UK car sales weakest since 1971; US service sector strengthens – as it happened

UK car sales weakest since 1971; US service sector strengthens - as it happened

Car registrations during 2020 have been the worst in almost 50 years, despite a pick-up in June After-effects of coronavirus outbreak could affect one in 20 students and cause steep job cuts Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an Skip the coronavirus drama. What are America’s leading companies up to?

Time for a recap.

Stock market have posted fresh gains today, as a raft of mildly upbeat data cheered investors.

China’s stock market led the charge, jumping over 5% to a fresh five-year high. It was lifted by signs that factories and services companies returned to growth, and by growing speculation that Beijing could launch fresh stimulus measures.

This has fed through to Europe and the US too. Britain’s FTSE 100 is up 1.7% today at 6264, a gain of 107 points. America’s Nasdaq has hit yet another record high.

Housebuilders are among the top risers in London, after the latest Construction PMI report showed the sector expanded last month.

Barratt, one of Britain’s largest home-builders, reported that its order book was looking decent. Housebuilders were also boosted by reports that the UK government could launch a six-month stamp duty holiday to encourage house purchases.

The US economy has picked up too, according to the latest survey of American service sector companies. The ISM reported the best growth figures since Covid-19 hit the US, thanks to rising business activity and new orders.

The @ISM non-manufacturing index surged to 57.1 in June, from 45.4 in May.

Business Activity 66.0 (+25pt)
New Orders 61.6 (+19.7pt)
Employment 43.1 (+11.3pt)
Supplier Deliveries 57
Backlogs 51.9

> Businesses surprised by speed of rebound, but cautious about phase 2 of recovery

UK car sales also recovered last month, and were only a third lower than a year ago. But so far this year, auto registrations have halved, with many people embracing working-from-home rather than commuting.

That trend has hit sandwich firm Pret A Manger, who are closing 30 stores and cutting perhaps 1,000 staff.

Here’s where the axe may fall:

Fast fashion firm Boohoo – formally a stock market darling – has plunged by almost 25% following revelations that its Leicester clothing suppliers have not obeyed the coronavirus lockdown, and have been paying staff less than the minimum wage. The firm has vowed to root out such suppliers.

We’ll be back tomorrow. Cheers. GW

Back in the UK, the number of female CEOs running our largest listed companies has risen back to, er, six.

Yes, six, out of 100 FTSE-100 firms.

That’s because Aviva have appointed a new boss, as my colleague Rupert Neate explains:

Insurance firm Aviva has appointed Amanda Blanc as its chief executive, replacing Maurice Tulloch, who has stepped down to support his family cope with a serious health crisis.

Blanc, who has held several senior positions in the insurance industry, indicated she would slim down Aviva’s portfolio of businesses to rebuild the company into “the leader in our industry again”.

Her appointment means there are six female chief executives heading FTSE 100 companies. The others are: Emma Walmsley at the pharmaceutical company GlakoSmithKline; Liv Garfield at the water company Severn Trent; Carolyn McCall at the broadcaster ITV; Alison Brittain at the hospitality company Whitbread; and Alison Rose at Royal Bank of Scotland.

Economists are hailing the pick-up in growth across America’s services company last month, following the April lockdown.

The ISM reported that the NMI for non-manufacturing rose 11.7 points to 57.1, a gain well above expectations and follows two months of contraction. The gain was led by strong #business activity/#production, new #orders, #exports, and inventories. A good report for the #economy.

A chart-form look at the June Non-Manufacturing @ISM® Report On Business® (clockwise, from top left) NMI® and Business Activity, New Orders and Employment indexes indicates the degree and speed of the turnaround from April’s historic lows. #ISMROB #economy

However, there is a caveat. This pick-up in growth is absolutely consistent with the rise in Covid-19 cases in many US states recently. Unlocking the economy means more visit to shops and bars, and thus more chance to spread the virus.

Just in: Two economic surveys have both shown that America’s economy is recovering from the shock of the Covid-19 pandemic.

