The Twilight Zone: Where Is Everybody?

The very first episode of The Twilight Zone aired on CBS on October 2, 1959. It was titled “Where Is Everybody?.” The TV series was created by Rod Serling and broadcast from 1959 to 1964. Wikipedia observes: “Each episode presents a stand-alone story in which characters find themselves dealing with often disturbing or unusual events, an experience described as entering ‘The Twilight Zone,’ often with a surprise ending and a moral. Although predominantly science-fiction, the show’s paranormal and Kafkaesque events leaned the show towards fantasy and horror.”

Each episode started with Serling explaining: “There is a fifth dimension, beyond that which is known to man. It is a dimension as vast as space and as timeless as infinity. It is the middle ground between light and shadow, between science and superstition, and it lies between the pit of man’s fears and the summit of his knowledge. This is the dimension of imagination. It is an area which we call The Twilight Zone.” That is a remarkably good description of the predicament that we humans are confronting during the current Great Virus Crisis (GVC).

Although the phrase “submitted for your approval” from Serling’s opening narration is closely identified with the show (and often used by Serling impressionists), it is actually heard in only three episodes. Now, submitted for your approval are the following surreal developments:

(1) Pandemic of fear. In The Twilight Zone, fear is the all-consuming emotion that often leads to madness. On February 26, when the S&P 500 closed at 3116.39, Joe and I wrote: “We have come to the conclusion that even if the virus turns out to be no more dangerous to global medical and economic health than previous outbreaks (as we still expect), extreme government responses aimed at containing the virus, while effective, will create a pandemic of fear, increasing the risk of a global recession and a bear market in stocks.” On March 10, we wrote: “The pandemic of fear continues to spread faster than the cause of that fear, namely, the COVID-19 virus.” On March 12, we pushed our 3500 year-end target for the S&P 500 out to mid-2021, and targeted 2900 for year-end 2020 instead. On March 16, we started to monitor the “mad dash for cash.”

We’ve been monitoring this madness in our chart publication titled Mad Dash for Cash. Liquid assets soared $1.3 trillion from the end of February through mid-April (Fig. 1). Commercial and industrial loans jumped $553 billion over the same time span (Fig. 2).

As a result, credit-quality spreads widened dramatically last month until the Fed expanded QE4, which had been announced on March 15, to QE4ever on March 23. The Fed’s balance sheet has increased by a whopping $2.4 trillion from the end of February through the April 22 week (Fig. 3 and Fig. 4). Credit-quality spreads have narrowed significantly since then as the pandemic of fear abated in the capital markets. The S&P 500 soared as liquidity returned to the bond market, allowing investors to rebalance their portfolios by selling their bonds to buy stocks.

(2) So where is everybody? Meanwhile, a pandemic of fear continues to weigh on our economy. As a result of voluntary and enforced social distancing and lockdowns, the streets are empty, as are office buildings, shopping malls, restaurants, hotels, and airports. It all started when President Donald Trump pivoted on March 16 from his position that COVID-19 is just a bad flu to advising Americans to listen to their governors if they issue 15-day stay-in-place executive orders.

By the end of the week, the governors of both California and New York did so. Other governors followed shortly thereafter. That was the easy part. Now the hard part: They have to decide when and how to open up their states. Even if they soon start to do so gradually, many people may opt to continue to work from home (if they can) and to stay away from public places. We’ve previously written that the best cure for a viral pandemic is a pandemic of fear. However, lingering fear of a second wave of infection and a seasonal return of the virus in the fall might continue to weigh on the economy. So a V-shaped recovery back to normal is unlikely. Hopefully, the recovery will be more U-shaped than L-shaped.

Many of us may or may not be virologists now that we have become very informed (and disinformed) about viruses over the past three months. In any case, we certainly are all germaphobes now. On the other hand, even though most of us are staying healthy at home, we are all getting cabin fever, for sure. One day soon, we will venture out of our cabins wearing surgical masks and bandanas and keeping our distance from all our germ-infested fellow humans. In this light, reread Serling’s opening narrative to his TV series, and “welcome to The Twilight Zone.”

(3) MMT to infinity and beyond. On Friday, March 27, four days after the Fed’s QE4ever announcement, Trump signed the CARES Act. It provided $2.2 trillion in rescue programs for the economy, including $450 billion for the US Treasury to provide as capital to the Fed to make $4 trillion in loans through Special Purpose Vehicles (SPVs). SPVs were newly created for the singular purpose of providing the Fed with a legal way to lend directly to Americans.

