Large-cap long-only funds are the most underweight in financial stocks in nearly a decade as firms trade profits for loan-loss protections, Bank of America said Friday. Hedge funds made similar retreats, reaching record-low positioning in the sector last month and only barely ticking higher through May. Fund concentration in major tech names continued to swell, the firm said. Long-only funds notched another record-overweight positioning in the communication services sector in May. Visit the Business Insider homepage for more stories. Funds were running from financial stocks before the coronavirus hit, and the pandemic has only accelerated the sector's outflows, Bank of America said in a Friday note. Large-cap long-only funds are the most underweight in financial stocks in nearly a decade, according to the firm, retracing a minor uptick made after the 2016 election as firms stockpile cash for increasingly risky loans. Hedge fund positioning in financials plunged to a record low last month and barely ticked higher through May, the bank's analysts added. Only the energy and real estate sectors hold a smaller share of hedge funds' interest. Financial stocks have rallied alongside other slammed names as investors grow more optimistic toward economic reopening. The assets could become a "pain trade" for fund managers if their outperformance continues, Bank of America said. The firm maintains its "overweight" rating on the sector. Read more: Famed economist David Rosenberg says investors are falling into a classic market trap that's historically preceded a further meltdown — and warns 'there's not going to be much of a recovery' While weighting in financials slumped in recent weeks, investors continued to pile cash into major tech names. FANG stocks — Facebook, Amazon, Netflix, and Google — saw interest from long-only funds continue to grow. Such managers now sit 58% overweight on FANG compared to the S&P 500, according to the analysts. While tech names have broadly outperformed through the market's recent rally, Bank of America warned of their overcrowding both within and across funds. FANG alone makes up 10% of the S&P 500, and the corresponding communication services sector reached another record-overweight positioning in long-only funds in May. Now read more markets coverage from Markets Insider and Business Insider: McConnell says 'fourth and final' stimulus bill will be considered by Senate Republicans in roughly one month The Fed's relief programs will drive a 'tipping point' and end by 2021, KKR's macro expert says An elite 'ultragrowth' investor explains how he's beating the market in 2020 — and analyzes 4 stocks he thinks will help him stay on top for the next 5 yearsJoin the conversation about this story » NOW WATCH: Pathologists debunk 13 coronavirus myths
The Federal Reserve's "liquidity spigot" will close by 2021 as the government faces a new challenge in its ballooning debt balance, Henry McVey, head of global macro, asset allocation, and balance sheet investments at KKR, said Friday. Bond vigilantes — investors who short government bonds to combat inflation risks — could return in droves if the US continues its massive borrowing. To ensure the US can continue easily selling bonds to raise cash, it will likely end its relief programs sooner than most expect, McVey said in an interview with Bloomberg TV. Tax hikes are also likely in the cards as demand sits lower for a prolonged period, he added. Visit the Business Insider homepage for more stories. Investors hoping for years of asset purchases from the Federal Reserve are in for a rude awakening as soon as next year, Henry McVey, head of global macro, asset allocation, and balance sheet investments at KKR, said Friday. The central bank has spent billions of dollars to support market functioning and pad the economy against the coronavirus pandemic. Markets responded in kind, soaring through recent months on fresh hopes for a sharp recovery. Yet experts are now bracing for when the Fed could unwind its facilities and how the US will pay for its colossal aid efforts. Governments are set to reach a "tipping point" next year, McVey warned in a Bloomberg TV interview, as their ability to easily raise cash fades to a ballooning debt pile. Bond vigilantes — investors who sell bonds to combat rising inflation — could return in droves and further complicate the government's bond-sale efforts. Such risks will push the Fed to end its relief programs in a matter of months, McVey said. "I don't think we're going to see the bond vigilantes today, because the bond vigilantes are being overrun by the central banks," he said. "But ultimately that liquidity spigot will turn off by 2021." Read more: A Wall Street firm studied every crash over the past 100 years — and concluded that the unusual performance of 7 tech stocks is masking the risk of a prolonged meltdown A market reckoning could arrive the moment the Fed backs away from its aid programs. Oaktree Capital co-chairman Howard Marks warned earlier in May that current risk-asset prices are "artificially supported by Fed buying," and that he didn't think such levels would hold "if the Fed were to recede." Central bank retraction is only the first stage of a new economic struggle, McVey said. The macro expert forecasts the coronavirus crisis to push demand 10% lower, double what current prices imply, according to Bloomberg. The combination of weakened income and skyrocketing deficits will necessitate tax hikes and a lasting drag on consumer spending, McVey said. "The money's not free," he added. Investors looking to brace for the Fed's eventual unwinding should pivot to companies best positioned to profit from the coronavirus's side-effects, McVey said. Such stocks slid through the week as investors cheered economic reopenings and turned back toward beaten-down sectors. Infrastructure investments and leveraged buyout opportunities are of particular interest at KKR, he added. Disclaimer: KKR holds a majority stake in Business Insider's parent company, Axel Springer. Now read more markets coverage from Markets Insider and Business Insider: The Fed unveils top corporate-bond ETFs targeted in its $1.3 billion stimulus spree Markets expect bank dividends to plummet 40% by next year, Goldman Sachs says Famed economist David Rosenberg says investors are falling into a classic market trap that's historically preceded a further meltdown — and warns 'there's not going to be much of a recovery'Join the conversation about this story » NOW WATCH: How waste is dealt with on the world's largest cruise ship
A Friday release detailed which corporate-credit ETFs the Federal Reserve bought up from the program's May 12 start to May 18. BlackRock's iShares iBoxx US Dollar Investment Grade Corporate Bond ETF was the most purchased, with the central bank buying up 2,521,892 shares over the period. Total purchases reached $1.3 billion by May 18, though a separate release showed the figure swelling to roughly $3 billion by Wednesday. About $223 million of the Fed's ETF holdings are focused on high-yield debt, exposing the bank to firms at greater risk of default amid the coronavirus recession. Visit the Business Insider homepage for more stories. The Federal Reserve's first week of corporate-credit exchange-traded fund purchases primarily drove cash into industry giants including the iShares iBoxx US Dollar Investment Grade Corporate Bond ETF and Vanguard's Intermediate-Term Corporate Bond ETF, a Friday release revealed. The central bank boosted credit markets through the coronavirus pandemic after announcing its historic move into corporate-debt assets. Purchases of corporate-bond ETFs through the Secondary Market Corporate Credit Facility began on May 12. In the facility's first six days of operation, the Fed bought up $1.3 billion worth of ETFs over 158 transactions. Here are the Fed's top five ETF holdings after its first week of purchases: iShares iBoxx US Dollar Investment Grade Corporate Bond ETF Shares purchased: 2,521,892 Market value (as of May 19): $326,282,386.96 Vanguard Intermediate-Term Corporate Bond ETF Shares purchased: 2,483,885 Purchase amount: $228,095,159.55 Vanguard Short-Term Corporate Bond ETF Shares purchased: 2,776,786 Purchase amount: $226,196,987.56 iShares iBoxx High Yield Corporate Bond ETF Shares purchased: 1,255,084 Purchase amount: $100,657,736.80 SPDR Bloomberg Barclays High Yield Bond ETF Shares purchased: 905,284 Purchase amount: $89,532,587.60 Read more: Famed economist David Rosenberg says investors are falling into a classic market trap that's historically preceded a further meltdown — and warns 'there's not going to be much of a recovery' A separate release showed the Fed holding nearly $3 billion in ETFs as of Wednesday. The central bank has indicated it would purchase up to $250 billion in outstanding debt and $500 billion in new bonds throughout the lifetime of its relief programs. The top three most-bought ETFs accounted for the majority of the Fed's purchases over the week. Roughly $223 million was allocated to high-yield bond ETFs over the period. The Fed's move into junk-rated credit initially rankled some experts and fueled concerns that the central bank could encourage risk-taking amid the soured economic backdrop. The Fed is working alongside asset-management giant BlackRock to facilitate its purchases. Eight of the 15 ETFs purchased through May 18 were BlackRock vehicles. Trader commissions from such trades reached $125,861.73, according to Fed data. The central bank plans to open its remaining lending programs, including one for directly purchasing corporate bonds, before June. Now read more markets coverage from Markets Insider and Business Insider: Markets expect bank dividends to plummet 40% by next year, Goldman Sachs says The US-China trade war has erased $1.7 trillion from US companies' market value, Fed report says A Wall Street firm studied every crash over the past 100 years — and concluded that the unusual performance of 7 tech stocks is masking the risk of a prolonged meltdownJoin the conversation about this story » NOW WATCH: We tested a machine that brews beer at the push of a button