The Institute of Supply Management’s monthly healthcheck shows that US services companies returned to growth last month. Purchasing managers across the country reported that new business improved, helping to boost activity.

This lifted the ISM’s service sector PMI index up to 57.1 for June, up from May’s 45.4. That’s the best reading since the crisis began in February, and back over the 50-point mark showing whether the sector expanded or contracted.

That’s much stronger than expected, suggesting the service sector expanded robustly last month as shops, restaurants, bars and other consumer-focused companies reopened.

US ISM non-manufacturing (June): 57.1 vs 50.1 expected, prior 45.4

US ISM Non-Manufacturing PMI At Highest Since Feb 2020
– Non-Manufacturing Business Activity Index At Highest Since Feb 2011

Of course, this only means the economy improved month-on-month, from a pretty low ebb…..

The ISM non-mfg PMI being at its highest since February does not indicate output being back at the levels it was in February.

IHS Markit’s rival PMI survey has also just been released, and shows that the contraction in US business activity contraction slowed in June. Companies reported a rise in export business, helping new orders to expand for the first time this year.

Markit says:

The loosening of lockdown measures also led to the broad stabilization of new orders, while export sales rose for the first time so far in 2020. As a result, the rate of job shedding softened markedly as some firms highlighted the hiring of new employees to help fulfil new business inflows. Excess capacity also eased as backlogs fell only fractionally. Although business confidence was historically muted, it signalled renewed optimism as hopes of stronger demand drove sentiment higher.

This lifted its US services PMI to 47.9 for June, up from the rather grim 37.5 recorded in May. That suggests a small contraction, so slightly less upbeat than the ISM survey.

Boom! The tech-focused Nasdaq index has hit another record high, as the New York stock exchange opens for business.

Hopes of an economic upturn are boosting shares, following encouraging data from China, Europe and the US in recent days. That’s helping traders to look through the latest surge in Covid-19 cases, now rising by one million per week.

The surge in Chinese stocks overnight, which has lifted Europe, has now fed through to the US:

  • Dow Jones industrial average: up 363 points or 1.4% at 26,191
  • S&P 500: up 42 points or 1.36% at 3,172
  • Nasdaq: up 154 points or 1.5% at 10,361
  • Dow surges 370 points, Nasdaq touches a record intraday high as U.S. stock market follows China’s rally on Monday

    Mixing accountancy with auditing has never seemed a very bright idea.

    There’s an inevitable conflict of interest if you’re selling lucrative business consultancy services to a client, while your colleague is vigorously interrogating their annual accounts. Even if everyone scrupulously sticks to the rules, all the time, it still doesn’t look when things turn sour.

    And today, the UK financial regulator has told the Big Four accountancy firms to fully separate their auditing divisions from the rest of their operations by June 2024. It’s part of a broader effort to overhaul the accounting profession following several corporate collapses.

    Global stock markets are showing strong gains today, as signs of economic recovery let investors blot out the rising Covid-19 death toll.

    European stocks are all sharply higher, with the FTSE 100 up 104 points or 1.7%.

    That follows the surge in share prices in China, which jumped by 5.6% today to a new five-year high.

    Joshua Mahony, senior market analyst at IG, explains:

    “European markets have taken their lead from China, with the world’s second largest economy seeing a huge uptick in market speculation leading to a whopping 5.6% rise in the CSI 300.

    “With China the first into this crisis, where their economy goes, many will hope to follow. Chinese experiences are no different to those elsewhere around the world, with easy monetary policies and government spending on the rise.

    “Thus, despite the significant fears over how the virus will continue to hold back the global economic picture, investors will hope the worldwide stimulus efforts could bring a huge recovery in time.

    “The role of stimulus is likely to remain integral to this recovery, with a slower than expected rebound in German factory orders highlighting that the economic recovery is unlikely to mimic the sharp market momentum seen in recent months.

    Housebuilders are still leading the rally in London, thanks to Barratt Developments reporting a jump in orders this morning.

