Retirement Watch Lighthouse Logo

Bob’s Journal for 10/1/20

Published on: Oct 01 2020

Notable News That Grabbed My Attention This Week

It’s official. The first half of 2020 was ugly for U.S. retailers.

A record number of retail stores closed in the first half of the year, according to a report by BDO USA LLP. The entire year is likely to set records for closings, as well as bankruptcies and liquidations of retailers.

This year is likely to surpass the previous bankruptcy record set in 2010. That year, 48 retail companies filed for bankruptcy because of the effects of the financial crisis and increased online shopping.

In the first six months of 2020, 18 retail companies filed for Chapter 11 bankruptcy protection. Another 11 retail companies filed for bankruptcy protection through mid-August. Some of the retailers will emerge from bankruptcy protection as operating businesses. Others will end up liquidating and going out of business.

Prominent retailers on the bankruptcy list include Neiman Marcus, J.C. Penney, Pier 1 Imports, GNC Holdings, Brooks Brothers, Men’s Warehouse, Jos. A. Bank and Stein Mart.

In addition, a number of retailers didn’t file for bankruptcy protection but closed numerous individual stores. A record 9,500 stores were closed in 2019, but that’s already been surpassed in 2020 with more than 10,000 store locations shut down through mid-August. About 6,000 of those closings were due to bankruptcies. Other retailers that closed large numbers of stores in 2020 without filing for bankruptcy include Macy’s, Bed Bath & Beyond and Gap.

Before the pandemic, the United States already had too many retail stores, and retailers faced competition from online sales. Those factors caused many retailers to struggle through the end of 2019. The reduced consumer activity and forced closings during the pandemic hastened the decline of many retailers and the closing of many store locations.

The change isn’t over. As many as 25,000 U.S. retail stores will close in 2020, according to Coresight Research.

How Does Robinhood Work?

Trading in stocks and options increased in 2020. Many people attribute that to the popularity of the trading app Robinhood.

The popularity of Robinhood already spurred the major brokerage firms to eliminate commissions on trades for stocks and many other securities in 2019. The Robinhood app had another growth surge in 2020 when many businesses closed because of the pandemic.

Robinhood users are believed to be primarily younger investors. In addition, they are more likely to trade options instead of individual stocks or other securities.

Some analysts attributed some of the market volatility during the spring and summer, especially in particular stocks, to increased use of the Robinhood app and a higher volume of options trading.

One question is how Robinhood, the brokerage behind the app, makes money without charging commissions.

As an article in Forbes reveals, the broker sells customer trading data to market makers before the trades actually are made. The market makers dump the data into their computer models and try to profit by buying or selling a few seconds, or less, ahead of the Robinhood trades.

This is known on Wall Street as payment for order flow. The actions of the market makers also are as known as high-frequency trading or flash trading. The firms don’t make much on each trade. But they make a large number of trades, so the profits add up.

Take a look at the article to see how Robinhood makes money and how it influences its investors.

Are Mutual Funds Outdated?

In recent years as stock prices have increased, money has flowed out of mutual funds that invest in stocks.

Initially, analysts attributed this flow to investors wanting to invest in index funds and indexed exchange-traded funds (ETFs) instead of actively managed funds that might earn lower returns.

But even most index mutual funds and indexed ETFs experienced negative cash flows as stock returns increased.

In addition, the Fidelity Contrafund run by Will Danoff has seen investors redeem billions of dollars in shares despite index-beating performance.

The Contrafund is handily outpacing the S&P 500 this year and over three decades has annualized returns three percentage points better than the index.

Danoff recently told Bloomberg that he believes this could be a generational trend.

Younger investors want something sexier, or at least different, than a mutual fund. Even attractive apps and online presences from mutual funds and brokers don’t seem to appeal to younger investors.

