News that Congress was moving forward with $2 trillion in economic stimulus has many stocks surging higher today. At 2:13 p.m. EDT, both the S&P 500 and Dow Jones Industrial Average are up more than 4%, with many stocks up even more. However, things have started to turn down after a morning that had just about every kind of stock moving higher.
In late morning trading, shares of retailers Best Buy (NYSE:BBY), Kohl's Corporation (NYSE:KSS), and Macy's (NYSE:M) were up more than 5%, but at this writing, all three have sharply reversed course, with only Best Buy retaining some of its gains. Best Buy is up about 2%, while Kohl's stock is now down 1.5% and Macy's shares have reversed to a sharp loss, down almost 9%.
This morning's excitement over the passing of an unprecedented financial stimulus by the U.S. Senate seems to be abating. The bill still must go to the House for approval -- it's scheduled to happen Friday -- and would provide direct financial support to millions of Americans, extend the eligibility period for unemployment benefits, and create a program to help businesses. The U.S. economy is likely already in recession; more than 3 million people filed for unemployment benefits last week, by far the biggest increase in a single week. Direct aid to individuals and businesses to the tune of $2 trillion would help soften the blow from what is expected to be the biggest economic contraction in U.S. history.
The past couple of days of exuberance is starting to abate as investors digest the reality that retailers like Best Buy, Kohl's, and Macy's, which sell primarily discretionary consumer goods, likely still face a very tough period ahead. Economic stimulus will certainly make a big difference for many individuals and help support many small and large companies that could face insolvency in the weeks and months ahead, but it's not likely that these three companies would be significant direct beneficiaries. And even if they are, those benefits would help stave off losses and insolvency, but they aren't likely to be shareholder-accretive gains.
But while that explains why investors have likely gone from buying to selling, it's not a suggestion that selling is the right move for everyone. To the contrary, for investors who treat stocks appropriately -- as ownership of businesses that tend to deliver the best returns when owned over many years -- today's prices probably still represent great buying opportunities. After all, they are still down 33%, 61%, and 64% respectively at recent prices.
Of course, there's risk. Forced store closures to reduce the spread of the coronavirus is cutting revenues to a trickle for Macy's and Kohl's, and Best Buy's recent move to close its stores to the public -- though it's offering curbside store pickup for online orders -- is likely have a similar impact on its sales in the months ahead, as the surge in demand for work-from-home products proves temporary. These companies are going to have to live on the cash and debt they can access to bridge the gap between now and the eventual return to normal.
And yes, things will return to normal; we just don't know when that will happen. But when it does, I expect today's prices will prove bargains for all three of these retailers, so long as they have the liquidity to bridge the gap between now and then.