Monday Musings: November 30, 2020

Nov 30, 2020

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Public Trust Credit Team
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Despite the pandemic, the holiday shopping season is expected to remain strong with a focus on online sales and curbside pickup

According to the National Retail Federation (NRF), sales for the holiday shopping season (November 1 through December 31) are anticipated to grow between 3.6% and 5.2% over 2019, with corresponding total sales of $755.3 billion to $766.7 billion. NRF also forecasts that online sales (included in the total) will increase between approximately 20% to 30% which translates to $202.5 billion and $218.4 billion, respectively, up from $168.7 billion in 2019. In what has become a trend for 2020, retailers have emphasized increasing sales through online channels, offering faster delivery times including same-day delivery and focusing on curbside pickup for traditional brick and mortar stores; the 2020 holiday season is no exception though retailers have shifted their focus toward early season shopping. With many retailers opting to close on Thanksgiving Day this year, their strategies have focused on offering earlier holiday deals both online and in-store; for example, Target decided to run Black Friday deals for the entire month of November, and many others followed suit. 
 
Consumption habits have evolved over the duration of the pandemic with an increased focus on online shopping continuing into the holiday season. Data from RetailNext (a provider of software and analytics for U.S. stores nationwide) revealed foot traffic was down 48% on Black Friday compared to 2019. While this decrease in foot traffic and in-store shopping is expected to continue, companies have been preparing to counter this with an improved omnichannel presence. Additionally, NRF noted that with reduced spending on personal services, travel, and entertainment, consumers may have additional money to spend during the holidays. Down from 562k in 2019, NRF anticipates retailers will add between 475k and 575k seasonal workers to assist with the holiday season. Though this holiday season will look markedly different than years past, overall sales are expected to remain healthy.

Looking for yield? Buy American

According to research from Bank of America Merrill Lynch, the U.S. accounts for only 13% of the $63.4 trillion global investment-grade (IG) fixed-income market but also accounts for 41% of the total yield. This comes as the world’s negative-yielding debt hit another record high of $17.5 trillion globally. Positive yields across the curve in the U.S. have led to a scenario where domestic credit faces significant demand from investors in their hunt for yield as more and more of the world’s share of IG debt turns negative. Looking forward, this means that the outlook for spreads in 2021 appears very tight. Despite being in a global recession, U.S. investment-grade spreads are near traditional, non-recessionary lows and will likely continue to trade lower. In the hunt for yield, the U.S. continues to stand out, leading to a tough return environment for investors in 2021.

Announcing the largest deal of the year, two data providers set to merge

This morning, S&P Global announced its plan to acquire IHS Markit for $44 billion in an all-stock transaction, now the largest pending single company transaction of the year. Both companies have had strong years during the pandemic as data-hungry investors clamor for more information on COVID-19 and its subsequent effects on the economy. It is unclear whether the merger will face any antitrust challenges since the new company will be one of the largest in the sector. The merger is not likely to have any affect on S&P’s rating business at this time though IHS’s commodity business will likely pair with S&P’s Platts commodity offering. 
 
Overall, the global recession has slowed M&A this year, with deals down 12% compared to a year ago though the market has roared back in Q3 and Q4. Frothy equity markets are keeping valuations high and making it more attractive for firms to pursue all stock transactions, accounting for $441 billion year-to-date. So far this year, technology remains the most active sector with $669 billion of deals.
All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

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