Options contracts appear to be pricing in 2021 dividends that are 40% lower than their March levels, Goldman Sachs wrote in a Friday note. Dividends currently sit 30% lower from three months ago and stand to fall further as banks shore up cash for loan-loss protections. If banks slash their dividends as projected, a wave of selling from income funds could significantly drag on their stock prices. The top 25 income funds hold roughly $18 billion in bank stocks, leaving plenty of cash available for a sudden outflow, Goldman said. Visit the Business Insider homepage for more stories. Options contracts are pricing in a continued plunge in bank dividends through next year, Goldman Sachs said Friday. Dividend payments from the top seven bank stocks currently sit 30% below their levels from three months ago, analysts at the firm wrote in a note to clients. The options market believes the worst has yet to come, pricing 2021 dividends roughly 40% below their March levels. The shift arrives as banks shore up cash to ride out the coronavirus pandemic, heightened loan risks, and the worst recession in nearly a century. Major banks' first-quarter reports largely missed earnings expectations as more cash was diverted from profits to loan-loss reserves. Investors expect the firms to take additional protections against defaults through balance-sheet shrinkage and dividend cuts, Goldman said. Read more: Famed economist David Rosenberg says investors are falling into a classic market trap that's historically preceded a further meltdown — and warns 'there's not going to be much of a recovery' The biggest shift in 2021 dividend projections is with Wells Fargo and Citigroup stock, which have seen expected payments slide 65% and 44%, respectively, over the last three months, according to the analysts. Morgan Stanley's dividend is the least expected to fall, with its 2021 projected dividend 23% lower from where it stood in March. Should banks cut their dividends as projected, investors could expect a wave of selling to tank their stock prices. The top 25 income funds hold roughly $18 billion in bank stocks, leaving plenty of cash available for outflows. While a partial cut could drive a similarly partial exit from major bank stocks, income funds "would likely have to fully divest" from bank equities if dividends are fully slashed, Goldman said. Stocks at greatest risk of a massive sell-off are PNC and Zion Bancorporation, the bank added. Now read more markets coverage from Markets Insider and Business Insider: US corporate bond sales surge past the $1 trillion threshold at the fastest pace ever The US-China trade war has erased $1.7 trillion from US companies' market value, Fed report says An elite 'ultragrowth' investor explains how he's beating the market in 2020 — and analyzes 4 stocks he thinks will help him stay on top for the next 5 yearsJoin the conversation about this story » NOW WATCH: Here's what it's like to travel during the coronavirus outbreak
Welcome to Wall Street Insider, where we take you behind the scenes of the finance team's biggest scoops and deep dives from the past week. If you aren't yet a subscriber to Wall Street Insider, you can sign up here. It's hard to believe Memorial Day has come and gone already, and that we're just about at the end of May. One area of Wall Street certainly didn't appear to take much time off over recent days. As Alex Morrell reports, US ECM volume roared back this month to close out with a record $72 billion. Pandemic-fueled debt binges aren't gone, exactly, but the script has flipped. There's debt fatigue among investors, bankers say, and some companies are now turning to equity markets instead to raise cash to ride out any more downturns - and in some cases, potentially do some deals. And while much of the May activity was follow-ons and convertibles, there are signs that the IPO market has been thawing, too. Warner Music Group, which announced plans for an IPO in February before the pandemic had gripped the US, is now moving forward with its public offering and is set to price next week. Read the full story here: Here's what unleashed May's record-setting equity resurgence — and a huge payday for Wall Street banks On the real-estate front, Dan Geiger explained how a potential court fight over a Victoria's Secret flagship NYC store highlights a wider battle between retail tenants and landlords. He also broke the news that IBM is ditching a big WeWork office in Manhattan, revealing the risks of the popular flex-space model as the pandemic prompts Blue Chip companies to rethink their real-estate footprints. And in case you missed it last weekend, Casey Sullivan and Meghan Morris had a must-read inside story about elite law firm Boies Schiller — Pay rifts, a partner divide, and a threat at the Ritz Carlton: 50 insiders reveal all on a massive shakeup at BSF. Thanks for reading, and have a great weekend, Meredith Campus housing bets put to the test As Meghan Morris explains, student-housing providers have seen a wave of money in recent years from public-markets investors and private groups like pension systems and sovereign wealth funds. Now the sector is undergoing its first real test. With campuses closed for in-person learning and timelines uncertain for reopenings, the basic investment thesis of student-housing being recession-proof has been rewritten. Experts shared their outlook for the sector — and why some are seeing big buying opportunities. Read the full story here: Big investors poured billions into student housing — thinking it was a recession-proof bet. Then the pandemic emptied campuses and turned that thesis on its head. UBS's COO on the future of work Dakin Campbell spoke with Sabine Keller-Busse, UBS's chief operating officer, who laid out the key lessons the bank has drawn from its coronavirus response. Keller-Busse described five areas where the bank will make or accelerate changes: the use of robots, staff insourcing, remote hiring, its real-estate footprint, and how heavily it will rely on business-continuity sites. Read the full story here: Robots, remote hires, and insourcing: A top UBS exec lays out how the Swiss bank is tackling the future of work Bank-fintech deals could get a boost Nigel Morris, a cofounder of Capital One who spent 10 years as its president and chief operating officer, told Dan DeFrancesco that now is the right time for deals between fintechs and banks. For fintechs, the coronavirus will force investors to take a harder look at the startups than they have previously, Morris said. And banks have needs as well. The pandemic has demonstrated the urgency for many of them to establish better digital strategies. Read the full story here: There's never been a better time for banks to buy fintechs, according to a Capital One cofounder Fintech Brex, the $3 billion fintech startup, is laying off 62 workers and restructuring to focus on 'building over growing' $3 billion Carta slashed its revenue goal but kept hiring anyway, leading to massive layoffs in April. Insiders describe whiplash and organizational chaos as the company attempts an ambitious new pivot. Wealth and investing E-Trade's stock-plan business is key to the Morgan Stanley deal. Now the unit is staffing up as demand grows during the pandemic. Investors are flying blind during the pandemic when it comes to valuing private shares — and it could be what finally makes unicorn profitability a must-have Web traffic data shows the biggest winners and losers across 11 different industries during the pandemic: Interest in Chipotle soared while Gucci traffic sank Real estate WeWork is set to vote on adding 2 new independent board members after big investors suing SoftBank unsuccessfully tried to stop it Careers Peloton rides, beer by mail, and bouncy castles: Big Law partners share their secrets to getting and keeping clients during a pandemic Join the conversation about this story » NOW WATCH: How waste is dealt with on the world's largest cruise ship
Silver Lake has been plowing money into bets like Airbnb, Twitter, and Waymo. Here's a look inside what's driving its rapid-fire dealmaking.