In other words, without any discussion or debate, the federal government has embraced Modern Monetary Theory (MMT), which advocates unlimited government borrowing unless and until inflation heats up. The act has already been followed by a $484 billion package of additional spending signed by Trump on Friday. Undoubtedly, there will be more packages to rescue state and local governments and to fund public infrastructure projects.

The federal deficit—which was already back to $1.04 trillion over the 12 months through March—is likely to exceed $4 trillion on a comparable basis by the end of this year, with outlays jumping from $4.6 trillion to $6.6 trillion and revenues falling from $3.6 trillion to $2.6 trillion (Fig. 5 and Fig. 6). Have no fear of these death-defying deficits because the Fed is here to help: Keep in mind that the Fed has already purchased $1.4 trillion in US Treasuries since the end of February! That’s MMT at work on steroids, for sure.

In my numerous conference calls with our accounts in recent days, I was frequently asked about the inflationary consequences of MMT-on-steroids. Yes, I acknowledged, it could all lead to Weimar-style hyperinflation. More likely, though, in my opinion, is that we are going down the same road as Japan, which has a rapidly aging population and lots of government spending that has been financed by the Bank of Japan’s QE4ever without any inflationary consequences.

By the way, on Friday, the Congressional Budget Office (CBO) released a preliminary economic damage assessment. The CBO is projecting that real GDP will fall by 40% (saar) during Q2 and that the unemployment rate will average around 14% for that quarter. For fiscal-year 2020, which ends September, the federal deficit is projected to be $3.7 trillion, with federal debt likely to be 101% of GDP by the end of the fiscal year.

(4) The end of globalization and the new world order. In my recent conference calls, I was also frequently asked about the prospects for globalization. “Not good,” is my short answer. On Saturday, the World Health Organization warned governments against issuing “immunity passports,” saying that there was not enough evidence that a person who has recovered from COVID-19 is immune from a second infection. Nevertheless, borders are likely to make a big comeback as countries require visas from foreigners proving that they’ve had medical checkups, including COVID-19 vaccine shots or antibody certifications.

Perhaps the biggest threat to globalization is that China and the US are already in the early stages of a Cold War with escalating cybersecurity and disinformation campaigns. Many US companies are likely, either voluntarily or as a result of government decrees, to move their supply chains out of China.

(5) Capitalism for cronies. Also in my conference calls, I’ve been making the case for investing in crony capitalism. I am an entrepreneurial capitalist. In providing investment strategy research to institutional accounts, I have many competitors. In my 2018 book, Predicting the Markets: A Professional Autobiography, I explained: “I have no lobbyists or political cronies in Washington, DC to protect my interests. So the forces of the competitive market compel me to work as hard as possible to satisfy my customers more than my competitors do.”

I differentiated entrepreneurial capitalism from crony capitalism as follows: “Admittedly, this is an idealized version of capitalism. It does exist, especially in the United States in many industries. However, it also coexists with crony capitalism. Actually, it can degenerate into crony capitalism and other variants of corruption. Successful entrepreneurial capitalists have a tendency to turn into crony capitalists when they pay off politicians to impose legal and regulatory barriers to entry for new competitors. It doesn’t seem to matter to them that they succeeded because there were no barriers or they found a way around the barriers. Rather than cherish and protect the system that allowed them to succeed, they cherish and protect the businesses they have built.”

As entrepreneurial capitalism evolves into crony capitalism, the government naturally becomes a bigger and more powerful participant in the economy and financial markets. That certainly describes what just happened with the passage of the huge CARES Act and the Fed’s unprecedented actions in the credit markets.

I’m not a preacher, so I am not going to dwell on whether this is a good or bad development. As an investment strategist, I focus on assessing whether the government’s policies are bullish or bearish. The latest developments are bullish for stocks, especially of companies that are likely to benefit from the triumph of crony capitalism. Most importantly, they are the ones that don’t need rescuing by the government, so they won’t be beholden to the whims of politicians to manage their affairs. (I wouldn’t be surprised if the airline industry, which received a $25 billion bailout under CARES, becomes nationalized on a de facto basis.)