    Rolls-Royce are also surging, up 7%, after reports that it could close its final salary pension scheme early to shore up its finances.

    The jet engine maker has also confirmed rumours that it is “reviewing potential options” to strengthen its balance sheet, having seen revenues slump this year. Those rumours knocked its shares by 10% on Friday, making it a turbulent time for investors.

    As well as closing stores, Pret a Manger is also planning to shake up its operations in an attempt to plug its falling sales.

    My colleague Rebecca Smithers explains:

    In recent weeks, Pret has launched a retail coffee offering with Amazon, broadened its delivery and digital footprint in partnership with Deliveroo, Just Eat and Uber Eats, and launched click and collect trials in five shops in London. Sales from these channels have grown 480% year on year and represent more than 8% of total UK sales.

    Pret will launch further innovations over the coming weeks, including an evening delivery menu to be trialled from seven shops and a new hub kitchen in north London.

    Demand for vans remained weak in June, despite the pick-up in the construction sector.

    Sales of UK new light commercial vehicle (LCV) market declined -24.8% year-on-year in June, as lockdown measures eased and businesses began to return to work, according to the latest figures released today by the Society of Motor Manufacturers and Traders.

    That’s an improvement on May, when registrations tumbled by -74.1%. But it means that total va sales in 2020 are down 44% compared to 2019, with just 108,876 new vans joining the roads.

    That’s 87,500 less than a year ago, broadly matching the slump in car sales (see earlier).

    This drop in new vehicles sounds like good news for the environment (although it could mean that some older, more polluting vans are still trundling around).

    UK sandwich chain Pret a Manger has announced plans to shut 30 stores, and to cut jobs across the business, after suffering a slump in sales.

    Pret reported that takings are down 74% year-on-year, after being extremely badly hit by the pandemic. Understandably, Pret’s stores in city centres and transport links across the UK have been particularly hurt by the lockdown.

    Many office workers who would normally nip to Pret for a lunchtime BLT or a crayfish and avocado salad, or grab a coffee and croissant at the railway station or underground, are now fending for themselves at home.

    The FT reports that more than 1,000 jobs cut be at risk:

    Pano Christou, Pret’s chief executive, said on Monday that the chain faced a “significant restructuring of the business” and that job losses “could be 1,000 plus” unless it reached sales of 50 per cent to 60 per cent of pre-coronavirus levels by September.

    Sales are roughly 25 per cent of normal levels and the company is burning through more than £20m in cash a month. Pret has been acutely affected by the coronavirus crisis as its business model — to cater convenient food to commuters and office workers — has come under siege from the mass change in working patterns.

    Most of its target consumers are working from home with few expecting to return to city centre offices before the end of the summer.

    NEW: Pret announces job losses “could be 1,000 plus” as it confirms closure of 30 stores

    In another boost, retail spending across the eurozone have jumped at their fastest pace ever.

    Retail sales surged by 17.8% in May compared with the previous month, data firm Eurostat reports.

    That’s the best result on record, following 10.6% falls in March and a 12.1% tumble in April.

    It confirms that European shoppers did return to the high street once lockdown measures were lifted. However, sales volumes in May were still 5% lower than the previous year, showing that the economy is still badly bruised.

    The 17.8% m/m surge in eurozone retail sales in May is certainly encouraging. It is also broad-based leaving it 7% below January. But as I noted for Germany, on-going strength in food & online sales suggests a lackluster recovery in restaurants & high street sales at this stage.

    Economists are encouraged to hear that UK construction has returned to growth last month.

    Tim Moore, economics director at IHS Markit, says there was a ‘steep rebound’ in building output last month.

    House building led the way with the fastest rise in activity for nearly five years, while commercial and civil engineering also joined in the recovery from the low point seen in April.

    As the first major part of the UK economy to begin a phased return to work, the strong rebound in construction activity provides hope to other sectors that have suffered through the lockdown period.

    Duncan Brock, group director at the Chartered Institute of Procurement & Supply, says builders have been scrambling to get hold of parts and raw materials.