Silver Lake Partners is a private-equity firm known for doing leveraged buyouts of tech giants like Dell Technologies and Skype. But this year, the firm has done at least seven deals in which it's taken a minority stake. Altogether it has invested in deals worth a combined $7.3 billion. The big question across Wall Street is whether the deals represent a change in strategy for the investment firm, or just a reflection of the environment in which it's operating. Silver Lake is run by Egon Durban and Greg Mondre, named as co-CEOs in a December management shuffle. Ken Hao serves as chairman. Click here for more BI Prime stories. Private-equity firm Silver Lake is best known for doing leveraged buyouts of big-name, mature technology companies. Think Dell Technologies, Skype, or Broadcom. That was the reputation even heading into January of this year. Then, the company quickly peeled off a flurry of minority investments, starting with the enigmatic life-science company Verily Life Sciences. In March, as the coronavirus pandemic gathered steam in the US, the company plowed money into Google's self-driving car unit Waymo and Twitter. In April and May it followed with investments in Airbnb, Expedia, and India broadband startup Reliance Jio. Its latest investment was in a blank-check company just this week. Just this year, the company has invested alone or alongside partners in $7.3 billion worth of deals. But despite its big-name moves, the firm is something of a cipher to outsiders. And even industry insiders describe the firm as "media shy." The flurry of activity reestablished Silver Lake as a preeminent private-equity fund for the technology industry after several years in which competitors Vista Equity Partners and Thoma Bravo stole attention with big deals as valuations climbed. One banker who is familiar with their deals and friendly with some of the execs sums up the recent activity: "they view it very much as their reemergence." But the big question across Wall Street and Silicon Valley now is — what exactly is Silver Lake up to? It's not necessarily a change in strategy, some say, but a reflection of how the private-equity landscape itself has transformed. Others see it as a more fundamental departure from what had long been Silver Lake's bread and butter. Instead of focusing solely on pure technology investments like software companies and video conference platforms, it's now backing companies that span media, entertainment, sports and travel. And while Silver Lake has long been comfortable doing minority investments, some insiders say its spate of 2020 dealmaking has taken "non-control" deals to a whole new level. In Jio, for instance, it bought a 1.15% stake. "It's very, very typical of large financial institutions who kind of exhaust the playbook within the sector they're in, and then they look for other sectors," said Mark Leslie, a management lecturer at Stanford's Graduate School of Business, when asked to comment on the 2020 deals some view as a departure from Silver Lake's core focus. "They call it strategy drift." Leslie, who was once an investor in Silver Lake after he worked with the firm in a $20 billion deal when he was CEO of Veritas Softare, also said Silver Lake's deal appetite is likely the product of the turbulent environment. "There's an old saying about investing, which is, buy on gunfire and sell on trumpets," he said. "Now is a good time to buy." Silver Lake is currently in the midst of trying to raise a $16 billion fund, according to a Reuters report in April. And their string of recent deals has many in Wall Street curious to see what they'll spend on next. A Silver Lake spokesman declined to comment for this story. Do you have a tip about Silver Lake? Contact Dakin Campbell at dcampbell [at] businessinsider [dot] com, reach him by phone, text, Signal or WhatsApp at 917-673-9252, or on Twitter @dakincampbell. Or get in touch with Casey Sullivan by email at csullivan [at] businessinsider [dot] com, Signal at 646-376-6017, or on Twitter @caseyreports. Read more: Hollywood's top talent agencies may need a bailout from their PE backers as the coronavirus hammers big bets on live sports and studio production 'These investments are different' Business Insider spoke with more than a dozen bankers, lawyers, competitors, and deal partners to understand Silver Lake's strategy. Many said it was too early to judge the recent investments. "You look at some of their huge wins: Broadcom or Dell or Skype," said one of the people. "They were super hands-on. They were on the board and crafting the strategy, and they were super creative financially. These investments are different." Some see the source of the recent investments as stemming from the company's December management shake up, as a sign that co-CEOs Egon Durban and Greg Mondre are putting their own mark on the firm. The two men assumed their roles in December as part of a succession plan that saw managing partner Mike Bingle become a vice chairman and a managing partner emeritus, while Ken Hao became chairman of the firm. The four men, who grew up together at Silver Lake, took over day-to-day management years ago from original founders David Roux, Jim Davidson, Glenn Hutchins and Roger McNamee, who founded the company in 1999. McNamee left a few years later to found Elevation Partners. "They were one of the first pioneers in tech buyouts and tech private equity," said Steven Kaplan, a professor at the University of Chicago's business school who has conducted extensive research into the private equity industry. "It was very controversial at the time – people didn't think you could put leverage on tech companies. That turned out to be very wrong." Others see the latest moves as the outcome of a lack of attractive opportunities for transformative deals. Unlike Vista or Thoma Bravo, Silver Lake seemed unwilling to chase valuations over the past few years. That put them at a relative disadvantage, according to some of the people. Silver Lake saw its opportunity when valuations plunged earlier this year and solid companies with iconic founders and seemingly durable business models suddenly needed financing. Silver Lake quickly showed itself to be, as one banker put it, "validation capital." "If you're raising money and you have one key investor and you have one phone call to make, these are the guys we call," another banker said. "It's the tech version of Warren Buffett." Read more: We talked to 14 private-equity insiders about how they're planning to play the coronavirus turmoil. They identified 2 huge opportunities. Unusual deal talks Silver Lake's $1 billion investment in Twitter effectively called a truce between CEO Jack Dorsey and activist investor Elliott Management. Durban joined the Twitter board. After Elliott went public with its demands, Durban called Dorsey and asked how Silver Lake could help, according to one person with knowledge of the exchange. The Silver Lake partner had been interested in the social-media company for years and finally saw his chance. The time between the first call and the investment was about one week, lightning fast in the world of private equity, according to someone with knowledge of the talks. The Airbnb investment also unfolded in an unconventional manner. When Silver Lake began talking to Airbnb about more funding, Durban had never met Airbnb CEO Brian Chesky, according to a person familiar with remarks he made at a recent event for JPMorgan private-wealth clients. Deal talks progressed virtually and Silver Lake conducted due diligence without meeting the management team, others said. In the end, the company joined with Sixth Street to invest $1 billion in a combination of debt and equity securities. The company also took a piece of another $1 billion senior loan made to Airbnb by a second group. The investment, along with one made in Expedia, is a big bet that travel will come back strong. Durban won't join the Airbnb board. "This was a situation where there was dislocation and there were liquidity issues," Kaplan said. "People are looking for money and they aren't looking for control." Earlier this week, Silver Lake made another minority investment, spending $100 million to buy 12% of Far Point Acquisition Corp. The blank-check company is in talks to buy Global Blue, a Swiss player in tax-free shopping, from the private equity firm for $2.6 billion. FPAC's board is resisting the deal, so Silver Lake bought the stake in the blank check company to lend their support to the deal. One attorney who has worked with Silver Lake considered the move "aggressive," given that the investment essentially positions the firm on both sides of the deal. Read more: Read the full memo Airbnb CEO Brian Chesky just sent to staff announcing 1,900 job cuts. It lays out severance details and which teams are getting hit the hardest. 