Companies that have strong balance sheets with lots of cash will be like kids in a candy store, buying up distressed assets and companies with little resistance from anti-trust regulators, in my opinion. That’s because many of them also have lots of lobbyists in Washington who are vital intermediaries between big business and big government. They grease the wheels of crony capitalism.

(6) Good news: plenty of distressed assets. Several of our accounts told me during our recent audio and video conversations that they are getting inundated with calls from distressed asset fund managers. A few of our accounts are managers of such funds. Last year, they were bemoaning that they were attracting lots of reach-for-yield investors but couldn’t find enough distressed assets. Furthermore, intense competition in the industry for distressed assets boosted their prices, making these dodgy assets more expensive, thus reducing their risk-adjusted expected rates of return. It’s always better to buy a distressed asset at 25 cents on the dollar than at 50 cents on the dollar. But there have been slim pickings even at the higher prices until now.

The good news for distressed asset fund managers is all the bad news for the economy that’s been caused by the GVC: As a result, there’s no longer a shortage of distressed assets. The good news for the economy is that distressed asset funds are already scrambling to buy distressed assets. They have SWAT teams of professionals who are very skilled at restructuring these assets.

I’ve been saying since 2016 that distressed asset funds are the new shock absorber in the credit markets. It will be interesting to see if they can successfully absorb the latest shock to the benefit of both themselves and the economy. They’ll undoubtedly have plenty of assistance from cash-rich companies that will be scooping up cheap assets and companies. That’s certainly starting to happen in the oil patch, just as it did in 2015 and 2016 when the price of oil plunged. Of course, the Fed’s recent actions have also greatly reduced the pool of distressed assets.

In The Twilight Zone, good news can be bad news and bad news can be good news. Only in The Twilight Zone is it possible to go from desperately reaching for yield to madly dashing for cash, to scrambling to rebalance from cash and bonds into stocks, to snapping up distressed assets—all within a four-month period since the beginning of this year! That’s all truly surreal!

Fed Trying To Contain Zombie Apocalypse It Created

Creating the Zombie Apocalypse. Fed Chair Jerome Powell is doing an admirable job of playing the action hero in “2012 Zombie Apocalypse,” a 2011 film about a fictional virus, VM2, that causes a global pandemic. He is doing whatever it takes to stop the zombies from killing us by ruining our economy and way of life.

In my recently released book Fed Watching for Fun & Profit, I defined the zombies as living-dead firms that continue to produce even though they are bleeding cash. In a purely capitalist system, they should go out of business and be buried. However, these firms survive only because they are kept on life support by government subsidies, usually because of political cronyism, which corrupts and undermines capitalism. In recent years, the Fed’s ultra-easy monetary policies have created and exacerbated the zombie problem. I wrote:

“And why are lenders willing to lend to the zombies? Instead of stimulating demand by borrowers, historically low interest rates incite a reach-for-yield frenzy among lenders. They are willing to accept more credit risk for the higher returns offered by the zombies. Besides, if enough zombies fail, then surely the central banks will come up with some sort of rescue plan.”

Now consider the following developments just before the Great Virus Crisis (GVC) significantly increased the odds of a zombie apocalypse:

(1) The IMF’s script. In my book, I wrote: “If you want to read a very frightening script of how this horror movie plays out, see the October 2019 Global Financial Stability Report prepared by the International Monetary Fund (IMF). It is titled ‘Lower for Longer’ but should have been titled ‘Is a Zombie Apocalypse Coming?’ Here is the disturbing conclusion: ‘In a material economic slowdown scenario, half as severe as the global financial crisis, corporate debt-at-risk (debt owed by firms that cannot cover their interest expenses with their earnings) could rise to $19 trillion—or nearly 40 percent of total corporate debt in major economies, and above post-crisis levels.’”

(2) The Fed’s script. Also in my book, I observed that the Fed’s second Financial Stability Report was released in May 2019. It had the same don’t-worry-we-are-on-it tone as the first report released during November 2018. However, credit quality had clearly eroded in the corporate bond market. The second report observed: “[T]he distribution of ratings among nonfinancial investment-grade corporate bonds has deteriorated. The share of bonds rated at the lowest investment-grade level (for example an S&P rating of triple-B) has reached near-record levels. As of the first quarter of 2019, a little more than 50 percent of investment-grade bonds outstanding were rated triple-B, amounting to about $1.9 trillion.”

