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June 2020 Market Review

  • Robert Santarpia

As many states around the country begin to reopen, others close again and uncertainty looms large. While the domestic and global markets waiver in the wake of the Coronavirus, medical industries and the tech world continue to provide new areas for economic growth.

Jobs Trending Upwards in Private Sector

As the COVID-19 pandemic started to pick up steam in March and April, job numbers across all industries plummeted. Some were able to work from home but many other sectors, including the service, hospitality, and manufacturing industries came to a standstill. With June being the first month where states reopened their businesses in a significant way, private-sector job numbers are showing signs of rehiring and a return to normalcy. The ADP employment report shows increases in both small business and franchise employment just shy of 1 million jobs gained. Most of these positions were not created but rather returned to employees after furloughs and firings.

Across the entire private sector, job gains for June are near 2.4 million. As some states continue to reopen more of their businesses, these numbers could continue to rise. Inversely, as some states like Arizona, Texas, and California experience rises in COVID-19 cases and hospitalizations, some parts of the country could begin to shut down again. This might not mean a confident job market in the near future, but at least signs point to some progress as employers and companies search for a path through the new normal.

Why a Facebook Ad Boycott Matters to the Market

According to the New York Times, more than 300 advertisers on Facebook will pause their ad buying on the social media platform starting July 1. The move comes after Facebook's repeated dismissal of calls to censor hate speech and false information, especially regarding the upcoming 2020 election season. Why does this matter to the market? Nearly 98% of Facebook’s $70.7 billion in revenue comes from ad buys. That’s a significant amount of money that will temporarily be lost on one of Silicon Valley’s leading businesses.

Everything from Facebook’s investments into artificial intelligence to smaller pieces of the puzzle like consumer spending could be affected by a vacancy of popular brands on Facebook’s ad platform. Companies like Coca Cola, Unilever, and HP are not necessarily swearing off the platform forever; they are calling for change to hate speech policy. This comes after weeks of unrest in the wake of police brutality against Black Americans, which in turn led to further disruptions like looting and riots. At a time where the market is already sensitive to further agitation, the removal of major spending from the country’s leading companies on the country’s most influential social media platform can cause problems across the tech industry moving forward.

U.S. Manufacturing Hits 14-Month High

Recovery processes led to a huge charge in U.S. manufacturing in June. According to Reuters and the Institute for Supply Management index, manufacturing jumped to a reading of 52.6, up from last month’s 43.1. In regards to recent numbers of the same index, that’s the best reading since April 2019. A huge factor in the report was a return to factories following COVID-19 shutdowns. Now, as some states start to see an increase in patient numbers, the boost might vanish with another form of a shutdown.

There are few analysts expecting a full lockdown like the one of March. That means manufacturing will likely avoid a second total shutdown, but that offers very little certainty. The numbers may be strong now, but ebbs and flows to factories forced to shut down for short periods of time due to positive cases can lead to plenty of room for more trouble. So long as businesses keep up with CDC standards, the health concerns should be kept to a minimum, which is reflected in positive trading trends in this industry.

Uber Pursues Postmates Acquisition for Over $2.5 Billion

Finally, two businesses that have been a force in the gig economy, Uber and Postmates, may soon become one. Uber, the popular taxi-alternative for getting a ride just about anywhere is reported to be in talks with Postmates about a merger. The latter is a service that offers customers to order food, groceries, alcohol, and just about anything for delivery from one of the company’s freelance-style drivers. These reports, according to the Wall Street Journal, show an indication from Uber that their Uber Eats service could soon be getting a huge expansion.

Uber Eats is relatively less utilized than other competitors, but acquiring Postmates could be a huge boost to the company’s food-related services. For just over $2.5 billion, the rumored purchase would be announced sometime in the next week should all go as planned. With COVID-19 leaving many at their homes, services like Postmates provide a method for getting things brought to you, even from places or stores that don’t offer traditional delivery. The move would be the latest in a series of acquisitions and changes to Uber as the delivery service industry changes in a big way.

Fed Becomes No. 3 Holder of World’s Biggest Corporate Bond ETF

The Federal Reserve became one of the top holders in some of the world’s largest bond exchange traded funds less than two months after entering the market. The central bank owns more than 13 million shares of LQD as of June 16, making it the third largest holder according to Bloomberg. The Fed is also the second largest holder of VCSH and the fifth largest holder of VCIT, both Vanguard ETFs.

The Fed began purchasing corporate bond ETFs on May 12 as part of its effort to prop up credit markets. Not surprisingly, the LQD, which received the lion’s share of the Fed’s purchasing has grown to record size and rallied to an all time high this month.

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