Are we witnessing the death of small business? The Coronavirus pandemic initiated widespread devastation in the private sector as governments told businesses to suspend operations. Despite most states reopening their economies, it is unclear if your typical mom and pop shop can survive the bloodbath that swept through the nation this year. Although the U.S. government and the Federal Reserve have directed financial assistance to businesses – large and small – since the pandemic, polling numbers suggest that without continued aid, they might not be able to keep their doors open.
Mom and Pop Close Their Windows
According to a new survey from the trade group National Federation of Independent Business (NFIB), 20% of small businesses will close if the public health crisis does not subside over the next six months. But the poll offered a lot of insight into the pain these entities are going through.
The NFIB study revealed that about half of the surveyed businesses reported a 25% decline in sales since COVID-19 hit the United States, with 20% of them suffering a 50% drop. Nearly half of Paycheck Protection Program (PPP) loan recipients say they are waiting for more help next year. Also, one-third of small business owners admitted that the hefty unemployment benefits have made it hard to hire or re-hire workers. These figures are consistent in various surveys.
For example, in April, a U.S. Chamber of Commerce poll found that one out of ten members revealed they are a month away from closing their doors. But were their fears founded? Not many organizations have tracked the impact on small businesses, but some data hints at what is going on.
Yelp data highlighted that more than 80,000 businesses permanently shut down from March 1 to July 25. American Bankruptcy Institute numbers said that 800 small businesses filed for Chapter 11 bankruptcy from February to July. With the economic recovery in full swing, will these numbers improve or worsen in the coming months? Time will tell.
Exxon Is Out of Gas
Goodbye, Exxon Mobil Corp, Pfizer Inc., and Raytheon Technologies Corp. Hello Salesforce.com, Amgen Inc., and Honeywell International. The Dow Jones Industrial Average, which is perhaps the world’s most famous equity benchmark, recently had its biggest reshuffling in seven years.
Exxon Mobil had been a member since the 1970s, with a fortune as high as $525 billion in 2007. Its stock has plummeted 40% so far this year, and it had slumped in four of the last six years. Today, Exxon has a market capitalization of approximately $180 billion. Salesforce, meanwhile, has been on a tear since the 2008-2009 financial crisis. The cloud-based software company has skyrocketed 5,000% since then, and it has a market cap of nearly $250 billion.
It goes to show the evolution of the 124-year-old large-cap index. When the Dow Jones was started, there were only 12 companies, including American Tobacco, Tennessee Coal and Iron, and Distilling & Cattle Feeding. Today, some of the most iconic brands comprise the Dow: Walmart, JPMorgan Chase, Microsoft, Walt Disney, and Nike.
It is anybody’s guess who else gets the heave-ho and who gets a hello. Will it be time to wave goodbye to Walgreens Boots Alliance and Intel? Whatever the case, this is creative destruction at its best.
Although the Dow’s influence has diminished over the years, often referred to as your grandfather’s index, it remains an exclusive club of some of America’s most significant industrial titans. Before the Coronavirus pandemic, there had been a consensus that the Dow was going to touch 30,000. Now that it has reclaimed 28,000, the index may reach that all-time high by year’s end.
South Korea Burns the Shorts
In March, when the streets were filled with blood, South Korea chose to stop the hemorrhaging by placing a ban on stock short-selling for six months. The intervention, as well as fiscal and monetary stimulus, allowed the benchmark Kospi Composite Index to recover 20% and turn positive on the year.
South Korea’s financial regulator, the Financial Services Commission (FSC), announced it would extend the prohibition of short-selling on all listed stocks by another six months through March 15, 2021. The leading South Korean stock index reacted favorably to the news, climbing more than 1% during the August 28 trading session.
The government justified the decision by alluding to renewed volatility over concerns about the recent COVID-19 resurgence. The FSC said in a statement:
“Considering the rising volatility in markets with the fresh waves of Covid-19, we decided to extend the six-month short-selling ban imposed since March. During the extended ban, we will seek to improve rules to offer retail investors’ better access to short-selling and tighten punishment for illegal practices for short sales on equities.”
The Health Ministry denied reports that the nation would return to lockdown, but there has been an increase in new infections for much of August, leading to fears of enhanced social-distancing rules.
But is it so wrong to bet against the broader financial market? Amid speculation that other countries would adopt comparable measures, Liberty Nation reported in April:
“For one thing, critics will argue that short selling can overwhelm financial markets, but the data show that most of the activity in recent weeks has been long selling. Another complaint lodged against shorts is that they are unpatriotic by making money off others’ misfortune, but they are sending signals to their comrades. It might seem counterintuitive, but short-sellers offer a vital service to markets by exposing overvaluation, sharing important trends, and revealing to investors information they would prefer was not revealed.”
Short-selling serves a purpose by sending a signal to the broader market about danger forming in pockets of the marketplace. If there is trouble brewing in Seoul, should traders have the right to know? If it is raining outside, you are going to carry an umbrella. If Rosie O’Donnell speaks, you are going to wear earplugs. If a stock is foaming at the mouth, you are going to hit the sell button.
Read more from Andrew Moran.