By Paul Vigna
Another bruising week for the market. The Dow Jones Industrial
Average lost nearly 3,000 points in one day -- and is trading just
over 20000. Circuit breakers were tripped twice, briefly halting
all stock trading. Crude oil futures hit an 18-year low. In a
particularly distressing sign, investors were even selling
long-term government bonds. It was a week where nothing felt safe
to hold.
The Dow and S&P 500 are both on course for double-digit
percentage declines for the week, extending the losses from their
mid-February peaks to about 30%.
That said, there are some things that stood out. Let's look at
this week's winners and losers.
Winner: Blue Apron and the Meal-Kit Industry
Habit is a powerful thing, and sometimes crises force new habits
on people.
Standing to benefit are meal-kit and food-delivery companies
like Blue Apron Holdings Inc. and Grubhub Inc., which should see a
spike in demand while more people are stuck at home.
Shares of Blue Apron, currently at $14.34, started the week at
$2.25 and are trading at their highest level since early 2019.
Berlin-based HelloFresh SE, the largest meal-kit provider in the
U.S., is up 25% this week.
Analysts at Canaccord Genuity said Blue Apron could benefit from
an increase in orders, along with larger individual order sizes,
given there are more people at home who are eating every meal
there.
Making it work long term, though, is a different story. Blue
Apron has cash -- it raised $199 million privately and $300 million
in its IPO -- and generates revenue but hasn't had a profitable
quarter since going public in 2017.
The Canaccord analysts warned Monday that Blue Apron could "face
some liquidity constraints if top lines trends do not improve."
Meanwhile, Grubhub, which focuses on food delivery, hasn't seen
the same bump, at least not initially. Shares are down about 3%
this week and 33% over the past month, more in line with the
broader market.
Loser: Hospitality Industry
It is almost unfair to single out one loser this week. But the
hospitality industry is a major employer in the U.S., and its
dynamics are representative of American corporations. Let's focus
there.
The novel coronavirus pandemic has already exacted a greater
toll on the hotel industry than "Sept. 11 and the 2008 recession
combined," a trade group executive said this week after meeting
with President Trump.
The stocks reflect that. MGM Resorts International is down 69%
over this month. Marriott International Inc. is down 46%. Hilton
Worldwide Holdings Inc. is down 40%.
The damage isn't just to stock prices. Most of these companies
have debt that needs to be serviced.
MGM has $11.3 billion in total debt; Marriott has $10.9 billion;
Hilton has about $8 billion. They aren't alone. Insatiable demand
for yield along with rock-bottom borrowing costs in the years after
the financial crisis produced a perfect world for issuing debt.
Total nonfinancial U.S. corporate debt topped $10 trillion in
2019.
That wasn't much of a concern when the economy was growing. It
should be now.
If the coming downturn rips their bottom lines -- and in the
short-term at least it will -- these companies are likely going to
be forced to choose between debt payments and operations. That, of
course, likely means layoffs.
The hospitality industry employs millions of workers, with
relatively low wages. It is going to be a major flashpoint in
containing the economic damage. You can understand why the federal
government is already talking about bailouts.
The leisure and hospitality industry in the U.S. employs about
15.8 million people, according to the latest data from the Bureau
of Labor Statistics; that is more than construction, manufacturing,
retail, energy, tech, and financial services.
The sector is also one of the lowest-paying sectors in the
country. Average hourly wages for nonsupervisory workers were
$14.93 in February. That translates to a lot of vulnerable
workers.
Marriott on Thursday showed how deep the cuts will need to be to
survive the crisis. The company is cutting staff, closing hotels
and slashing salaries for its executives -- and drew down on its
lines of credit and suspended its dividend.
That is just for now. Not until after the crisis passes will
investors, debtors and the companies themselves discover how bad
and permanent the damage is.
Next Week: Watch Uncle Sam
Yes, there are economic reports next week. Keep an eye out for a
spike in weekly jobless claims. But by far the biggest thing to
watch is Washington. The only entity large enough to provide shock
absorbers for the economy is the federal government.
The Trump administration has proposed sending checks directly to
citizens and setting up credit facilities for industries. The total
price tag is north of $1 trillion. Senate Republicans expressed
support for some parts of the plan.
The goal is to pass a bill by the beginning of next week. Even
if a bitterly divided Washington can come up with an aid package,
Senate Majority Leader Mitch McConnell suggested another may be
needed eventually.
Write to Paul Vigna at paul.vigna@wsj.com
(END) Dow Jones Newswires
March 20, 2020 07:14 ET (11:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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