US stocks should brace for bad news

A growing number of American firms say that they will not reopen some of their factories, threatening employment, the economy and the stockmarket recovery.

Caterpillar excavator © Caterpillar
Firms such as Caterpillar closing factories won’t help get the economy out of its hole© Caterpillar
(Image credit: Caterpillar excavator © Caterpillar)

“Investors have rightly overlooked the dismal economic data released in recent weeks,” says Jon Sindreu in The Wall Street Journal. It’s been impossible to determine how bad this recession is likely to be, since – unlike the global financial crisis of 2007-2009 – it’s entirely due to factors outside the economy. So once the “widespread panic” of the “fastest bear market in history” had run its course, investors have mostly just tried to price in the direct impact of the shutdowns. That’s been bad news for airlines – down 65% in the US this year – but good for technology companies that benefit from the rise in online shopping and remote working.

“Now, though, the news is starting to become more meaningful.” A growing number of firms, such as vehicle manufacturers Caterpillar and Polaris, say that they will not reopen some of their factories. That’s worrying for employment, for the economy and for the stockmarket rally. After all, the start of this crisis was unusual. Bear markets don’t usually kick off with such a rapid drop; instead, we see “a trickle of losses” as deterioration in economic data and corporate profits becomes evident. We may still be at the start of that process. “A drip, drip, drip of bad news isn’t a good prospect for stocks.”

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Explore More
Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.