    “As business confidence improved to its largest extent since February, companies were buying up materials and laying the groundwork for a stronger summer’s end. This resulted in the highest input price inflation since the start of the year as supply chains creaked under the strain of increased shortages.

    Building performance is dependent on other sectors recovering at a similar pace, and as businesses were opening up, some fell short of their usual delivery capacity.

    Noble Francis, economics director of the Construction Products Association, agrees that June was a ‘considerable improvement’, from the low base in April and May.

    He also points out that some building sites are still shuttered.

    The rise in infrastructure activity in June was slower than in housing & commercial but more infrastructure activity had continued throughout lockdown as social distancing & other safety measures are often easier to enact on large infrastructure sites. #ukconstruction

    Max Jones, relationship director in Lloyds Bank Commercial Banking’s infrastructure and construction team, says the government’s infrastructure spending plans could lift the sector.

    “Firms remain mindful of how cyclical construction is, generally tracking the ups and downs of the wider economy. The Prime Minister’s speech last week will have pleased those hoping for a recovery driven by schemes spread evenly across the country, rather than focused on a few megaprojects. Yet shovels need to hit the ground to ameliorate short-term liquidity challenges that are prevalent in an industry which continues to operate on wafer-thin margins.

    “There’s undoubtedly still plenty of road left to travel in construction’s recovery, with many now facing the challenge of taking the stabilisers off as they move away from using the Chancellor’s furlough scheme and going it solo once again. The pledges to invest in motorways, schools and trainlines have provided a shot in the arm to a beleaguered sector, but until they boost activity levels, Britain’s builders will remain cautious.”

    Newsflash: Britain’s building sector has started growing again, after activity slumped during the lockdown.

    Data firm Markit has just reported that activity in the sector rose at the fastest rate in almost two years in June.

    Markit’s construction PMI, which measures activity in the sector, rebounded to 55.3 in June, up from 28.9 in May. Any reading over 50 shows growth, so this shows that some of the business lost during the lockdown is now being clawed back.

    Housebuilders led the recovery, with the biggest jump in activity since 2015. This will bolster optimism that home construction is picking up (reminder, Barratt reported a jump in orders this morning, alongside a drop in sales).

    Markit says:

    Higher levels of business activity were overwhelmingly linked to the reopening of the UK construction supply chain following stoppages and business closures during the early stages of the coronavirus disease 2019 (COVID-19) pandemic.

    Residential building was the best-performing area of construction activity in June. Around 46% of survey respondents noted an increase in housing activity, while only 27% experienced a reduction. The latest expansion of residential construction work was the steepest for just under five years.

    However, firms did also report problems accessing materials (speak to a builder, and they’ll tell you that plaster is in very short supply). And they also kept cutting jobs, suggesting uncertainty about the outlook.

    More to follow….

    This chart shows how car sales in June were much weaker than usual (although still much better than the 20.4k sold in May)

    Elon Musk’s Tesla Model 3 had been the best-selling car in the UK in April and May.

    While traditional showrooms were closed, Tesla pressed on with delivering models that had been on order for months, or possibly years.

    But in June, the Model 3 slipped to 9th — with the Vauxhall Corsa and Ford Fiesta back on top.


    Author: Graeme Wearden

    UK universities facing possible financial disaster, research says

    UK universities facing possible financial disaster, research says

    After-effects of coronavirus outbreak could affect one in 20 students and cause steep job cuts

    As many as 13 British universities could face financial disaster from the after-effects of the coronavirus outbreak, affecting one in 20 students in the UK and causing steep job cuts, according to research.

    Estimates by the Institute for Fiscal Studies found that the UK higher education sector will endure losses ranging between £3bn to £19bn in 2020-21, with the exact size of the losses dependent on how many students decide not to enrol.

    The IFS calculates that pension obligations and investment losses caused by the economic downturn will also have a major impact on university balance sheets over the next four years.

    Universities will be unable to recoup their losses through cost-cutting unless they also make “significant” numbers of staff redundant, the research found.

