Economic forecaster Lakshman Achuthan has a warning for investors: Brace for earnings to go negative.
According to the Economic Cycle Research Institute co-founder, the global slowdown is unleashing major challenges for U.S. corporations.
Achuthan turns to a chart of S&P 500 earnings growth to build his case.
“Every time you have a cyclical slowdown in growth, you have a big comedown in the growth of operating earnings,” he told CNBC’s “Trading Nation ” on Wednesday. “We have in the current slowdown a big comedown — a kind of plummeting — of earnings growth following that boost from the fiscal push earlier in ’18.”
His call comes less than a week before second-quarter earnings season begins and on a day when the major indexes hit all-time highs.
“Even if quarter-over-quarter earnings growth is just flat, that year-over-year growth that I’m showing on the chart is going to go negative,” said Achuthan.
S&P 500 companies are expected to modestly beat consensus estimates during the next round of earnings reports, according to Refinitiv. However, Achuthan contends it’s too optimistic because the economic growth slowdown isn’t abating.
“It’s going to continue through year-end. There’s no second-half rebound that everybody was waiting for,” he said.
Plus, Achuthan warns stocks are vulnerable to a 10% or more pullback at these record levels.
“Correction risk is active right now during a growth rate cycle slowdown,” he said.
Achuthan has been in the global downturn camp since late 2017. In early 2018, he warned Wall Street a “stealth” slowdown was creating U.S. challenges. His thesis is the struggles would have happened even without the U.S.-China trade war because it’s a cyclical issue.
Despite his dour outlook, he doubts it spells the end of the bull market.
“We don’t see a recession imminent,” Achuthan said.
China stocks up food, oil as coronavirus spurs fears about shortages
A customer wearing face mask buys flour at a supermarket on May 12, 2020 in Taiyuan, Shanxi Province of China.
Zhang Yun | China News Service | Getty Images
The world’s second largest economy, which has limited arable land, is facing pressure to shore up its food supplies as prices for food started ticking higher last year, prior to the virus outbreak.
Lockdowns and movement restrictions aimed at containing the coronavirus have triggered transportation and logistics bottlenecks.
Those blockages have highlighted the vulnerability of global supply chains, and fears of food shortages have come to the forefront of countries, both in developed and emerging economies.
Consumers in China are worried about further repercussions from the pandemic as it continues to spread globally.
“People there (in China) are panicked that coronavirus will eventually shut down the world’s ports, making it impossible for them to import,” said Arlan Suderman, chief commodities economist for INTL FCStone in a tweet on Monday. “As such, they are hoarding supplies now while they are cheap and available.”
“Fear is a powerful motivator. It’s driving policy in China currently. Fits well with those hardliners that want to rebuild food reserves,” he added.
Food prices surge
China is the world’s largest consumer of pork, a staple protein for the country.
In the first four months of the year, meat imports in China rose 82% compared to a year ago. These include pork, beef and poultry.
“We expect food stockpiling to continue especially in cities exposed to logistic disruption. The confluence of expected food price increases alongside an economic contraction and rising unemployment will push up the risk of civil unrest,” said Kaho Yu, senior Asia risk analyst at Verisk Maplecroft, a consultancy.
Already, food inflation in the country has been ticking higher.
Last Tuesday, China announced that food prices rose 14.8% in April from a year ago. Even though it was lower than the 18% increase in March, it was still at a high level.
Pork prices rose almost 97% in April in what has been a persistent trend since early 2019 due to the African swine fever epidemic in pigs that decimated China’s hog herds.
In comparison, non-food prices rose just 0.4% in April, official government data showed.
Soybean supplies are particularly vulnerable to supply shocks as China, the top importer of the commodity, needs the oilseed to make animal feed and cooking oil.
In April, China’s soybean imports fell 12% from a year earlier, customs data showed, due to bad weather causing the delay of cargoes from top supplier Brazil.
As for rice, China is the world’s largest producer of the staple grain with most of its supplies being consumed domestically.
Even so, concerns about food security of the staple grain have led to panic buying and spurred the state to acquire more stocks from the market for its national reserve.
In April, Chinese authorities assured the population that it was stepping up state buying of rice and that there were enough stocks, state news agency Xinhua reported.
“We expect China to continue stockpiling crops to ensure sufficient supply over the next six months by scouring the globe for available supplies,” said Yu in a recent report.
The consultancy puts China in its “high risk” category in terms of food import security, which means that its food imports risk being subjected to disruption.
Crude oil reserve building
Likewise, China has been building up its crude oil stockpile, and went on a buying spree in the first quarter of this year, data show.
Although crude oil imports fell in April compared to a year ago, they still rose from March. But analysts say limited storage facilities could put a cap on imports.