The report also raised concerns about leveraged loans, as follows:

“The risks associated with leveraged loans have also intensified, as a greater proportion are to borrowers with lower credit ratings and already high levels of debt. In addition, loan agreements contain fewer financial maintenance covenants, which effectively reduce the incentive to monitor obligors and the ability to influence their behavior. The Moody’s Loan Covenant Quality Indicator suggests that the overall strictness of loan covenants is near its weakest level since the index began in 2012, and the fraction of so-called cov-lite leveraged loans (leveraged loans with no financial maintenance covenants) has risen substantially since the crisis.”

(3) The man who saw it coming. During his October 30, 2019 press conference, Fed Chair Jerome Powell was asked about financial stability. He responded: “Obviously, plenty of households are not in great shape financially, but in the aggregate, the household sector’s in a very good place. That leaves businesses, which is where the issue has been. Leverage among corporations and other forms of business, private businesses, is historically high. We’ve been monitoring it carefully and taking appropriate steps.” He didn’t specify those steps. However, the Fed’s three interest-rate cuts during 2019 undoubtedly kept lots of zombies alive and fed their appetite for more debt.

Containing the Zombie Apocalypse. On March 11, the World Health Organization declared that the COVID-19 outbreak had turned into a global pandemic. The pandemic of fear spread just as rapidly in the US capital markets, especially in the bond markets, which seized up as credit-quality yield spreads soared. The zombie apocalypse had arrived.

On Sunday, March 15, the Fed responded by cutting the federal funds rate by 100bps to zero and announcing a $700 billion QE4 program of Treasury and mortgage-backed securities purchases. That week, the governors of California and New York issued executive orders requiring nonessential workers to stay home. Credit-quality spreads continued to widen significantly. So on March 23, the Fed introduced QE4ever and posted term sheets on five major credit facilities.

Three of the new facilities dated back to the Great Financial Crisis and were reactivated. The big shockers were the Primary Market Corporate Credit Facility (PMCCF) and the Secondary Market Corporate Credit Facility (SMCCF). For the first time ever, the Fed was going to lend a hand to the investment-grade corporate bond market. Here are the specifics from their term sheets:

(1) PMCCF. The Fed is prohibited by law from purchasing corporate bonds. To get around this restriction, the Fed will lend to a special purpose vehicle (SPV) on a recourse basis. “The SPV will (i) purchase qualifying bonds directly from eligible issuers and (ii) provide loans to eligible issuers.” This backstop for investment-grade corporate bonds and loans (with maturities of four years or less) will be backstopped by $10 billion in equity provided by the US Treasury’s Exchange Stabilization Fund. Borrowers may defer paying interest for six months (extendable at the Fed’s discretion), but they must not pay dividends or buy back shares during the period they aren’t paying interest. The facility is scheduled to be terminated on September 30 of this year.

(2) SMCCF. This facility is structured in the same way as the PMCCF, but it purchases eligible individual corporate bonds as well as eligible corporate bond portfolios in the form of exchange-traded funds (ETFs) in the secondary market with maturities of five years or less. Both programs set limits per issuer and ETF.

(3) Another round of drinks for my friends. On March 27, President Donald Trump signed the CARES Act, which gave the US Treasury $450 billion to invest in the Fed’s SPVs, thus effectively converting the Fed into the Bank of the United States, or “T-Fed” as I call it. On April 9, the Fed announced how it would leverage up all that capital, initially up to $2.3 trillion in loans and possibly up to $4.0 trillion in total.

That sum includes $750 billion in lending by the two corporate liquidity facilities leveraging up (on a 10-to-1 basis) the Treasury’s $75 billion in capital from the original $20 billion. The ironic shocker was that the eligible bonds now included those BBB-rated bonds that the Fed had warned about in its FSR (cited above) less than a year ago. If those dicey bonds dropped below that rating after March 22, they could still be purchased by both facilities, according to the updated term sheets of the PMCCF and the SMCCF. The Fed opened up these two liquidity facilities for homeless investment-grade corporate bonds to the so-called fallen angels as well.

Now what will the Fed do about all the junk bonds issued by zombie energy companies that are about to blow up? Probably nothing. Large oil companies and distressed asset funds are likely to scoop up all the frackers, who can’t service their debts, at big discounts. Some portfolio managers will have to take big hits in their junk-bond portfolios. That’s the downside of associating with zombies.

