Is a second wave inevitable? The stock markets seem to think so

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Good morning, Bull Sheeters. Buckle up. Equities are facing a bumpy ride this morning as second-wave jitters grip the markets. That’s despite economies continuing to reopen.

Let’s check in on the action.

Markets update


  • Asia’s major indices have begun the week in the red. Hong Kong’s Hang Seng and Japan’s Nikkei are down more than 2%.
  • There’s a fresh outbreak of COVID-19 in Beijing, spreading fears of a second wave of the virus hitting the world’s No. 2 economy. India too is seeing a worrying spike that could shut down parts of its economy.
  • SoftBank has pumped $500 million into a series of Credit Suisse investment funds, which in turn has backed the Japanese conglomerate’s Vision Fund. That means some of CS’s clients may unwittingly be backing SoftBank startups, the FT reports.


  • The European bourses plunged out of the gates. The benchmark Stoxx Europe 600 opened 2.1% lower. BP is down 5% after announcing a $17.5 billion write-off.
  • The last round of trade talks between the EU and U.K. went nowhere. Can Boris Johnson break the impasse on today’s video call?
  • European countries, including Germany and France, will further open their borders to neighbors today in a bid to salvage some of the 2020 summer travel season. After nearly three months on the tarmac, budget carrier Easyjet will resume (mostly domestic) flights today. Food onboard? No. Face masks required? Yep.


  • The Dow, S&P 500 and Nasdaq futures point to a rough start to the week. The Dow (-5.5% last week), S&P (-4.7%), Nasdaq (-2.3%) had their worst weeks since March 20.
  • Record numbers of coronavirus cases and hospitalizations hit a swath of U.S. states this weekend, particularly the Sun Belt.
  • Now for some good news: Morgan Stanley is doubling down on its call for a V-shaped recovery in the global economy. A “sharp but short” recession is in the cards, with healthy recovery by Q1 2021.
  • What’s on this week’s calendar? Fed Chairman Jerome Powell will deliver monetary policy testimony to the Senate on Tuesday; retail sales (Tuesday); housing starts (Wednesday); jobless claims (Thursday); manufacturing data (Thursday).


  • Gold is down.
  • The dollar is up.
  • Crude extends its downward slide. Brent is off 3%, trading below $37.50/barrel.

Winners and losers

Investors this morning see more of the latter. Take Big Oil. BP, for one, is telling the markets it’s banking on “weaker demand for energy for a sustained period.” The energy sector and crude are sharply lower on the news.

But it’s not an overwhelmingly brutal picture. Some of BP’s biggest customers—the airlines—are seeing a jump in demand, which will only grow (from near-zero) as flights resume. Motorists too will be road-tripping in the weeks ahead. (I’ve been criss-crossing Central Italy the past few days; I’ve filled the tank three times. Each time, it cost me a bit more). Whether that’s enough to push the price of oil back above $40, then $50 per barrel, is the big question hanging over the energy markets in the near term.

I was curious about where consumers are spending their money as lockdown measures ease, and found some interesting data in Bank of America Securities latest research note on the U.S. economy from Friday evening.

According to BofA, there are big state-by-state and sector-by-sector differences as it pertains to consumer spend. Spending is relatively lower in states where lockdown measures are strictest. That makes sense. In Georgia, “total [credit] card spending” is up year-on-year, while it’s down in New Jersey, as the table below shows.


But, regardless of state, there are a number of categories that consumers are avoiding like, well, the plague. That includes entertainment services (okay, sporting events and concerts have been canceled just about everywhere) and beauty salons. On the flip side, online retail and grocery spend is up across the country.

That last line though tells the full story. Card spend is down nearly across the board—in some cases, by a significant double-digit measure. That’s why BofA is predicting economic activity will jump from contraction to transition to recovery. It won’t be a smooth flip-of-the-switch contraction-to-recovery bounce, in other words.

The transition slope will more likely be a U-shaped phenomenon for the likes of energy and entertainment. For those sectors, it could take several quarters to recover; years, even. Home improvement and furniture, meanwhile, will bounce back quickly.

For the economy as a whole, we’re firmly in the “transition” part of the trend curve. We may be here for a while.



Warning: this item will include a bit of poetry.

Every Italian school kid is required to set to memory the poetry of Giacomo Leopardi, the 19th century poet who hailed from this part of the country. His most famous poem, L’infinito, is an homage to the wild terrain of the region—the cartoon-like hills that plunge and climb, plunge and climb some more, infinitely rolling from one end of the horizon to the next. The poem opens with the lines, This lonely hill was always dear to me/ and this hedgerow, which cuts off the view/ of so much of the last horizon.” Here’s Dustin Hoffman taking a crack at it a few years ago.

I can never remember much more than that first line. But it faithfully pops into my head the moment I’m back in the Sibillini Mountains, taking in the view.

On Thursday, when the markets were tanking, I was up there in the mountains. (Hours earlier, I had spent part of my stimulus check on a new mountain bike). I could see nothing but green.

The land of Leopardi: Italy’s Marche region. Original Photo: Bernhard Warner.

So, that’s where I was the past few days. I needed to clear my head. Too many days cooped up in an apartment, staring at screens, made me feel the opposite of “infinite” and all-seeing.

Afterwards, I cycled back to a mountain refuge that, over the years, has grown into a 3-star hotel and restaurant. I bought a beer and sat at a table. I was the only one there. A few moments later the manager came by. She started to make small talk. When she heard my accent, she ventured: English? American, I corrected.

She excitedly showed me her smart phone. She wanted to post images to Instagram in multiple languages, and needed someone—me!—to edit her English entries. We agreed a reference to Leopardi was needed. “Experiencing the infinite,” it read. It sounds better in Italian, I told her.

She was so happy with our collaboration, she offered me the beer on the house.

Now that’s poetry, I thought.


Have a nice day, everyone. I’ll see you here tomorrow.

Bernhard Warner

A note from my Fortune colleagues on a timely new initiative:

Many companies are speaking out against racial injustices right now. But how do they fare in their own workplaces? Black employees in the corporate world, we want to hear from you: Please submit your anonymous thoughts and anecdotes here.


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