    Although the IFS did not name the 13 institutions most at risk, the authors suggest that those with the lowest reserves and smallest investments will need a government bailout or debt restructuring to survive.

    “It is not the institutions with the largest Covid-related losses that are at the greatest risk of insolvency. Rather it is those, generally less prestigious, institutions that entered the crisis in a weak financial position and with little in the way of net assets, which are at greatest risk,” the IFS stated.

    Universities with the largest predicted losses under the IFS’s analysis were “highly profitable” before the crisis and have substantial financial reserves, allowing them to sustain significant drops in income.

    “If the government wanted to avoid university insolvencies, by far the cheapest option would be a targeted bailout, which may cost just £140m,” said the IFS’s Elaine Drayton, one of the report’s authors.

    “Rescuing failing institutions may weaken incentives for others to manage their finances prudently in the future. General increases in research funding avoid this problem but are unlikely to help the institutions that are most at risk, as few of them are research-active.”

    Jo Grady, the general secretary of the University and College Union, said the IFS report was further bad news for students and staff in higher education.

    “Universities are already seeking to sack staff, with casual staff and those from black and minority ethnic backgrounds suffering the most. We need a comprehensive support package that protects jobs, preserves our academic capacity and guarantees all universities’ survival,” Grady said.

    The IFS’s central projection calculates an £11bn loss in income for the sector, with a 50% fall in new international students. It also assumes that enrolments from the EU will halve in 2020-21 “due to travel restrictions and disruption to administrative services … as well as health concerns,” despite it being the final year that students within the EU are treated the same as UK applicants.

    The institute expects enrolments from the UK to be 10% lower as “some students may choose not to attend what is likely to be a significantly different university experience or may stay away for health concerns”.

    The downturn in financial markets will also likely hurt finances. The IFS estimates that universities will need to increase their pension provisions by 25%, while investment income is expected to fall by 10%.

    The IFS also offers two more scenarios, including a “pessimistic” scenario with £19bn in lost income, thanks to much larger falls in student enrolments and a more severe market downturn widening pension fund deficits and reduced investment income. The “optimistic” scenario of a £3bn loss includes a 25% fall in international and EU enrolments and no additional pension provisions required.


    Author: Richard Adams

    Hedge Funds Aren’t Crazy About Diamond Hill Investment Group, Inc. (DHIL) Anymore

    Hedge Funds Aren’t Crazy About Diamond Hill Investment Group, Inc. (DHIL) Anymore

    Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Diamond Hill Investment Group, Inc. (NASDAQ:DHIL) based on that data and determine whether they were really smart about the stock.

    Diamond Hill Investment Group, Inc. (NASDAQ:DHIL) investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. DHIL was in 11 hedge funds’ portfolios at the end of March. There were 14 hedge funds in our database with DHIL holdings at the end of the previous quarter. Our calculations also showed that DHIL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

    To most shareholders, hedge funds are perceived as slow, outdated financial tools of the past. While there are over 8000 funds with their doors open at present, We choose to focus on the bigwigs of this group, around 850 funds. These investment experts have their hands on the lion’s share of the hedge fund industry’s total capital, and by monitoring their matchless investments, Insider Monkey has revealed a number of investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

    Cliff Asness of AQR Capital Management


    At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the key hedge fund action surrounding Diamond Hill Investment Group, Inc. (NASDAQ:DHIL).

    At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the fourth quarter of 2019. On the other hand, there were a total of 9 hedge funds with a bullish position in DHIL a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

    According to Insider Monkey’s hedge fund database, Renaissance Technologies has the most valuable position in Diamond Hill Investment Group, Inc. (NASDAQ:DHIL), worth close to $13.2 million, comprising less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Chuck Royce of Royce & Associates, with a $3.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish include Cliff Asness’s AQR Capital Management, Ali Motamed’s Invenomic Capital Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Osmium Partners allocated the biggest weight to Diamond Hill Investment Group, Inc. (NASDAQ:DHIL), around 1.44% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, earmarking 1.16 percent of its 13F equity portfolio to DHIL.