From Reach for Yield to Mad Dash for Cash to Rebalancing into Stocks

We live in an age of future shocks. It wasn’t too long ago that everyone seemed to be reaching for yield in the bond and stock markets. Actually, that was evident as recently as January 17 of this year, when the yield spread between high-yield corporate bonds and the 10-year US Treasury bond fell to 322bps, the lowest since October 8, 2018 (Fig. 1). That was followed by a mad dash for cash, as evidenced by the jump in this spread to 1,062bps on March 23, which was the highest reading since May 26, 2009. That also happened to be the day that the Fed announced QE4ever. Since March 24, it’s been a mad dash to rebalance away from cash and bonds into stocks.

That’s evidenced by the 27.2% jump in the S&P 500 since March 23 through Tuesday's close (Fig. 2). The index is still down 15.9% from its record high on February 19 but down just 2.1% versus a year ago. Joe and I have been among the few optimists lately: We declared on March 25 that the S&P 500 had bottomed on March 23 and forecast that it would reach 2900 by year-end. It has to rise only another 1.9% to get there, well ahead of schedule. That’s truly astonishing under the circumstances!

Admittedly, before the virus hit the fan and spread throughout the world, our year-end target had been 3500. We got close when the index peaked at a record 3386.15 on February 19, appearing at that point to be on track to hit that target well ahead of schedule.

So where do we go from here? We are sticking with 3500 by the end of next year. There will obviously be setbacks along the way, but we don’t expect to see the March 23 low again as long as progress continues in the war against the virus.

By the way, here are some updates on the unprecedented mad dash for cash that occurred during March:

(1) Bond and equity funds. During the four weeks through April 1, bond and equity funds, including mutual funds and exchange-traded funds (ETFs), had estimated net outflows of $301.6 billion, according to the Investment Company Institute (Fig. 3 and Fig. 4). Bond funds had outflows of $277.9 billion, while stock funds lost $23.7 billion.

(2) Liquid assets. During the four weeks through March 30, liquid assets jumped by $1.1 trillion, led by money market mutual funds held by institutions ($511.8 billion) and savings deposits ($492.9 billion) (Fig. 5).

(3) Bank balance sheets. Total deposits at US commercial banks jumped $811 billion during the four weeks through April 1 (Fig. 6). Their borrowing increased $330 billion over the same period. On the asset side of their balance sheets, commercial & industrial loans rose $486 billion, while their portfolios of US Treasury and agency securities rose $38 billion.

Tech Is Going Even More Viral

Anyone who wasn’t a tech addict before the Great Virus Crisis (GVC) turned our lives upside down certainly is now. For many of us, working from home has only emphasized our need for fast wireless connections to the cloud. Cocktails and conference calls via Zoom have helped us connect despite the separation. And Netflix and video-gaming systems have kept the whole family entertained. Technology has become a GVC staple, right up there with food and toilet paper.

The tech names helping us during this time of social distancing are scattered primarily throughout the S&P 500 Information Technology and Communication Services sectors. Both sectors are leaders in the performance derby among S&P 500 sectors ytd through Tuesday’s close: Information Technology (-9.4%), Consumer Staples (-9.7), Health Care (-11.2), Utilities (-14.7), Communication Services (-14.9), Consumer Discretionary (-16.7), S&P 500 (-17.7), Real Estate (-18.8), Materials (-23.5), Industrials (-26.1), Financials (-30.9), and Energy (-46.1) (Fig. 1).

The stocks of tech-related companies involved in cloud computing and gaming have been particularly strong ytd. That’s easier to see when they are grouped together in a hypothetical index that uses their market weightings. An index of Activision Blizzard, Akamai Technologies, Amazon, Electronic Arts, Microsoft, Netflix, Nvidia, and Take-Two Interactive would have returned 6.5% ytd through Tuesday’s close, vastly outperforming the S&P 500’s 17.7% decline.

Let’s take a look at these tech staples that are helping us all maintain some semblance of normalcy during this surreal time:

(1) Not all tech is equal. The tech sector is very diverse, and not all areas will go untouched by the pandemic. Global tech spending will grow 2% this year assuming that the US and other major global economies decline in the first half of 2020 and recover in the second half, Forrester Research estimated in a March 16 blog post. If the recession is longer lasting, there’s a 50% probability that US and global tech spending will decline by 2%.

