Please ensure Javascript is enabled for purposes of website accessibility

Stock Market News: Coronavirus Lockdowns Help Roku; Margin Smacks Invesco Mortgage

By Dan Caplinger - Mar 24, 2020 at 12:03PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The stock market soared Tuesday on recovery hopes.

The stock market got a huge boost Tuesday morning, with major market benchmarks seeing sharp moves to the upside. The gains came despite the fact that lawmakers still haven't agreed on a final stimulus package to try to counteract the impacts of the coronavirus pandemic on the U.S. economy. As of 11 a.m. EDT, the Dow Jones Industrial Average (^DJI 0.85%) was up 1,384 points to 19,976. The S&P 500 (^GSPC 1.19%) rose 146 points to 2,384, and the Nasdaq Composite (^IXIC 1.84%) gained 387 points to 7,248.

COVID-19 has dramatically changed life for millions of Americans, and the trend toward staying at home has undoubtedly given Roku (ROKU 2.73%) a boost. However, the financial implications have put pressure on some financial companies, and Invesco Mortgage Capital (IVR 2.87%) fell prey to dysfunction in the mortgage-backed securities markets that exposed the risk of its investing strategy.

Roku cashes in on a captive audience

Shares of Roku were up 9%, adding to its gains over the past week. The streaming television specialist has a business plan that's tailor-made for those who need to stay at home, and investors seem more optimistic that rising viewership will help Roku make more money.

Box containing Roku hardware device.

Image source: Roku.

Roku has been working hard to try to boost the profit potential of its streaming platform. Recent acquisitions have positioned the company better to sell advertising space to small businesses, opening up an additional revenue stream beyond the large advertisers and ad agencies that have been easiest to do business with in the past. At the same time, Roku's working on developing its own content channel, and as its number of subscribers rises, the TV streaming specialist will have greater latitude to make more lucrative deals in licensing content.

Roku had an amazingly strong 2019, but its stock dropped in 2020 despite the alignment of its business model to the opportunities the coronavirus crisis has created. Regardless of how long COVID-19-related lockdowns last, Roku should have a good chance to use the experience as a springboard to accelerating growth.

Invesco Mortgage misses a margin call

Meanwhile, Invesco Mortgage Capital saw its stock plunge 45% Tuesday morning. The real estate investment trust said that unusual conditions in the mortgage-backed securities market led to its having to negotiate with financing providers to avoid a potentially catastrophic situation.

Invesco Mortgage said that due to the coronavirus crisis, it had gotten far more margin calls than it would typically receive from the counterparties that provide it with financing. The REIT apparently had enough capital to cover margin calls through last Friday, but Monday's continued stream of requests left it without sufficient funding to meet those calls. Moreover, Invesco Mortgage thinks that market disruptions are likely to lead to more margin calls in the near future.

In response, Invesco Mortgage is talking with its counterparties to see if they can forgo making future margin calls. The success of that negotiation process is uncertain, however, and so the REIT chose to delay payments of previously declared dividends to shareholders pending a final outcome.

The financial markets have seen some strange things happen lately, with illiquid conditions creating some added uncertainty. Despite Federal Reserve efforts to eliminate systemic risk, investors need to look at individual companies to see what dangers could lie ahead if these problems persist.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Invesco Mortgage Capital Inc. Stock Quote
Invesco Mortgage Capital Inc.
IVR
$15.78 (2.87%) $0.44
Roku Stock Quote
Roku
ROKU
$90.95 (2.73%) $2.42
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$31,302.23 (0.85%) $264.55
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,890.90 (1.19%) $45.82
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$11,571.14 (1.84%) $209.29

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
322%
 
S&P 500 Returns
113%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.