Business

Investors look to 2008 for guidance on when to jump back in – Reuters

Published

4 years ago

March 25, 2020

LONDON (Reuters) – Investment banks are dusting off models from the 2008 financial crisis to gauge the right time to buy back into stock markets that have plunged 30% from their February record highs because of the coronvirus crisis.

The Wall Street sign is pictured at the New York Stock exchange (NYSE) in the Manhattan borough of New York City, New York, U.S., March 9, 2020. REUTERS/Carlo Allegri

That inflection point is not easy to model when the virus is still spreading rapidly across Europe and the United States.

But the U.S. government’s $2 trillion in fiscal stimulus, coming on top of unprecedented measures from the U.S. Federal Reserve and other central banks on Tuesday triggered one of the sharpest global equity market rallies in decades.

Wall Street’s so-called fear gauge, the Cboe Volatility Index has also fallen from its highs.

For some, the signals for a reversal are in place.

Veteran investor Bill Ackman told investors in his listed Pershing fund he had turned increasingly positive on stocks and credit, and taken off hedges he put in place in early March when markets first started cratering.

He said Pershing was “redeploying our capital in companies we love at bargain prices that are built to withstand this crisis”.

Goldman Sachs’ view was that this week’s record stock market rally had been led by “underweight” sectors, suggesting many funds had been covering short positions. Indeed, energy, travel and auto stocks were Tuesday’s biggest gainers.

At Morgan Stanley, Andrew Sheets, head of cross-asset strategy, said in these situations, including in 2008, markets often trough well before the crisis actually ends.

From the 2008 trough there followed a decade of stunning gains that added more than $25 trillion to global equity value.

“(The market) won’t need to see a peak in U.S. (Covid) cases, it just needs to see some confirmation of the path and it nees to be happy with the path,” Sheets said.

But so far he remains underweight credit and has only marginally upped equity exposure.

GETTING IT RIGHT

JPMorgan says there is more than one way of measuring it, especially given the unique nature of the crisis which hit the real economy first, with financial markets following.

John Normand, JPM’s head of cross-asset strategy said one model suggested now is the time to re-enter — a quarter before a recession is likely to end. His view is that the coronavirus-induced recession will be “undoubtedly deep but also possibly the shortest-ever.”

Normand also said investors could wait for “green shoots” or evidence of an actual upturn — reflected in a trough for JPMorgan’s global Purchasing Managers Index.

A third, valuation-based model triggers a “Buy” signal when risk-premia across several asset classes fall to certain “deep value” thresholds.

Norman said the latter two models were not yet signalling it was time to buy.

Notably, U.S. and European stock valuations based on a 12-month forward price-to-earnings ratios now have dipped well below historical averages, according to Refinitiv data.

Meanwhile, credit markets are still sending out distress signals — yields on junk-rated U.S. bonds are around 10% currently compared to 6% a month ago, meaning many companies may find it hard to service debt.

In Europe, an index of European credit default swaps, ITEXO5Y=MG that measure the default risk of a basket of sub-investment grade companies, is off its peaks but remains elevated at around 520 basis points, almost double end-February levels.

The volatility index’s (VIX) 30% drop from recent peaks is a clear positive for riskier assets. But if 2008 is any guide, its decline may not yet signal the market trough. In 2008, the VIX retreated from highs in October, but markets took another five months to bottom out.

The recession in 2008 was a long one — some economists reckon this time a turnaround in global growth will come by the third quarter.

Yet some also warn that markets are only now coming to grips with how severe a potential downturn could be.

“We … haven’t fully appreciated how far this recession will go,” said Andrea Cicione, head of strategy at TS Lombard, in London. Some of her concerns center on potential second-round effects such as rising unemployment and companies slashing their capital expenditures.

For now, the trajectory of the coronavirus and its economic fallout will play a key role in determining the market’s path, said Randy Watts, chief investment strategist at William O’Neill+Co.

“In the short run, the market is still going to stay very volatile until one of three things happens – either the number of deaths and the number of new infections in the U.S., peak, there is some kind of a cure or vaccine developed or until the U.S. economy begins to reopen,” he said.

Reporting by Thyagaraju Adinarayan, Sujata Rao and Yoruk Bahceli in London. Additional reporting by Medha Singh. Editing by Jane Merriman

Our Standards:The Thomson Reuters Trust Principles.

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Business

Roots sees room for expansion in activewear, reports $5.2M Q2 loss and sales drop

Published

9 hours ago

September 13, 2024

Anne Joseph

TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.

The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.

“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.

The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.

But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.

Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.

“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.

“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”

Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.

The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.

In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.

Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.

The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.

The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.

Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.

Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.

It will also re-evaluate its design ranks.

Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.

Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.

This report by The Canadian Press was first published Sept. 13, 2024.

Companies in this story: (TSX:ROOT)

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Business

Talks on today over HandyDART strike affecting vulnerable people in Metro Vancouver

Published

2 days ago

September 12, 2024

Anne Joseph

VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.

No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.

About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.

Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.

Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.

A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”

This report by The Canadian Press was first published Sept. 12, 2024.

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Business

Transat AT reports $39.9M Q3 loss compared with $57.3M profit a year earlier

Published

2 days ago

September 12, 2024

Anne Joseph

MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.

The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.

The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.

Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.

On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.

Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.

This report by The Canadian Press was first published Sept. 12, 2024.

Companies in this story: (TSX:TRZ)

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