U.S. Sectors: Equities NDR Ned Davis Research April 17: Retailing is early-cycle because it is most often the consumer who leads us into a recession and the consumer who leads us out. We think that will be the case this recession, as well. As soon as shelter-in-place restrictions end, we expect consumer spending to pick up or at least become less bad. Improved spending should be the start of the emergence from recession....

If you went overweight S&P Retailing at the start of every recession and closed out the trade at the end of every recession, you would have an average annualized relative return of 12.3%. Since 1954, Retailing has only underperformed during the 1960-1961 recession. Retailing had some of its best relative performance during the two recessions with the biggest declines in payrolls (1957, 2007)...

Even though Amazon.com [ticker: AMZN] is the primary reason S&P 500 Retailing has outperformed by 1,800 basis points, year-to-date, we are encouraged by Retailing sub-industry performance. Only two of nine sub-industries, Department Stores and Computer & Electronics Retail, have made lower relative-strength lows since March 23. Since April 2, equal-weighted S&P 500 Retailing has outperformed the equal-weighted S&P 500 by over 800 basis points.

--Pat Tschosik

Equity Research RBC Capital Markets April 17: Funding continues to pour into biotech, with the first quarter of 2020 just setting a fresh record for biopharma venture funding in the U.S., highlighting an unprecedented level of innovation and expectations for sustained value creation. Though we could see some reprioritization among early-stage investments with the crisis, with modalities such as cell and gene therapy, antisense oligonucleotides, and RNA inter-ference technologies breaking full steam into the commercial spotlight, we do not foresee any major changes to the innovative environment.

We are witnessing an unprecedented level of cooperation and speed in this pandemic from basic science to even manufacturing as 70+ biotechs rapidly shift focus toward the common goal of developing a treatment and vaccine. Again and again, we have heard from management and doctors the unprecedented level of communication and access available at all levels. Partnerships are being created at record speeds to immediately join the huntsometimes even with deal-term negotiations ongoing. It took our community roughly three months from viral genetic-sequence selection to the first human study for vaccine developmenta record milestone nearly 17 months ahead of the vaccine-development timeline for SARS (2003) and, most recently, several weeks ahead of Zika virus (2016) development.

--Brian Abrahams, Gregory Renza, Gilbert Kinsey, Yinglu Zhang

BTIG Quick View BTIG April 16: The economic aspect of the virus is centered on Main Streetsmall businesses and their employees devastated by the sudden shutdown, in contrast to 2007-09s Great Financial Crisis, driven by imbalances from Wall Street and the broader financial industry. Nowhere is this more apparent than in measuring the relationship of the small-cap Russell 2000 volatility index, RVX, to the S&P 500s VIX; the spread closed today at 13.82, RVX over VIX, an all-time high in small-cap relative riskiness. Yet when this spread reaches the top decile (>8.25), stocks tend already to be in a distressed state, and while the near-term forward return profile is mixed, stocks are higher 12 months forward 91% of the time, with Russell 2000 outperformance the rule. These findings are consistent with our work, which shows that the bear-market laggards become the new bull-market leaders.

--Julian Emanuel, Michael Chu

Cyclical Outlook Pimco April 15: The economic loss [in China] is unprecedented: In nine weeks of lockdown, industrial production and services contracted about 10 to 15 percentage points from their pre-pandemic levels, and the unemployment rate could rise to 8%-9% from 5%. The first quarter of 2020 will mark the recession trough in China, in our view, with gross domestic product estimated to fall 10 percentage points below its pre-Covid level. [China reported Friday that first-quarter GDP contracted by 6.8%.] For comparison, even during the global financial crisis, Chinas GDP didnt contract.

Fiscal stimulus to date has increased to 16% of GDP, consisting of a 5% budget deficit, 6% in special government-bond financing investments, and the rest in liquidity/credit supports. Although the fiscal impulse could add four to five percentage points to GDP, the multiplier effects are weak for both corporate and household spending. We expect the Peoples Bank of China to cut policy rates by 30 to 50 basis points and keep liquidity ample, while efforts to maintain stability in the yuan will be continued.

Economic activity will likely follow a U shape over the course of 2020. The global recession will hit exports primarily in the second and third quarters of 2020, domestic demand is still hampered by quarantine curbs, and stimulus transmission is weak amid spreading bankruptcies and job losses. We forecast GDP growth in 2020 will be in a broad -4% to +2% range, the first severe economic recession in China since 1976. The economy likely will not recover to the fourth-quarter 2019 level until the first quarter of 2021.

--Isaac Meng, Stephen Chang

Rates Strategy MUFG Securities April 10: We remain deeply concerned over risks our models glean for a double-dip economic recession, beginning over the time period from 2H-2022 through year-end 2023. Our models forecast for a double-dip U.S. recession remains a complete outlier in comparison to the market consensus estimates, Blue Chip surveys, and official central banks and governmental projections.

Notwithstanding such a controversial intermediate-term outlook, should our models macro-economic forecasts for the years 2020 through 2023 prove accurate, then our interest-rate models spy risk that official monetary policy in the U.S. (and likely elsewhere) remains remarkably accommodative:

The federal funds policy target rate likely may remain at ZIRP [zero interest-rate policy] from 2020 through 2023.

The Federal Reserves Q.E. Treasury purchase program likely may be expanded by an additional $1.50 trillion over the near-term, followed by another expansion of near $2.00 trillion over the intermediate-term.

The Federal Reserves other non-conventional policies likely may be extended and expanded, as well, over the near and intermediate terms.

In turn, it would not surprise us that the shape, slope and level of the U.S. Treasury yield curve might resemble that of Japanese government bonds from a few years ago. For example: a 2-year Treasury Note yield of near 0.075%; a 5-year Treasury Note yield of near 0.25%, a 10-year Treasury Note yield of near 0.54%, and a 30-year Treasury Bond yield of near 1.77%.

--John D. Herrmann

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Retail Stocks Are Outperforming. Amazon.com Isnt the Only Reason Why. - Barron's

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