Covid, Cruises, Ketchup & the Market

The re-opening of America continues to be the theme as vaccine distribution outpaces the rising caseload. It’s different overseas, where lockdowns continue. America’s Economy is accelerating. JP Morgan CEO Jamie Dimon started the week saying this new economic boom could easily continue through 2023, fueling more optimism. Amazon Founder Jeff Bezos gave support to the Biden Infrastructure plan and said concessions are necessary for the good of America, embracing higher corporate taxes. That certainly caught Market attention.

The US has been outpacing the world in its vaccine rollout. America is arguably in the best position for a re-opening of the economy. There were 4 Million doses given each day last weekend. Operation Warp Speed has accelerated. There were just 1 Million doses per day in January. At the current rate, it will take an additional 3 months to cover 75% of the population. It’s also referred to as the herd immunity number. Importantly, not everyone wants to get vaccinated.

The Mar­ket has been so resilient. It has been focused on an economic recovery pretty much since the pandemic began. It’s happened so fast. Mil­lions of Amer­i­cans have been vac­ci­nated, businesses have re­opened and many Americans have gone back to work, send­ing the un­employment rate back to a 1-year low. Now, the US Economy is expected to grow as much as 7% this year, the fastest pace since Ronald Reagan was in the White House in 1984.

However, over 80% of American adults under age 30 have not been vaccinated. Many of them say they have no plans to. A Pew Research survey shows that roughly 1/3 of the American adult population won’t take a vaccine at all. Breaking news Friday showed that Pfizer filed Emergency Use Authorization for ages 12-15. The vaccine trials were deemed favorable. That’s huge.

The re-opening of America has led to an increase in travel. Pent-up demand to get away is bursting. Over 1.5 Million Americans have been hitting the friendly skies every day for the last 3 weeks, according to TSA. It was consistently under 1 Million last year. Hotel occupancies continue to increase, with many cities seeing anywhere from 60-84%, a huge increase from 2020. Another high-profile event will be Disneyland’s re-opening. A refreshed, less crowded and more digital park in Anaheim called Disney will open its gates on April 30.

Want to go on a cruise? Norwegian Cruise Lines said it would re­quire all pas­sen­gers and crew to be vaccinated 2 weeks be­fore com­ing on board and hopes to re­sume cruise op­er­a­tions from US ports be­gin­ning July 4. Whether it happens is up to the CDC. The shutdown has been a crusher to cruisers. Carnival Cruise said it might have to relocate its ships out of US waters if Covid restrictions aren’t lifted. Neither cruise line has had a ship sail in over a year, devastating its businesses. Cruises have resumed in Europe and other parts of the world. The State of Florida just filed a lawsuit against the CDC restrictions. With airlines and hotels open and operating, they ask why not them?

At the beginning of the pandemic, there was a shortage of hand sanitizers, TP and paper towels. You no doubt noticed it at the stores. Now it’s ketchup. Restaurants are having trouble securing enough of it. The pandemic turned many sit-down restaurants into takeout businesses. People apparently took a lot of ketchup. Those packet prices have risen 13% since January of 2020. Some stores can’t even get their hands on enough of the condiment. Restaurants have responded by using generic versions, or dishing out bulk ketchup into single-serve cups.

Ketchup is the most used table sauce in America. Roughly 300K tons of ketchup were sold to restaurants last year. Heinz has nearly 70% of the US market for ketchup. Heinz is the only ketchup, in my mind… The Kraft Heinz company was clearly caught off guard by the pandemic. In response, Heinz is planning new manufacturing lines. The goal is to increase production by 25%, bringing the total ketchup packet production to 12 Billion for the year. That’s 36 packets per person in America. Heinz also came up with a no-touch ketchup dispenser to help meet demand for alternatives to shared bottles. You might see them at a ballpark near you. Wouldn’t you know, people have been bidding up ketchup on eBay.

Back to the Market: Investors keep celebrating the recovery. The Dow and S&P just banked their 3rd consecutive week of gains, both at new all-time highs. It’s been a choppy go, with an upward bias. Money has been rotating between sectors at high speed in 2021.

Inflationary pressures are picking up. PPI came in much higher than expected. This time, the Market is taking it in stride. Interest rates were higher again today, which initially sent Tech lower while Banks and Energy went higher. Growth lagged, Value led. Then it switched. Tech launched a bit of a comeback to close out the week. Banks and Energy lagged. They’ve been doing a Do-si-do all year. Rates continue to drive stock prices.

The in­creased turbulence high­lights a chief characteristic of the Mar­ket over the past year: Volatility can cut both ways. There have been big swings in both directions. This has been driven in part by the pop­u­lar­ity of the mo­men­tum trade. That’s when traders buy stocks that are ris­ing quickly and dump the rel­a­tive losers. These are quick trades. It’s also called Fast Money.

The financial valves remain open. Money keeps pouring into stocks. There was $569 Billion that has flowed into global equities in just the last 5 months. That is an absolutely massive number. For perspective, that compares to the $452 Billion of inflows over the prior 12 years! There has been a TINA theme for a while, with interest rates at historic lows. There Is No Alternative to stocks for investors, as the saying goes.

The constant churn has resulted in something that hasn’t happened for a while. Value stocks have been out­performing high­fly­ing Growth by the largest mar­gin since 2001. The Energy sec­tor just finished its best quarter on record, after a pun­ish­ing 2020 in which it was the big­gest lag­gard. With the emphasis and emergence of Renewables, Oil & Gas was left for dead. It has seen a reawakening. Tech stocks, which dominated the last decade as well as 2020, have trailed in 2021. The Tech-heavy NAS hit correction levels, declining 10% from its all-time high in March. Bonds have declined too. The Bond Market, as measured by the Barclays Aggregate Index, was down 4% in Q1. Over 2 years of income wiped out in just 3 months. That’s material. The 40-Year Bull Market in Bonds could be reaching an end.

What’s going on, you might wonder? We think the Market has basically been recalibrating the economic recovery and the re-opening of America. What’s it going to look like? What’s it going to cost? These are all questions the Market is trying to answer or at least anticipate. The March sell-off was a healthy re-set which we found buyable. The Tech Titans came back to life this week, and really flexed their muscles. There’s a defensive characteristic in their stocks. But there’s a very offensive characteristic in their business models. They’re dominant. They seem to be back.

This week’s rally is being chalked up to better recovery sentiment on the back of a very strong March job report. At the same time, the Economy is still far from the Fed’s employment and inflation goals and the bar for rate hikes remains extremely high. Despite the increase Friday, yields were lower on the week. That drove the rotation back into Growth and Momentum after those groups meaningfully lagged in Q1.

It’s a pretty Bullish backdrop. And the Market certainly reflects it. Investor sentiment has gotten pretty elevated. Investors haven’t been this Bullish since January of 2018. That preceded a sharp correction. That’s the way of the Market. Overbought and oversold are generally driven by emotion. Breadth was not great on Friday, despite the big gains. Advancers versus decliners were actually even on the day. Certainly much of the positives have already been paid forward. Earnings and economic growth are accelerating. We shall soon see how fast. Earnings Season begins next week. Expectations are pretty high. We’re all over it.

Have a nice weekend. We’ll be back, dark and early on Monday.


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