Why Is The Market So Strong And Economy So Weak?

The continuing strength of the stock market, even as the coronavirus pandemic batters the U.S. economy, has baffled many investors. The Dow Jones Industrial Index fell some 35% in 20 trading days the first three weeks of March as COVID-19 began spreading rapidly globally, but it has since gained nearly 60% to levels above 28,650. At the same time, the Commerce Department reported the U.S. economy shrank 31.7% in the April-June quarter. Part of our job at Equitas is to research many areas of the market and the economy, analyze the current environment, and to search for the investment opportunities. While there are numerous views and theories, in this KnowRisk Report we explore and expand on why the stock market is so strong, while the economy is so weak. We start with Wharton finance professor Itay Goldstein who has boiled it down into two reasons: the long-term prospective of the stock market, and the unprecedented cash infusion of the Federal Reserve. 

The First Reason

Goldstein says at all points in time “the stock market is meant to be forward-looking,” Indeed stocks have risen during seven of the past 12 recessions going back to World War II. “In general, the stock market is a bit different from the economy, in the sense that what you see right now in the economy is what is going on right now” such as production, employment and so forth, he noted. Even in “normal times,” stock prices and economic output would not move in tandem, according to Goldstein. In fact, we may have situations “where the stock prices may predict something that is going to be different from what we see right now.” The S&P 500, for instance, is driven more by manufacturing, while U.S. gross domestic product, the broadest measure of goods and services

Penn National will nosedive 57% as weak fundamentals overshadow ‘internet meme’ rally, Deutsche Bank says



Getty Images / Cliff Hawkins


© Getty Images / Cliff Hawkins
Getty Images / Cliff Hawkins

  • An influx of retail-investor interest in Penn National Gaming boosted shares too far, too fast, Deutsche Bank said Thursday.
  • The bank’s analysts lifted their price target for Penn National Gaming shares on Thursday to $31 from $22, implying a 57% plunge over the next 12 months.
  • While Penn National’s improvements to operating costs show promise, the stock has transformed “into an internet meme of sorts” without the fundamentals to support its rally, the analysts said.
  • Few states are interested in passing online gambling legislation, and the company’s total addressable market is smaller than bullish investors realize, they added.
  • Watch Penn National trade live here.

Penn National Gaming shares are up more than 800% from their mid-March trough, but Deutsche Bank doesn’t think the rally will hold.

Analysts Carlo Santarelli and Steven Pizzella raised their price target to $31 from $22 on Thursday, implying shares will tumble 57% over the next 12 months from Wednesday’s close. The bank reiterated its “sell” rating for Penn National and cited improved operating costs for the target bump.

The casino and sports-betting company’s surge was fueled by retail investors who turned the stock “into an internet meme of sorts,” the team wrote in a note to clients. Penn National’s partnership with Barstool Sports garnered interest from casual investors earlier in the year, but the recent influx of inexperienced day-traders drove extraordinary momentum.

Barstool founder and day-trading streamer Dave Portnoy frequently backed the stock to his millions of online followers, further fueling the summer frenzy.

Read more: US Investing Championship hopeful Evan Buenger raked in a 131.9% return through August. He shares the distinct spin he’s putting on a classic trading strategy that’s led to his outsized returns

Institutional investors quickly followed the retail crowd

Already Weak, Air Travel Demand Is Fading. And Pent-Up Business Travel Demand Will Be Soft Whenever It Arrives

The global decline in air travel will be worse than previously forecast and a new report on corporations’ plans travel through 2021 shows that the recovery of business travel demand will continue be sluggish even after the anticipated approval of one or more Covid-19 vaccines in, hopefully, the first half of 2021.

The International Air Transport Association, the airline industry’s global trade group, said Tuesday that global passenger traffic this year will be down a whopping two-thirds – or 66% – from 2019. Previously IATA had forecast a traffic decline of 63%.

While the revised view is only 3 percentage points worse than IATA’s previous forecast, the enormous numbers of passenger miles flown globally in a year means that measly 3-point difference amounts to a staggering 220.5 million fewer passenger miles being flown this year than previously expected by IATA. Globally in 2019 the world’s airlines flew about 5.2 trillion passenger miles. One passenger flying one mile equals a passenger mile flown. IATA now expects the world’s airlines to fly only about 1.65 trillion passenger miles, total, in 2020.

“The improvement that we saw in the summer months has more or less stopped,” said IATA Chief Economist Brian Pearce.

Globally, airline traffic in August – typically the peak month for air travel – was down 75.3% from the same month in 2019, when adjusted for both the number of passengers flown and the distances they flew. In July, he said the year-over-year drop was even worse: down 79.5%. He did not provide traffic decline figures for September,