'That's a head scratcher' Silver Lake has always been structured in a way that gives it flexibility to invest in large-scale buyouts, minority investments, and everything in between. The company has a fund called Alpine that focuses on "non-control" debt and equity investments. And in December, the company said it would "expand its asset base" not only for large-scale private equity, but a "structured equity and debt investment strategy." Even so, a bunch of minority investments where they can't drive the company strategy aren't going to put up the kind of return numbers that investors in their funds expect, industry sources said. "In the absence of doing large-scale control deals, they are starting to do minority deals and PIPE deals and that's ok if you do one or two of them," one private-equity manager said. "But if you start deploying virtually all your deals in a form and fashion that is different from what was successful originally? That's a head scratcher." Read more: Wall Street is betting AMC is in a downward spiral. Here's the inside story of how the world's biggest movie-theater chain is battling for a comeback.SEE ALSO: We talked to 14 private-equity insiders about how they're planning to play the coronavirus turmoil. They identified 2 huge opportunities. SEE ALSO: Wall Street is betting AMC is in a downward spiral. Here's the inside story of how the world's biggest movie-theater chain is battling for a comeback. SEE ALSO: Hollywood's top talent agencies may need a bailout from their PE backers as the coronavirus hammers big bets on live sports and studio production Join the conversation about this story » NOW WATCH: How waste is dealt with on the world's largest cruise ship
'The brand is special': Warren Buffett called on American Express' CEO to protect its reputation during the coronavirus pandemic
Warren Buffett called on American Express CEO Stephen Squeri to safeguard the company's brand and customer relationships during the coronavirus pandemic. "The one thing he has and will continue to always point out to us is that the brand is special," Squeri said about the billionaire investor and Berkshire Hathaway boss in mid-March. "The most important thing about American Express is the brand and the customers that aspire to be associated with the brand," Buffett told Squeri when he became CEO, Squeri said this week. American Express followed Buffett's guidance by prioritizing service, adjusting rewards, and offering relief to struggling customers. Visit Business Insider's homepage for more stories. Warren Buffett gave a key piece of advice to American Express CEO Stephen Squeri about navigating the coronavirus pandemic as it threatened to spark a surge in late payments and defaults: protect the company's brand and customer relationships. "I talked to our largest shareholder, Warren Buffett," Squeri said on an investor update call in mid-March, according to a transcript on Sentieo, a financial-research site. "The one thing he has and will continue to always point out to us is that the brand is special," the head of the financial-services titan continued. "That brand needs to be cared for, the brand needs to be invested in and we will continue to do so through tough times and through the good times," he added. Read more: Famed economist David Rosenberg says investors are falling into a classic market trap that's historically preceded a further meltdown — and warns 'there's not going to be much of a recovery' Safeguarding the Amex brand meant focusing on service, Squeri argued on the call. "It is so important that we take care of our customers during this time," he said. "Some of them are going through stressful situations." Prizing customers Buffett offered similar advice to Squeri shortly after he became American Express CEO in 2018. The investor told him that "the most important thing about American Express is the brand and the customers that aspire to be associated with the brand," Squeri said at a Bernstein conference this week, another Sentieo transcript showed. Squeri took Buffett's guidance on board as US officials began shutting businesses and issuing stay-at-home orders to slow the spread of the virus, hammering the economy and spiking unemployment. American Express focused on maintaining its customer service after it was forced to shift from a fully physical operation to a virtual one, he said. Call volumes didn't drop with "lots of people looking for refunds," but the business made picking up the phone a top priority, he added. Read more: An elite 'ultra growth' investor explains how he's beating the market in 2020 — and analyzes 4 stocks he thinks will help him stay on top for the next 5 years The company has taken other customer-friendly steps such as adjusting rewards for card members to reflect the new status quo, Squeri said. For example, it's offering statement credits to customers who use certain cards to pay for streaming services, and to businesses that use them to cover cell-phone calls and shipping fees. Moreover, American Express rolled out pandemic relief programs to help customers struggling financially, Squeri said. The measures include waiving late fees, lowering interest rates, and cutting monthly payments. A "one-of-a-kind" company Buffett has a special interest in American Express because it's one of his oldest holdings. His investment partnership plowed 40% of its capital into the company in the mid-1960s after its stock halved following the Salad Oil scandal, when American Express was fooled into lending millions to a fraudster, Buffett said in his 1994 shareholder letter. American Express remains one of Buffett's biggest investments. Berkshire held more than 150 million shares representing about 19% of the company at the end of March — a stake valued at nearly $13 billion at the time. Read more: MORGAN STANLEY: Buy these 23 high-growth stocks that look poised to deliver market-beating returns over the long term Buffett has also praised American Express many times over the years. "A truly great business must have an enduring 'moat' that protects excellent returns on invested capital," he said in his 2007 letter, giving the "powerful worldwide brand" of American Express as an example. Buffett also described it as a "one-of-a-kind" company and "extraordinary business franchise" in his 1980 letter. Moreover, in his 2006 letter, he expressed great admiration for then-CEO Ken Chenault, who replaced Microsoft cofounder and Buffett's close friend Bill Gates on Berkshire's board earlier this year.Join the conversation about this story » NOW WATCH: We tested a machine that brews beer at the push of a button
Coronavirus layoffs have not been equal. Here are the workers that have been hit hardest by pandemic job losses.
