Welcome to edition 514 of Insider Weekends. With the latest round of unemployment data indicating an additional 4.4 million Americans filed for unemployment, the total number of people filing for unemployment has now reached 26.5 million and the unemployment rate spiked over 20%. For context, the unemployment rate in March 2020 was 4.4% and the highest it ever reached during the last recession was 10% in October 2009.
The shock to the economy has been rapid and is reflected in many pockets of the market with oil futures (WTI) for May closing in negative territory for the first time ever. The WTI oil future debacle was aggravated by other factors besides demand, such as speculation, huge inflows into the oil ETF USO, contango in futures, the structure of the USO ETF and the fact that WTI oil futures could not be settled in cash and physical delivery had to be taken in Cushing, Oklahoma.
The S&P 500 ended the week marginally down and I am surprised it did not head lower. A few weeks ago, I was encouraged that the stimulus programs might help offset a large part of the impact of COVID-19 related shutdowns. But I am not so optimistic now. The payroll protection program (PPP) of the stimulus program that was supposed to help small businesses was heavily oversubscribed and many small businesses, including ones I am familiar with, did not get any of the stimulus money. I am also hearing from folks who are trying to get unemployment benefits that their state’s unemployment offices are severely backed up and it has not been easy applying for or getting unemployment. While congress has passed a new stimulus bill that adds $310 billion to the PPP for small businesses, it may similarly take time to get into the hands of small businesses that have had to lay off or furlough their employees for several weeks at this time.
It is possible that the market is more focused on the positive impact of all these stimulus programs, the fact that several countries in Europe are planning on opening their economies in stages and perceiving these job losses as short-term. The S&P 500 is dominated by a few large companies like Amazon that have done well through this downturn and does not truly represent the damage that has been done. The Russell 2000 index of small companies also held up well last week and it will be interesting to see how it behaves in the near future. I continue to feel the risk remains to the downside.
Insider buying decreased last week with insiders purchasing $23.82 million of stock compared to $48.84 million in the week prior. Selling increased with insiders selling $1.02 billion of stock last week compared to $541.19 million in the week prior.