Perhaps it is a passing fad, like day trading was in the late 1990s. But it could be younger investors who believe it’s normal to experience the one-year returns we’ve seen in a few stocks, such as Apple (APPL), Tesla (TSLA) and Amazon.com (AMZN). Maybe they’ll keep chasing such potential returns, or maybe they’ll learn such returns don’t happen often.

The Data

New unemployment claims in the latest week declined by 36,000 to 837,000. The number of continuing claims was about 11.8 million, down about 980,000. The numbers might be understated, because California stopped processing claims for two weeks to clear a backlog of claim applications.

New claims under the Pandemic Unemployment Assistance program were 650,120. When all the unemployment assistance programs are aggregated, in the week ended Sept. 12, about 25.53 million were receiving benefits, up almost 500,000 from the previous week.

Personal Income in August declined by 2.7%, which is largely a result of the expiration of extra unemployment benefits at the end of July. Personal consumption increased by 1%, the slowest rise in four months.

The Personal Consumption Expenditure Index, the Fed’s preferred measure of inflation, increased by 0.3% in August and 1.4% over 12 months. Excluding food and energy, the index increased 0.3% in August and 1.6% over 12 months.

Consumer Confidence, as measured by The Conference Board, jumped higher in September. The Consumer Confidence Index was 101.8, compared to a revised 86.3 in August.

Both the Present Situation and Expectations components of the index increased sharply. The index had declined each of the two previous months. The index still is well below pre-pandemic levels.

The ISM Manufacturing Index declined a little in September to 55.4, compared to 56.0 in August.

The PMI Manufacturing Index for September was unchanged from August’s level, 53.1.

The Kansas City Fed Manufacturing Index reported 11 for September, compared to 14 in August.

The Production Index from the Dallas Fed Manufacturing Survey was 22.3 in September, up from the 13.1 in August. The General Activity Index was 13.6 in September, compared to 8.0 in August.

Durable Goods Orders increased in August but at a much lower rate than in July. Orders were up 0.4% in August, compared to 11.7% for July.

The Core Capital Goods component increased 1.8% in August, compared to an upwardly revised 2.5% in July. Core Capital Goods is considered a good measure of business investment in plant and equipment.

Low inventories of homes for sale and low interest rates keep pushing home prices higher. The S&P Corelogic Case-Shiller House Price Index increased 0.6% in July and 3.9% over 12 months. That compares to no change in prices during June and a 3.5% 12-month growth through June.

Pending home sales also increased significantly, rising 8.8% in August, following a 5.9% increase in July. This should translate into higher existing home sales in a month or two.

The Chicago Purchasing Managers Index increased to 62.4 in September from 51.2 in July. That’s much higher than expectations.

The ADP Employment Report estimated that 749,000 new private sector jobs were created in August. That compares to 481,000 estimated new jobs in July. In recent months, the ADP report has been volatile and differed significantly from the government’s Employment Situation reports.

Not much changed in the third estimate of second-quarter gross domestic product (GDP). It showed the economy declining at an annualized rate of 31.4%, compared to 31.7% in the second estimate. Other segments of the estimate were slightly better than the second estimate.

The Markets

The S&P 500 rose 3.80% for the week ended with Wednesday’s close. The Dow Jones Industrial Average gained 3.71%. The Russell 2000 increased 3.97%. The All-Country World Index (excluding U.S. stocks) added 1.52%. Emerging market equities rose 2.30%.

Long-term treasuries declined 0.75% for the week. Investment-grade bonds increased 0.01%. Treasury Inflation-Protected Securities (TIPS) added 0.28%. High-yield bonds gained 1.02%.

In the currency arena, the U.S. dollar fell 0.67%.

Energy-based commodities increased 1.13%. Broader-based commodities rose 0.57%, while gold jumped 1.35%.

Bob’s News & Updates

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Seriesclick here.

A recent five-star review of my book on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.

bob-carlson-signature

Retirement-Watch-Sitewide-Promo

Log In

Forgot Password

Search