The coronavirus crisis has led to sweeping layoffs across the US. Young workers, women, and minorities have been disproportionately affected by high unemployment due to the pandemic. This is due in part to the sectors that have been hit earliest and hardest by job losses, including leisure and hospitality, retail, and food and beverage services. "The pandemic is falling on those least able to bear its burdens," said Federal Reserve Chair Jerome Powell during a Friday event hosted by Princeton University. "It is a great increaser of inequality." Visit Business Insider's homepage for more stories. The coronavirus pandemic has had a devastating impact on the US labor force, and in particular has hit some of the most vulnerable workers the hardest. Since sweeping lockdowns to curb the spread of COVID-19 led to massive layoffs starting in March, more than 40 million Americans have filed for unemployment insurance. That's about one-quarter of the US workforce, and economists expect that weekly filings in the millions will continue through the summer months. In April, US employers slashed a record 20.5 million jobs, and the unemployment rate spiked to 14.7%, the highest since the Great Depression. Next week, the May nonfarm payrolls report is expected to show an even higher unemployment rate that could be even near the estimated record of roughly 25% during the Great Depression. But the economic pain, while far reaching, has not been equal. An IMF report showed that previous epidemics widened the inequality gap between the rich and poor. A survey from the Federal Reserve showed that nearly 40% of people working in February with a household income below $40,000 reported that they'd lost a job in March. Read more: Famed economist David Rosenberg says investors are falling into a classic market trap that's historically preceded a further meltdown — and warns 'there's not going to be much of a recovery' "This reversal of economic fortune has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future," said Fed Chair Jerome Powell about the report. The misfortune has been most noticeable in a few key groups of the workforce. Women In a Friday discussion with Alan Blinder, a former Federal Reserve vice chairman, Powell again said that the pandemic has exacerbated inequality in the US. "The pandemic is falling on those least able to bear its burdens," said Powell during the online event hosted by Princeton University. "It is a great increaser of inequality." He continued: "It is low-paid workers in the service industries who are bearing the brunt of this, it is also women to an extraordinary degree." April's jobs report showed that joblessness is impacting women more than men. The unemployment rate for women was 15.5% in April and 13% for men — just one month earlier, the rate for both groups was 4%. The jump in women's unemployment is due to the industries that were hit first and hardest by job losses in service sectors including leisure and hospitality and healthcare, according to a May report by Heather Boushey and Carmen Sanchez Cumming of the Washington Center for Equitable Growth. "All of these things are within the context of the fact that women workers were paid less beforehand so they have less wealth, they have less security," Kate Bahn, an economist and the director of labor-market policy at Equitable Growth, told Business Insider. Read more: Bill Miller and 5 longtime value investors share 10 stock picks they're betting on right now — and explain why these are the best companies for the crisis recovery This is a reversal from the great recession, where the earliest job losses were in male-dominated sectors such as construction, according to the report. It's led to some calling the current downturn the "shecession," as opposed to the "mancession" seen just over a decade ago. There's likely worse to come as job losses continue to climb in the US and globally. An estimate by Citigroup found that 31 million women in vulnerable sectors around the world face potential job cuts versus 13 million men. If all 31 million women lose their jobs, it could shave $1 trillion from real global gross domestic product, according to the report. Minorities Workers of color are also experiencing higher rates of unemployment than white Americans. In April, Hispanic unemployment surged to an all-time high of 18.9%, while black unemployment rose to 16.7%. White unemployment was 14.2%. To be sure, the usual gap between white and black workers shrank in April — usually the black unemployment rate is twice that of white workers, according to Equitable Growth. But that's likely because black workers make up a larger share of essential workers, which puts them at greater risk of getting COVID-19. Black Americans are also dying from the illness in greater numbers than other racial groups, especially in larger cities. There's also evidence that the trillions of dollars of government aid meant to help small businesses stay afloat isn't reaching minority-owned businesses. Just 12% of black and Latino business owners who applied for assistance from the Small Business Administration, most under the Paycheck Protection Program, received the support they asked for, The New York Times reported, citing a survey. Another survey of small business owners by the Census Bureau found that 38% of those surveyed had received a loan, according to The Times. Read more: A part-time real-estate investor quit his traditional job 5 years after snagging his first deal. He shares his no-hassle strategy that's allowed him to travel the world with his 6 kids. Young workers The Great Recession was damaging to the youngest workers — then millennials — who struggled to find jobs and make meaningful wage gains in a floundering economy. The coronavirus pandemic downturn is having a similar impact on young workers. The unemployment rate for teenagers was nearly 32% in April from 11% a month earlier, according to the Bureau of Labor Statistics. Including young adults, the rate goes even higher — Gen Z, or those aged 16 to 23, have an unemployment rate of 34.1%, according to the California Policy Lab. Young workers were also highly present in industries that faced layoffs and closures due to the pandemic, including retail, restaurants, and leisure and hospitality. Going forward, many young workers will be out of jobs this summer as internships were canceled and summer gigs are put on pause, Annie Lowrey reported in The Atlantic. While a summer off might not seem like a big deal, missing out on wages early in one's time as a worker can have a huge impact. In the long economic expansion following the great recession, millennial employment recovered, but their wages did not, Andrew Van Dam of The Washington Post reported, citing a 2019 working paper by the Census Bureau's Kevin Rinz. Read more: Jefferies breaks down the top 22 stocks it thinks you should buy right now — including 6 fast-risers that just captured its attention What's ahead? Economists forecast that the unemployment rate in May could surge above 20%, threatening the all-time high estimate of roughly 25% amid