5 july. The trajectory is unclear at this point.
  7. US GDP growth weekly estimates (which were roughly 2% pre-covid) are -7% even now and trending downward (low of -12% in april mid).

From the second pdf i learned that:

  1. Global GDP growth (weekly) is still around -8%. Low of -16% near april beginning. The -8% is roughly stagnant since july beginning (meaning global GDP estimated growth is not improving since june beginning).
  2. Manufacturing has recovered to pre-covid levels in most regions of the world (US, china, Asia, Europe) or is upward trending.
  3. US hospitalizations now catching up to rising infections, but deaths are not. “Two weeks ago, some observers proposed that rising infections were just the result of more young
    people circulating and not getting sick. This appears to be part of what’s going on; a Vanderbilt study found that in Tennessee, COVID is now infecting a younger and less vulnerable population. To be clear, lingering health consequences of COVID can be very debilitating for survivors of all ages: lung scarring, heart damage (cardiomyopathy and myocarditis), neurocognitive problems and abnormal blood clotting. Bottom line: you do not want to get this disease, no matter your age.”
  4. “Some experts have suggested that the spike in infections is just the result of more testing, but that’s not entirely the case either: as shown in graphs, Hotspot infections have been soaring while Hotspot testing rates are not that different from “Other States”.”

Overall while the learnings do not generalize directly to india, they certainly point in some key directions:

  1. Higher ecommerce spends
  2. Much lower mobility
  3. Longer future duration of GDP decline led by travel, hospitality, consumer discretionary spending.

Key actionables imo:

  1. Best time to buy any pharma company is broadly independent of what happens wrt covid since consumer and government spending on pharma will only increase not go down over time.
  2. Better entry points can be expected for retail, FMCG type products, post Q1, Q2, Q3 results.
  3. B2B businesses are largely unimpacted and hence should possibly be bought on dips, specially if Q1 results which show reduced productivity result in price corrections.

Would also suggest/invite other forum members to share their analyses etc.

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Here are some of my thoughts

  1. Discretionary “Card Present” spending is inching up. Which means people are getting out more, putting themselves at a higher risk of infection. But at the same time, it will be 1 of the last areas to recover. So, amusement parks, clubs etc will see a protracted pain.
  2. NYC sees a fall in public transport use. But the “Apple Driving Direction” and “NYC bridge and tunnel congestion” shows more people moving out (presumably in personal vehicles).
  3. The need for contactless payments would accelerate FinTech innovation in USA. A few months back Google had requested US Fed to adopt a model similar to UPI. https://www.bloombergquint.com/business/can-indias-upi-become-a-global-model-google-thinks-so

India, US, Israel, Mexico are still at peak infection rates. Which basically means that things will keep getting worse in these countries. Most European and South East Asian countries have been able to control the spread of the virus. Even Canada is 84% below it’s peak infection rate.

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Where are US consumers spending after Covid hibernation?

I was reading few articles about recent spending trends in US retail stores. Following are interesting observations

  • As vaccinations widen, face masks come off and more people emerge from nationwide pandemic lockdowns, sales of beauty and grooming products are rising.
  • People are grabbing deodorant, teeth whitener and condoms off of store shelves. Also on the rise are sales of perfume, nail polish, and alarm clocks.
  • Hair products are selling more – and razors are becoming more en vogue.
  • Some of the surging sales items are what you’d expect as spring turns into summer - swimsuits, suntan lotion, luggage. But it’s the size of the surge that’s notable. Alarm clock sales doubled last month at Walmart and luggage sales quadrupled.
  • Macy’s and Target also reported strong beauty and apparel sales in their first-quarter reports.

Hotels, Restaurants and Airlines are obvious names as expected beneficiaries of unlock in India and many stocks in these sectors are already in uptrend since past few weeks. Above trends in US suggest a number of additional options to play unlock theme in India.

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I don’t think Indian spending resumes fast. Rural has been hit, so wouldn’t that impact the spending? People who have the option of WFH are paid the same, but what about mid level and low level paying jobs in private sector?, they are hit. Waged people are hit. Online sales may be doing good but I am not so sure of people celebrating marriages and other functions on the same scale as before until some more time so a lot of purchases will not happen.

If there will be a third wave, it means that we are in the middle, and not at the end. So I am not too excited about India opening up. I am prepared for the situation to get better slowly in a year or so, and if it gets better soon, I would be more than happy.

Look at data before you conclude whether rural India has been hit financially or prospering and Indian spending would bounce back slowly or swiftly. Just check tractor sales, building products’ sales, real estate sales, agri production, agri prices, months long waiting period for cars.
April and May were surely a speed breaker for the economy and also some pockets of economy have been hit badly during covid period.
At the same time, corporate results for Q4FY21 are a good indication of spending capacity and prospects of economy when unlock happens. Despite not a normal situation during this quarter, bounce back was remarkable. I’m on the side of people who believe “Don’t bet against India”. However, future is uncertain and one is free to take calls as per his beliefs and understanding.

My point was more towards spending in general, the way we were. All the broad market indices and the sectoral indices have been rising, India VIX is falling.

But I am not talking about the the profits companies are posting and the gains we investors are reaping, I am talking about the whole Indian consumer spending extending to all sections of the society.

My limited point was that unless people flock to streets and spend the data although scientific does not reflect the complete situation. I am waiting for the sections, the professions, all big and small who have been hit get back on their feet.

CAMS has been rising for a couple of months, but I would not consider that as spending, sitting at home and investing in a mutual fund is not spending to me. When Wonderla, Inox, Dmart and the likes post good numbers, that is the consumer spending for me. I could only imagine where would Nifty be at that time.

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