“Major crude oil importers such as China have been known to build their strategic reserves when prices are low, as seen in previous oil price routs,” Lei Sun, senior consultant at Wood Mackenzie, said in a March report. “China is expected to continue importing crude to fill its reserves taking advantage of lower oil prices.”
However, the country has less room to import than it did in the last two years, due to limitations in storage capacity, he said.
As supply lines continue to be disrupted due to the coronavirus outbreak, Yu at Verisk Maplecroft said he expects Beijing to double down on building more storage capacity, on top of energy development at home.
“Energy is also core to the country’s economic engine. Throughout the pandemic, Beijing has been prioritising maintaining a stable coal supply with an eye on power generation for industrial activities,” said Yu. “We also expect Beijing to speed up the resumption of large scale energy infrastructure projects.”
Putting food and energy first
Food and energy security have always been important for China, but the pandemic has underscored these concerns.
In April, President Xi Jinping spoke about food and energy supply security several times, noted Yu.
In the same month, state agencies — such as China’s National Development and Reform Commission, the National Food and Strategic Reserves Administration and other ministries — issued a policy notice aimed at ensuring adequate food production, storage capacity and logistics, Yu noted.
Also in April, China’s National Energy Agency issued a list of policy areas to focus on this year. They included power supply, grid networks, oil and gas infrastructure, and coal projects.
The developments underscored the government’s concerns, he said.
“Both Xi’s rhetoric and associated policy announcements from various ministries show how food and energy security are high on the government’s agenda,” said Yu.
“All of them are aiming to avoid potential pandemic-linked supply shortages and to increase self-sufficiency of critical resources over the long term. The COVID-19’s disruption on trade and industrial activities has reignited Chinese leadership’s long-running concerns over resource security.”
Microsoft, UnitedHealth offer companies free app to screen employees for coronavirus
UnitedHealth Group and Microsoft’s ProtectWell coronavirus symptom screener
UnitedHealth Group and Microsoft
UnitedHealth Group and Microsoft are offering companies a coronavirus screening app called ProtectWell that provides a daily symptom screener to help clear employees to go to work or direct them to be tested if they are at risk for infection.
As U.S. companies struggle to bring employees back under stringent new safety requirements, health-care and tech companies are rolling out new services that go beyond temperature checks. The apps are designed to help protect the safety of employees returning to work as well as to entice customers to return to restaurants and stores by ensuring wait staff and clerks are infection-free.
Microsoft and UnitedHealth, which use the program for their own workers, are now offering the service to U.S. employers free of charge. The program will include resources and guidelines on Covid-19 testing schedules for different workers within an organization, based on their potential on-the-job exposure to the virus.
“A worker in a nursing home, for example, … we would want to be doing the symptom checking every single day, and then be put into a testing schedule that allows them to get tested, anywhere from three to… every five days,” said Ken Ehlert, UnitedHealth Group chief scientific officer. “Different folks in the population need different levels of testing.”
The ProtectWell app provides the worker with his or her test results and notifies the employer when a worker tests positive for the coronavirus.
“When we think about the broader perspective of enabling a safe return to work, it’s imperative that employers also have that ability to be able to … act on that information, so that they can ensure that the workplace is safe” said Dr. David Rhew, Microsoft chief global medical officer.
The app will not provide tracking and contact tracing information, and while Microsoft’s health-care bot will drive the symptom screening within the app, UnitedHealth will maintain control over the health data itself. Under occupational health and safety rules, workers’ personal health information needs to be kept separate from personnel records.
“The challenge is about data management — how we aggregate testing information, safely permission it to reach the right people, use it to make workplace decisions,” said Dr. Rajaie Batniji, co-founder of benefits firm Collective Health, which launched its own Covid back-to-work service this week.
Batniji says a testing program, when combined with social distancing and disinfecting practices, can help businesses lower the risk of a workplace outbreak to less than 5%.
The firm’s Collective Go service is partnering with Bay Area start-ups Genalyte, Color and Everlywell to provide employers with on-site and at-home molecular testing for current infections, as well as antibody tests that can show whether a person was previously infected.
“We’re seeing improvement … with regard to accuracy and scalability” of the antibody tests, said Batniji, but he adds that the firm is continually assessing the latest data on the reliability of various Covid-19 tests.
On Thursday ,the Food and Drug Administration raised concerns about the accuracy of Abbott Labs’ ID Now rapid Covid-19 tests, after a study from New York University suggested that the test resulted in a high number of false negatives.
UnitedHealth’s Ehlert notes that availability could also be an issue for some employers to adopt wide-scale testing, so it will be important to prioritize testing programs for workers who are most at risk of getting sick.
“We are working within the capacity of trying to get the best tests available, make sure we have enough of them, and prioritize them,” he said.
Race to provide testing
With the sharp drop in nonemergency diagnostic screening and testing due to the pandemic, new workplace programs could provide a much-needed boost to diagnostic testing firms and hospitals as they try rebound from the financial disruption caused by delayed procedures over the last two months.