the Great Depression. For the groups already seeing unemployment even higher than the headline rate, it could mean new records. There is some hope that as the economy reopens, many workers laid off or furloughed due to the pandemic will be able to find new jobs or return to old ones soon. So far, all 50 states have relaxed at least some of their restrictions put in place in March, allowing some businesses to reopen and some people to return to work. In addition, the trillions of dollars in government stimulus efforts including unemployment benefits and direct checks have helped American workers, businesses, and their families amid the pandemic. And, there could be more relief ahead — Congress is weighing a number of initiatives that would aid workers, families, and businesses going forward. But any rebound may be slow, and some of the workers who thought they'd be returning to jobs may find that those jobs no longer exist. It will likely take years for the US economy to recover from the downturn, and that will have an impact on all Americans. "It's because of the unequal structure going into this crisis that we are seeing these really disparate outcomes," said Bahn. Workers entering the labor market during a downturn are often forced to accept lower-paying jobs because there are no other options, Bahn said, which can put them on a difficult path. "If you get off track and you start at a lower level that has a lot of momentum, it's really hard to bounce back from that," she said. Read more: An elite 'ultra growth' investor explains how he's beating the market in 2020 — and analyzes 4 stocks he thinks will help him stay on top for the next 5 yearsJoin the conversation about this story » NOW WATCH: Why Pikes Peak is the most dangerous racetrack in America
2 investors at Alphabet's $4.5 billion venture fund share the 3 healthcare companies outside their portfolio that impress them the most
With the coronavirus upending the healthcare industry, venture capital firms are finding that certain companies are taking off faster than expected. Business Insider asked top VCs to name companies outside of their portfolio that are poised to do well under the new circumstances. At Alphabet's venture arm GV, two investors we spoke with named companies in mental health, biotech, and telemedicine. Visit Business Insider's homepage for more stories. As the coronavirus pandemic has upended the way we get healthcare, venture capital firms are finding that certain companies are taking off faster than expected. So Business Insider asked 13 top VCs to name startups outside of their portfolios that are poised to do well given the new, coronavirus-driven circumstances in healthcare. At Alphabet's venture arm GV, two investors had some fun with the question. "Well, if it was really that exciting, we would have invested in it," said Dr. David Schenkein, GV's co-lead of life sciences. "A startup we're not invested in that I'm really excited by. That's a good one," he said. "The one that got away." Read more: Meet the 26 healthcare startups that top VCs say are poised to take off amid the coronavirus pandemic. GV has $4.5 billion under management, according to the company. It's invested in hundreds of startups, 23 of which have gone public. Among its past and current investments are Uber, Slack, Impossible Foods, 23andMe, and telemedicine company Doctor on Demand. As Schenkein searched for promising healthcare companies beyond the portfolio, managing partner Dr. Krishna Yeshwant stepped in. "David may disagree with me on this. But whether it works or not we're all kind of looking at Moderna as a company and hoping that the vaccine that they're working on, you know, works," Yeshwant said. Moderna priced the biggest initial public offering in biotech history in 2018, as Business Insider's Lydia Ramsey reported. The company recently released promising early data on a coronavirus vaccine. Read more: We just got our first human results for a coronavirus vaccine. Here are the 5 biggest questions we still need answered about Moderna's injection. Flagship Pioneering, pharma giant AstraZeneca, and investment company Fidelity own the most publicly traded stock in Moderna, according to data compiled by Bloomberg. As for companies earlier in their life cycle, Yeshwant said he was impressed by telemedicine company Doxy.me because it was keeping things simple for small- and medium-sized healthcare providers that otherwise struggle to get online. "Physicians seem to like it. Patients seem to be able to engage with it," he said. Telemedicine companies typically offer "wraparound services," like training doctors on how to use the system or getting it to work with providers in tandem with the patients' electronic health records. In contrast, Doxy patients don't even have to create accounts. Physicians interface with them, similar to Zoom, through a secure link. Founded in 2014, the New York-based startup doesn't have any outside investors or funding yet, according to the company. Prior to the pandemic, GV didn't invest in a company like that "because to some degree, without those wraparound services, I've always felt like telemedicine is a little bit of a commodity," he said. "Lots of companies do it. There's lots of platforms out there." Doxy.me hasn't been approached by GV, a spokesperson told Business Insider in a statement, but the startup said it has been contacted by "many interested investors" over the past three months. Read more: Investors just poured $14.6 billion into startups working to transform healthcare. These are the 10 companies that pulled in the most cash. For Yeshwant, the pandemic has also shed new light on healthcare startup Lyra Health, which works with employers to provide a range of mental health services online and in person. "You kind of think about the mental health impact that all of this has on employees. And as an employer what sort of resources do you really provide? That's not something people are often thinking about," he said. GV is invested in a company called Quartet Health, which, among other things, partners with health plans to pair mental health specialists and patients. But the firm was skeptical of Lyra's model, which works more intimately with employers, according to Yeshwant. "We had some skepticism with [Lyra] early on where it's like, 'Would employees be okay just sharing their mental health data through something that's coming through their employer?'" he said. "But they've done a fantastic job." Lyra has raised $176 million to date from Casdin Capital, Greylock Partners, Venrock, and others, according to a spokesperson. The company didn't comment for this article. Read more: Bankruptcies, tech-savvy doctors, and data for the greater good: The CEO of health-tech giant Epic shares her predictions for how US healthcare will change after the coronavirus.Join the conversation about this story » NOW WATCH: Why electric planes haven't taken off yet
Corporate America sold nearly $75 billion of stock in May. Here's what unleashed the record-setting equity resurgence — and a huge payday for Wall Street banks.