    Because Diamond Hill Investment Group, Inc. (NASDAQ:DHIL) has faced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there exists a select few funds that decided to sell off their entire stakes last quarter. Intriguingly, Matthew Hulsizer’s PEAK6 Capital Management cut the biggest investment of all the hedgies followed by Insider Monkey, totaling an estimated $2.5 million in stock. Israel Englander’s fund, Millennium Management, also dropped its stock, about $0.6 million worth. These moves are important to note, as total hedge fund interest was cut by 3 funds last quarter.

    Let’s now take a look at hedge fund activity in other stocks similar to Diamond Hill Investment Group, Inc. (NASDAQ:DHIL). We will take a look at Dynavax Technologies Corporation (NASDAQ:DVAX), Ituran Location and Control Ltd. (NASDAQ:ITRN), Gamco Investors Inc. (NYSE:GBL), and Sprague Resources LP (NYSE:SRLP). All of these stocks’ market caps are similar to DHIL’s market cap.

    [table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DVAX,8,19065,-5 ITRN,10,44551,0 GBL,9,4523,0 SRLP,4,18879,1 Average,7.75,21755,-1 [/table]

    View table here if you experience formatting issues.

    As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $25 million in DHIL’s case. Ituran Location and Control Ltd. (NASDAQ:ITRN) is the most popular stock in this table. On the other hand Sprague Resources LP (NYSE:SRLP) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Diamond Hill Investment Group, Inc. (NASDAQ:DHIL) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on DHIL as the stock returned 26% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

    Get real-time email alerts: Follow Diamond Hill Investment Group Inc (NASDAQ:DHIL)

    Disclosure: None. This article was originally published at Insider Monkey.

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    Author: Asma UL Husna

    Here Comes The Stock Market News We All Crave

    Here Comes The Stock Market News We All Crave

    Diverse people share a common interest: Investing

    At 6:45 AM ET, the appetizer: The written financial report for the second quarter through June 30

    At 8:30 AM ET, the main course: The conference call presentation and fulsome explanation of those results and how they evolved

    Following, the dessert: Analysts and management will explore the insights and expectations of what comes next, along with how the bank is positioning itself. During this course, CEO Jamie Dimon will provide key commentary about the prospects, the risks, the dynamics and the milestones.

    Once the conference call is completed, the Federal Reserve, Wall Street professionals and investors (among others) will ponder the takeaways. Likely, this will mean a partial reduction in uncertainties – particularly about where things could be headed, how long the adverse conditions might last and how best to prepare for what could be coming.

    Obviously, JPMorgan is not immune to the adverse condition s most every business must contend with. Analysts are perhaps the most challenged, saddled with the task of forecasting earnings with limited company guidance. The result is a wide spread of individual analysts’ earnings estimates.

    Even now, with the second quarter already sewn up, the numbers are kept secret. Analysts, like everyone else except JPMorgan’s executives and selected staff, remain in the dark about the company’s results. Therefore, until the July 14 announcements, the wide range of estimates will remain, with the single “consensus” number being the analyst estimate for the quarter.

    This secrecy is a standard and regulated practice. Its success is exhibited by the last five quarters’ results showing large “surprise” differences between the estimated and actual numbers:

    The actual results:


  • 1st quarter   $2.32 estimate, $2.65 actual +14.2% surprise
  • 2nd quarter   $2.50 estimate, $2.82 actual,  +12.8% surprise
  • 3rd quarter   $2.44 estimate, $2.68 actual,  +9.8% surprise
  • 4th quarter   $2.32 estimate, $2.57 actual, +10.8% surprise
  • 2020

  • 1st quarter   $1.70 estimate, $0.78 actual, (54.1)% surprise
  • The forecast results (source:

    Not included in those previous comparisons is the other source of uncertainty – the range of individual analyst forecasts. As shown below, the breadth makes the current estimates of little use. (Note especially the 2020 year forecast of $5.09. It comes from nine forecasts ranging from 20 cents to 6-1/2 dollars.)