New Orleans-based Ochsner Health System set up its own lab for processing Covid testing for its patients and staff and is now working with area employers to help them establish testing and health monitoring programs. CEO Warner Thomas says the return-to-work service will allow the hospital to redeploy clinicians who have been idled, while postponed elective surgery and other procedures are beginning to be rescheduled.
Quest Diagnostics CEO Stephen Rusckowski told analysts last month that reopening presents “substantial opportunities” for providing to testing for employers and municipalities “for overall surveillance within the population and returning to work.”
LabCorp CEO Adam Schechter told CNBC that different parts of the economy will require varying levels of testing to bring workers back and has been in talks with employers to provide on and off-site screening for workers, including temperature checks.
It’s unclear just how much employers will actually lean into widespread workforce coronavirus testing, but for many American workers it could become a job requirement while the threat of the pandemic remains, which could be for the foreseeable future.
“As a doctor, if I wasn’t up to date on necessary vaccinations or screening, it’s considered a safety issue for patients and co-workers,” said Batniji. “This is a first for many (and) a cultural change for most Americans.”
Correction: This story has been revised to correct the attribution of a quotation from a Microsoft official. The quote was from Dr. David Rhew, Microsoft’s global chief medical officer.
Alamo Drafthouse Cinema launches video-on-demand platform
Alamo On Demand is available now online, with apps for iOS and Android coming soon.
Alamo Drafthouse Cinema
Grab the microwavable popcorn and dim the living-room lights.
Austin-based theater chain Alamo Drafthouse Cinema is bringing the big screen to your home by partnering with ScreenPlus and Vista Cinema to introduce a video-on-demand platform, Alamo On Demand.
“Alamo On Demand helps us to continue the conversation past the theatrical window and recommend movies we love to our community,” said Tim League, founder and former CEO of Alamo Drafthouse Cinema. “And in these shuttered days and beyond, these rentals and purchases help support your neighborhood theater.”
Alamo On Demand includes a library of recently released films, alongside curated cinema classics for rent or purchase.
Among the titles that will be available are Oscar winner “Parasite” and “Portrait of a Lady on Fire.” It will premiere documentaries such as “Spaceship Earth” and “Kate Nash: Underestimate the Girl,” which will include a livestream Q&A and performance by Kate Nash.
In the coming weeks, Alamo On Demand will add films from Sony Pictures Classics, and make available “Call Me By Your Name,” “Pain and Glory” and “A Fantastic Woman.”
Additional partners and titles include Lionsgate’s films such as “Knives Out,” “John Wick 3,” and “‘La La Land” and Magnolia Pictures’ “RBG,” “Skate Kitchen” and ‘Raise Hell: The Life and Times of Molly Ivins.” Plus Drafthouse Films’ entire catalog.
What’s different from other on-demand options?
Alamo is putting its own spin on the offering by including behind-the-scenes footage curated by its programming team.
“Many of us learned about movies thanks to the staff picks at our local video stores. That’s the spirit of what we’re trying to do with Alamo On Demand,” said Henri Mazza, Alamo Drafthouse vice president of content, sponsorship, and events.
“Weird Wednesday” programmer Laird Jimenez will highlight forgotten genre film classics, while “Champagne Cinema” and “Afternoon Tea” creator Sarah Pitre will curate her collection of favorite films.
Evrim Ersoy, creative director of the annual film festival Fantastic Fest, will use the platform to champion past festival favorites as well as exclusive and never-before-seen-online content from Fantastic Fest veteran filmmakers.
Alamo Drafthouse Cinema’s on-demand service includes a library of recently released entertainment, alongside curated cinema classics.
Alamo Drafthouse Cinema
Alamo will also package content for film-buffs looking to take a deeper cinematic dive. For example, later this year, Severin Films will launch the documentary “Enter the Clones of Bruce,” about the hundreds of Bruce Lee imitator films that flooded the market after his death.
Alamo On Demand will pair the documentary with a collection of the referenced films available for rental either solo or as a binge package to watch over 21 days.
Path forward for theaters
Alamo On Demand comes as a path forward for major cinemas like AMC Entertainment, Cinemark Holdings and IMAX remains uncertain. Tensions between Hollywood, theaters and streaming services remain contentious as studios and exhibitors are faced with new challenges during the pandemic.
Interior of an Alamo Drafthouse Cinema theater.
Alamo Drafthouse Cinema closed their doors on March 20 due to the coronavirus outbreak. The company has not set a date to reopen theaters and said its 41 locations will remain closed even as restrictions ease in certain states. Procedures and training are being developed so that theaters can reopen safely in the future.
The company is under new leadership as founder and former CEO Tim League recently announced his departure. Former Starbucks executive Shelli Taylor assumed the role on May 1.
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