Corporate America sold record-shattering amounts of stock in May. IPOs and other equity issuances were overshadowed this spring as stock markets tanked and corporates rushed to raised debt instead. But volatility has faded and markets have rebounded, thanks in part to stimulus from the Federal Reserve. Stock issuance is surging again, producing more than $70 billion in deals in May. Companies are stockpiling cash in case of another downturn — some to protect themselves in case revenues disappear, and others so they can pounce on M&A deals that may arise. The record capital markets activity has been a boon for Wall Street banks. They reaped more than $1.7 billion in fees from ECM activity in May, according to Dealogic, second only to March 2000. Visit Business Insider's homepage for more stories. In March and April, corporate America set back-to-back records for issuing investment-grade debt, as companies swarmed bond markets to raise cash while the coronavirus pandemic choked off their revenue. While US corporate bond sales have hit historic highs — they reached $1 trillion for the year this week, the quickest pace to reach that annual milestone ever — IPOs and other corporate stock sales had been shrinking amid jolts of market volatility and economic uncertainty. But the script flipped in May, and now equity capital markets are breaking records. In the US, ECM offerings this month hit $72 billion, the highest monthly tally in history, according to Dealogic, surpassing December 2009, when crisis-stricken megabanks like Citigroup and Bank of America raised tens of billions in follow-on stock offerings. This time around, the banks are helping the rest of corporate America weather a crisis, racking up billions in fees in the process. Secondary share sales have been hot. In mid-May, PNC raised more than $13 billion after selling its cache of BlackRock stock, a stake it had held for 25 years. This week French pharma giant Sanofi sold its massive stake in Regeneron Pharmaceuticals for nearly $12 billion. There's also been a record $21 billion of convertible equity issued. Danaher issued a $1.25 billion block of preferred convertible shares in early May, and a couple weeks later grocery chain Albertsons sold $1.75 billion in convertible equity to a group of investors led by Apollo. There've been more than a dozen stock deals of at least $1 billion, according to Dealogic. "What we've seen the transition to is a lot more opportunistic capital raises for companies that are performing well in this environment," Kristin DeClark, cohead of US ECM at Barclays, said on a deals panel this week hosted by Reuters Breakingviews. "Either they're net beneficiaries or their stock prices are higher than people might otherwise expect given the current environment." What changed? Capital markets, which initially seized up in March amid concerns over the spreading Covid-19 outbreak, have been buoyed by government stimulus and the Federal Reserve's commitment to backstop the bond market. In general, companies have been chasing liquidity and stockpiling capital to ensure they can survive significant revenue hits over the next 12 to 18 months. Initially this provoked the flood of debt issuance — companies are reluctant to sell their equity when its cheap, nor when markets are bouncing around like pin balls. But bankers say there are signs of investor fatigue on that front, and the environment for selling equity is a lot more hospitable than it was a couple months ago. Bank of America credit strategists expect IG debt issuance to taper off in June to roughly $100 billion to $120 billion, and then only $200 billion to $300 billion the entire second half of the year. "For the moment, I think a lot of the issuance has taken place and has now been replaced by the equity capital markets," Leon Kalvaria, chairman of the Institutional Clients Group at Citi, said at the deals panel. Read more: We mapped out Citi's 40 most powerful investment bankers. Here's our exclusive org chart. While volatility remains elevated, the record shocks experienced in March have dissipated, and even amid an avalanche of unemployment claims, the S&P 500 has recovered some of its losses and is down just over 6% for the year, as of Friday. "When you talk to some of the best and the top institutional investors, the real reason that the market is trading where it is today, is despite the volatility, despite kind of unemployment where it is today, is because you can't short this market with the unprecedented amount of stimulus that's coming in," DeClark said. In this environment, some firms stockpiling cash to ensure longevity, while others are raising equity to reduce their leverage in the event of another downturn, DeClark said, providing more flexibility and protecting against a scenario where another sudden revenue drop doesn't endanger loan covenants. Read more: For certain corners of Wall Street, dealmaking is happening faster than ever. That could mean a permanent lifestyle change for some investment bankers. Firms less afflicted by the pandemic are also raising funds to pounce on potential strategic opportunities that arise, or to ramp up growth while competitors are licking their wounds. It's evolved beyond balance-sheet reinforcing moves — like Carnival's sale of an 8% equity stake to the Saudi sovereign wealth fund in late March — and "morphed towards actually IPOs that work in the current marketplace," Kalvaria said. Warner Music Group, which announced an IPO in February before the pandemic had gripped the US, is moving forward with its public offering, which could value the company at more than $13 billion. The company aims to raise $1.8 billion and start trading June 3, and has already drawn interest from investors including Chinese tech giant Tencent. Albertsons has designs on launching an IPO roadshow as early as next month as well. The record capital markets activity has been a boon for Wall Street banks. They reaped a "fee bonanza" of more than $1.7 billion in fees from ECM activity in May, according to Dealogic, second only to March 2000. Bank of America CEO Brian Moynihan said at a virtual financial conference on Wednesday that investment-banking fees at BofA are tracking at around 10% higher in the quarter than last year. JPMorgan Chase is headed for a more than 15% increase, JPMorgan Chase COO and investment-banking chief Daniel Pinto said at the same conference. Read more: Investors are clamoring for pandemic bonds. Here's how Wall Street banks are responding.SEE ALSO: Investors are clamoring for pandemic bonds. Here's how Wall Street banks are responding. SEE ALSO: For certain corners of Wall Street, dealmaking is happening faster than ever. That could mean a permanent lifestyle change for some investment bankers. SEE ALSO: We mapped out Citi's 40 most powerful investment bankers. Here's our exclusive org chart. Join the conversation about this story » NOW WATCH: Pathologists debunk 13 coronavirus myths
The European Union's $826 billion stimulus plan to battle the coronavirus is 'too small and too late,' analysts say
The European Union on Wednesday proposed a 750 billion euro recovery package as the economic bloc attempts to crawl out of its worst economic crisis in decades. Representing a major step towards a revival of the 27-member union, the EU fund is expected to be financed through borrowing, by issuing long-term government bonds in global financial markets. While analysts at Bank of America believe the EU fund is a decent starting point to negotiations, they say it is "too small and too late" for urgent economic needs. Goldman Sachs analysts praised the plan as more "ambitious" than the Franco-German proposal valued at €500 billion. Visit Business Insider's homepage for more stories. The European Union this week proposed a recovery package valued at €750 billion (about $826 billion), to revive the 27-member bloc from the devastation of the coronavirus pandemic. The official process for negotiations will kick off with informal discussions between the European governments, followed by the first formal discussion in the Eurogroup on June 11. Once all EU leaders reach an agreement, a formal approval by the European Parliament will be able to set off a final ratification by the 27 national parliaments. Disbursement of funds is expected to begin from January 2021 until the end of December 2024, financed by the issuance of bonds with maturities between 3 and 30 years. The package is by far the largest fiscal stimulus package in Europe's history, far outstripping the measures taken during the financial crisis and after World War II, but it may be too little, too late, according to some analysts. Read More: MORGAN STANLEY: Buy these 23 high-growth stocks that look poised to deliver market-beating returns over the long term 'Too small and too late' Bank of America analysts believe the economic stimulus is "too small and too late" to meet urgent economic needs, but said the package's "symbolic power likely trumps the economics." They added that the proposal's details will take time to digest since in typical European fashion, it is spread across a plethora of pages. They also warned of conditions attached to the aid provided and expect more clarity in coming days. 