  • 2nd quarter   8 analyst estimate = $1.33, range = $(0.17) to $2.04
  • 3rd quarter   6 analyst estimate = $1.33, range = $(0.33) to $1.77
  • 4th quarter  3 analyst estimate = $1.08, range = $(0.09) to $2.09
  • Year  9 analyst estimate = $5.09, range = $0.20 to $6.50
  • 2021

  • Year  9 analyst estimate = $8.64, range = $7.42 to $10.25
  • Put all these numbers together and we get a slew of valuations. With the stock priced at $92.66 (Thursday, July 2 close), here are the price/earnings ratios (P/E) and earnings yields (E/P) based on the various earnings estimates:

  • 2019 EPS of $10.72 – 8.6x (11.6%)
  • TTM (trailing 12 months) through 1st quarter 2020 EPS of $8.85 – 10.5x (9.6%)
  • 2020 EPS estimate of $5.09 – 18.2x (5.5%) [Using the $0.20 – $6.50 range produces a P/E (E/P) range of 463x (0.2%) – 14.3x (7.0%)]
  • 2021 EPS estimate of $8.64 – 10.7x (9.3%)
  • At this point, it’s impossible to answer that question for JPMorgan and for most stocks based on highly uncertain earnings estimates. Yes, looking out to 2021 shows desirable annual estimates and reasonably normal-looking ranges. However, 2021 is too far from the sizeable unknowns we face currently. What evolves this year could significantly affect those 2021 estimates.

    So, that brings us back to the nearby earnings season. Expect to see both weak earnings reports from many companies and positive achievements made over the past three months in terms of survival, operational and opportunistic strategies. Those achievements could be the source of positive “surprise” in this earnings season, regardless of the earnings. Moreover, they might allow us to separate good value from not so good.

    JPMorgan Chase leads off, and that is propitious. The largest U.S. bank is in the middle of the action, offering and managing services for a broad array of clients and customers. Its combined focus on competitive success and risk control rests on realistic strategies and expectations, not fads, favoritism or fluff.

    Therefore, paraphrasing the old EF Hutton line, “When JPMorgan Chase (and Jamie Dimon) speaks,” we should listen.

    Note: If you haven’t read the previous JPMorgan Chase earnings report transcript, now is a good time to do so. In it, Jamie Dimon stresses the many uncertainties that existed at that time (about three weeks into the U.S. shutdown and in the middle of the government’s stimulus planning). Those unknowns prevented the company from developing foresight (AKA guidance).

    “I’ll start by saying commercial real estate, eventually, it will be loan by loan and name by name too. So, if you have reason to believe that a loan is bad, you’re going to write it down and put a reserve against it, something like that. This is such a dramatic change of events. So, there are no models that have done – dealt with GDP down 40%, unemployment growing this rapidly. And that’s one part.

    “There are also no models that have ever dealt with a government, which is doing a PPP program which might be $350 billion, it might be $550 billion. Unemployment, it looks like 30%, 40% of people going on unemployment book higher income than before they went on unemployment. So, what does that mean for credit cards and something like that? Or that the government is just going to make direct payments to people. So, this is all in the works right now.

    “The company is in very good shape. We can serve our clients, and we’re going to give you more detail on this, but it’s happening as we speak. And I think people are making too much of a mistake trying to model it. When we get to the end of the second quarter, we’ll know exactly what happened in the second quarter. We know – you’ve got to respect the credit card delinquencies, and charges will go up though we’ve seen very little of it so far. But, in the second quarter, you’ll see more of it. And then we’ll also know if there’s a fourth round of government stimulus. We’ll know a whole bunch of stuff, and we’ll report that out. We’ll hope for the best, which is you have that recovery, and plan for the worst so you can handle it.”


    Author: John S. Tobey

    UK car sales weakest since 1971; US service sector strengthens - as it happened

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