Susan Tompor: Can coronavirus comeback story continue for the stock market?

©Detroit Free Press

The New York Stock Exchange (NYSE) stands in lower Manhattan on the first day that traders are allowed back onto the historic floor of the exchange on May 26, 2020 in New York City. - Spencer Platt/Getty Images North America/TNS

As we spot more “curbside pickup” and “open for business” signs along Main Street, investors are wondering what’s next on Wall Street as we edge closer to reopening the U.S. economy after COVID-19 shutdowns.

Our 401(k) plans clearly took a nasty turn down a road packed with potholes in late February through March.

By the day after Memorial Day, though, Wall Street had regained some stability, far more than many expected in the darkest days in late March.

The Dow was only a few points shy of the 25,000 mark — right around where it was on March 10 before the market would tumble to coronavirus-lows two weeks later.

The Dow Jones Industrial Average was up 529.95 points on Tuesday, up 2.17%, to close at 24,995 points.

It was the first day that professional traders returned to the physical floor of the New York Stock Exchange since the practice was halted in the coronavirus fight in late March. New York Gov. Andrew Cuomo, who wore a protective face mask, fittingly rang Tuesday’s opening bell.

Analysts said Tuesday’s boost was fueled by hope surrounding the gradual reopening of the economy, more news on efforts to find a vaccine and more talk of even more stimulus money that might roll out of Washington, D.C.

Hard to imagine but 2020 started out pretty well. The Dow Jones Industrial Average closed at a record 29,551 points on Feb. 12.

Yet the coronavirus crash ultimately drove the Dow to lose a total of 10,959 points or 37% in a little less than six weeks and land at a market close of 18,591 points by March 23.

Stocks, like many families, just tried to hold things together for much of the spring.

We’re looking at a lot of wait-and-see between now and whenever. Pick your time frame: The reopening of most of the country’s economy. The presidential election on Nov. 3. The last minutes of Dec. 31, when a year that couldn’t end too soon officially closes the books. The day that a vaccine to combat the virus is discovered to work.

How did we get here? Where will we end up?

The stock market — including auto stocks — were hit by the intensity of the coronavirus and the startling economic game plan that put production on pause to reduce personal contact and limit the spread of the virus.

Early on, many in the auto industry focused on the spread of the virus in China and such things as disruptions to the supply chain. Auto plants kept churning along for a while. But the Detroit Three officially started closing North American factories around March 19 and then only began reopening many operations as of May 18.

“Everyone got decimated in March and April because no one planned for a complete shutdown,” said David Whiston, equity strategist tracking U.S. Autos for Morningstar Research Services.

Stock in Ford Motor closed as low as $4.01 a share on March 23 — down from $8.24 a share on Feb. 12. Ford fell by about 51% in the weeks that coronavirus fears in the United States heated up.

Stock in General Motors closed at $17.60 a share on March 23 — down from $35.06 a share on Feb. 12. GM was down 49.8% during that time.

Auto stocks have edged up since the low points in late March. GM closed at $27.40 a share, up 5.47% or $1.42 on Tuesday. Ford closed at $5.84 up 3.36% or 19 cents on Tuesday.

Whiston said auto companies most likely will have to now include the possibility of future shutdowns as part of any downturn scenario.

As such, he said, it’s possible that auto companies may need to use more cash up front in order to have more inventory on hand for a restart, which is less capital efficient.

It’s essentially the opposite of the popular, money-saving Just-In-Time strategy.

The biggest unknown right now for the next few months, he said, is: Will there be a second outbreak and a need to have a widespread shutdown again?

“It’s likely worst for GM because they never fully restocked their pickups after the strike” in the fall, he said.

And he added: “Can Mexico keep up with the U.S. and Canadian supply chain? All three nations need to be working for the auto industry to get back to normal.”

Auto dealers could face inventory shortages on some models in June, he said, even though inventory shortages might be fixed in a month or two.

“Inventory shortages won’t be a long-term obstacle to sales recovering but it likely slows things down in June and July,” Whiston said.

On the one hand, auto dealers might benefit from the generous stimulus payments that rolled out in April and May. A young family with three children might have received a stimulus payment of up to $3,900. But high-income families didn’t qualify for checks, and others could be dealing with losing jobs at shopping malls, restaurants, casinos and elsewhere.

“Not everyone got a stimulus check, so hard to say how many vehicles it will add to sales,” Whiston said.

“It may also help used sales more than new as the stimulus did have a maximum income limit.”

Right now, the stock market’s rebound may be reflecting a disconnect that doesn’t take into full account how bad the jobs picture looks and just how long it could take the U.S. economy to fully recover.

“GM and Ford stock,” Whiston said, “haven’t rebounded as well as other industries due to their large debt and capital intensity. For them, they need to get their factories moving ASAP and start generating free cash again.”

If that happens, he said, that money can hopefully be used later this year by the automakers to pay down some of the massive debt each firm raised in 2020 to deal with the coronavirus crisis.

Will there be a coronavirus comeback?

David Sowerby, managing director and portfolio manager for Cleveland-based Ancora Advisors, said any continued rebound on Wall Street overall would hinge on several factors going in our favor. A lot of ifs are on that list:

If we don’t see a spike in the virus and more COVID-19 heading into the hospitals.

If consumers continue to spend on a consistent basis, not just a short-term spike in spending.

If we see less bad news — and possibly improvements — in an already poor job market.

While the overall stock market has gained ground, we still have room to go for 401(k) investors to celebrate gains in 2020.

Sowerby noted that this year through May 22, the Standard & Poor’s index was down 7.8% while a basket of 65 Michigan-based stocks was down even more, showing a decline of 19.5%.

That compares with gains of 14.9% for the S&P 500 for the same time last year, and gains of 11.5% for the Michigan index in the first five months or so of 2019.

Even with Tuesday’s gains, he said, the S&P 500 would still be down so far in 2020.

“We need a 7% gain to break even for the year,” Sowerby said. “Given the huge gains from the March 23 lows, it is reasonable to believe we can. I believe, it will still be difficult to finish the year flat.”

Sam Stovall, chief investment strategist for U.S. equities at CFRA Research, cautioned that the market won’t necessarily keep climbing steadily from here on out.

“Much of what has driven equity price returns over the past few months is behind us,” he said.

“Now Wall Street is playing a waiting game as it attempts to ascertain the effects of a variety of upcoming events,” Stovall said.

Wall Street traders will keep a watchful eye on the gradual reopening of the U.S. economy, the potential upward impact on dire projections for economic growth in the second quarter and the likelihood of any future relief packages out of Washington.

“In addition, investors are becoming increasingly concerned over a renewed trade war with China,” Stovall said.

And there remains threat of a resurgence in the number of COVID-19 cases later this year.

Investors also will be on the lookout for the announcement of additional virus vaccine trials. Novavax, for example, said Monday that that the biotechnology company has begun its first human study in Australia of a possible coronavirus vaccine.

Vaccine news is essential to any long-term rebound for many companies, including airlines, entertainment and even autos. Some industries, such as air travel — and some 401(k)s could take far longer to recover if COVID-19 continues to threaten lives.

———

ABOUT THE WRITER

Susan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at stompor@freepress.com.

———

©2020 Detroit Free Press