'Ambitious' relative to the Franco-German proposal Germany and France, the EU's biggest economies, announced their common proposal for a €500 billion ($550 billion), fund on May 18. Although the Franco-German proposal was based entirely on grants, basically giving money to EU countries, the Commission's proposed fund expects to borrow loans from the global financial markets. Compared to the Franco-German proposal, Bank of America analysts called the EU's latest recovery fund "tentative good news." Analysts at Goldman Sachs added that the EU recovery fund is "close to the Franco-German proposal, but somewhat more ambitious on the loan-based mechanisms for investment." Fund disbursement across member states The European Commission said it plans to split the money based on need, with about 20% each for Italy and Spain, significantly higher than 10% for France and 7% for Germany. The indicative allocation of resources for Italy was in line with expectations, said analysts led by Sven Jari Stehn, head of Europe economics at Goldman Sachs, adding that it was much larger for Spain, Greece, and Poland. Read More: A part-time real-estate investor quit his traditional job 5 years after snagging his first deal. He shares his no-hassle strategy that's allowed him to travel the world with his 6 kids. Need for speed, but heated debate and hurdles ahead Since details of the recovery package are yet to be worked out, deliberation could take months and may involve heated debate among the "frugal four" — Austria, Sweden, Denmark, and the Netherlands — and other member states, said Craig Erlam, a senior market analyst at OANDA Europe. The recovery plan signifies "the first time the European Commission will borrow on behalf of the EU anywhere near this scale and could be an important first major step towards shared debt." Erlam said it is too early to know whether the €750 billion plan will be sufficient, or whether it will be disbursed effectively. Although there is plenty to be critical of with respect to Europe's response, investors are clearly encouraged by the substantial proposed amount, he added. Read More: David Herro was the world's best international stock picker for a decade straight. He breaks down 8 stocks he bet on after the coronavirus decimated markets — and 3 he sold. 'Stop gap measure' One wealth manager told Business Insider the EU fund is a mere "stop gap" plan of action. "While the EU relief package will certainly help things in Europe, it appears to be more of a stop gap measure and pales in comparison to actions taken by the US government," said Zach Abraham, chief investment officer at Bulwark Capital Management. In its current structure, Abraham said, the EU cannot survive. What will likely happen is that Germany will back down on European Central Bank guidelines that restrict quantitative easing and other forms of monetary stimulus, and countries such as Italy and Spain will be forced to leave, he said. Analysts at Deutsche Bank said that they're concerned about whether the budget proposal can align with the EU's priority to transition to a green economy — achieving carbon neutrality by 2050 — and catching up in the digital race along with the US and China. If resources are "mainly used for the repayment of the Recovery Facility, consistency between crisis recovery and long-term priorities can only be achieved by strongly linking the recovery funds to the long-term objectives in the first place," they said. However, they also underlined positive initial reactions by Southern European leaders, including the Italian Prime Minister Giuseppe Conte who said the EU fund was a "great signal," while Spanish PM Pedro Sanchez said it met "many of Spain's demands." Read More: Bank of America says a new bubble may be forming in the stock market — and shares a cheap strategy for protection that is 'significantly' more profitable than during the past 10 yearsSEE ALSO: The US-China trade war has erased $1.7 trillion from US companies' market value, Fed report says Join the conversation about this story » NOW WATCH: Tax Day is now July 15 — this is what it's like to do your own taxes for the very first time
Famed economist David Rosenberg says investors are falling into a classic market trap that's historically preceded a further meltdown — and warns 'there's not going to be much of a recovery'
David Rosenberg — the famed economist and founder of Rosenberg Research — thinks the stock market is at a crucial juncture that's preceded sizeable drawdowns throughout history. In addition to the historical precedent that backs his view, Rosenberg highlights the following reasons for his bearish outlook: the permanent loss of millions of jobs, an overvalued market, an increase in savings, and blown-out high-yield spreads. There are other permabears that agree with Rosenberg's assessment of the market. John Hussman — the outspoken investor and former professor who's long forecasted a stock collapse — conveyed a similar view in a recent client note. Without a vaccine for the coronavirus, Rosenberg thinks a strong recovery is doubtful. Click here for more BI Prime stories. "Of course it's a bear market rally." That's what David Rosenberg — famed economist and founder of Rosenberg Research — said on the "Things That Make You Go Hmmm..." series in response to the stock market's massive rally that kicked off on in late March. "It is the classic, Bob Farrell, rule #8 that there are three aspects to every bear market," he said. "There's the initial plunge, the reflexive rebound, and then a long and drawn-out decline to the fundamental lows." For context, here's a visualization of of Farrell's aforementioned rule in action. Below is a graph of the S&P 500's price action during the tech bubble and financial crisis, broken down into his three distinct phases: (1) plunge, (2) rebound, (3) decline. "We're in the reflexive rebound right now," he said. "We had the mother of all reflexive rebounds coming of the October, 1929 crash. We had a 50%, six-month rebound." According to Rosenberg, today's market action is most closely associated with "Phase 2" of Farrell's indicator — a strong fake-out rally stemming from a deep drawdown, followed by a lengthy decline. Here's how he divvies it up: Phase 1 (initial plunge) — Complete. From February 19th to March 23rd, the S&P 500 fell 30-plus percent as the coronavirus proliferated throughout the world. Phase 2 (reflexive rebound) — In motion. The S&P 500 trades about 6% lower on a year-to-date basis. Over a one-year time horizon, the index is up over 8%. Phase 3 (decline to fundamental lows) — Yet to come. In Rosenberg's opinion — and using history as a guide — the type of market behavior he's seeing isn't congruent with a conclusion of a bear market. It's simply following a classic historical progression. "The message I'm sending my clients is this: Every bull market has it's pullbacks, just as every bear market has it's bear market rallies," he said. "And the bear market rallies can last for several months, and they can be rather significant." He added: "Now, those are rallies that you want to rent. Those are not rallies you do not want to own. They don't typically have a long shelf life." Some experts were encouraged by the market's stoicism and positive response to unprecedented monetary-easing efforts from central banks. Strategists at Goldman Sachs went as far as to declare that stocks have already bottomed for 2020, and boosted the firm's year-end forecast. Rosenberg disagrees — and he isn't alone in his assessment. John Hussman — the outspoken investor and former professor who's long predicted a stock collapse — shared a similar perspective when he said: "The current position of the market is reminiscent of the 'return to normal' trap in Jean-Paul Rodrigue's familiar chart of speculative bubbles." For context, Hussman provided the following visualization of Rodrigue's chart. "Phase two" of Farrell's rules, cited by Rosenberg, most closely resembles Rodrigue's "Return to 'normal.'"Both instances are followed by steep declines. In addition to historical evidence, Rosenberg is quick to note the following as reasons for his bearish assessment: A stock market that resides in the top 10% of historical valuations on a normalized basis An estimated 5 million permanent job losses Low interest rates denoting slowing economic growth and corporate profits Spreads on high-yield bonds rivaling that of of the tech bubble and financial crisis An increase in the savings rate delineating a gloomy consumer consumption outlook A decrease in the labor participation rate With all of that under consideration, Rosenberg thinks the likelihood of a strong recovery is doubtful. "But I think that what the folly is, is for those people that believe we're going to have a significant recovery — because there is no significant recovery without a vaccine," he said. "In fact, I would say there's probably not going to much of a recovery at all without a vaccine."SEE ALSO: 'Likely to be excruciating': A notorious stock bear says investor reliance on Fed money-printing is misguided — and warns of more than 50% crash from current levels Join the conversation about this story » NOW WATCH: Why Pikes Peak is the most dangerous racetrack in America