Communication equipment spending may post declines of 5% to 10%; tech consulting and systems integration services spending could be flat to down 5%; and software spending growth could post 0% to 4% growth. Samsung underlined this risk when it warned that its Q1 profit would be up 3% y/y, near its lowest level in five years due to the global fallout from COVID-19, an April 6 FT article reported.

“Demand for mobile phones, automotive and consumer electronics is falling sharply, which could negatively affect chip demand in the second half [of the year] if the coronavirus outbreak is not brought under control,” according to SK Securities analyst Kim Young-woo, the FT article reported.

But all things related to the cloud still appear to be growing, recession or no. “The only positive notes would be continued growth in demand for cloud infrastructure services and potential increases in spending on specialized software, communications equipment, and telecom services for remote work and education as firms encourage workers to work from home and schools move to online courses,” the Forrester post states.

(2) Welcoming clouds. In my 2018 book Predicting the Markets, I wrote: “When the fax machine first came out, I remember telling my team that we one day would be working from the beach. I foresaw that with technology, we could be productive from anywhere. Since 2007, when I formed my own company, we have been virtual. We don’t have any offices. Everyone works from home or from wherever they like. We replaced a couple of servers we had at a ‘server farm’ with a virtual server on the Amazon cloud in 2012. We subscribe to Microsoft’s Office 365, which allows us to rent the software over the cloud. Our Morning Briefing is delivered to all our accounts by email and posted on the website. Its production is a collaboration among my colleagues and me, invariably entailing a daily flood of email messages among us to get the job done. All these technologies have enhanced our productivity and allowed us to compete in a very competitive market for what we do.”

I was wrong about the beach, but early on the cloud and on working from home at least. Now demand for cloud services undoubtedly is increasing significantly in these troubled times. Jackie joined our firm during 2015 from Barron’s. She reports that she has worked from home for many years. But now she’s joined by her husband, who’s working online and conducting meetings via the Internet, and her kids, who are learning online. Her daughter is taking guitar lessons online, in fact, and her son is glued to Xbox Live, the online gaming system. The whole crew keeps in touch with friends and family via video calls on Zoom and watches Netflix and Apple TV. That’s a lot of bandwidth! Our other team members report similar lifestyles, and so do all of our accounts during our Zoom conference calls.

Microsoft recently gave a small glimpse into the surge of usage its various business lines are experiencing in a March 28 post. The number of Microsoft Teams’ daily active users has more than doubled to 44 million in March from 20 million in November, and Windows Virtual Desktop usage has grown more than threefold. Comcast’s peak Internet traffic has increased 32% since the start of March, an April 4 blog post by IEEE.org stated.

Cloud providers are scattered among three different S&P 500 industries. Microsoft is in the Tech sector’s Systems Software industry (up 2.7% ytd), Amazon is in the Consumer Discretionary sector’s Internet & Direct Marketing Retail industry (up 3.3% ytd), and Google is a member of the Communication Services sector’s Interactive Media & Services industry (down 14.0% ytd) (Fig. 2, Fig. 3, and Fig. 4). The share prices of Google and Facebook both have fallen by more than 10% ytd because the advertising dollars on which they depend have dried up during this time of uncertainty.

(3) Entertainment at home. Much of our at-home entertainment is also delivered via the cloud and Internet connections. Xbox is part of the Microsoft family. Activision Blizzard, Electronic Arts, and Take-Two Interactive Software are members of the Communication Services sector’s Interactive Home Entertainment industry (Fig. 5). It’s down fractionally, -0.3%, ytd.

While Netflix shares are up 15.1% ytd, the industry to which it belongs, Movies & Entertainment, has fallen 14.9% ytd. Other members of the industry, which resides in the Communication Services sector, are suffering from the drop in advertising (Viacom and Fox) as well as the closure of amusement parks, hotels, and cruises (Disney) (Fig. 6).

(4) The tech behind the services. Companies making the hardware and services to make the cloud expand quickly and work seamlessly also have benefited from lifestyle changes during these pandemic times. Akamai Technologies provides web security and cloud services through 240,000 servers in 130 countries. It’s a member of the S&P 500 Tech sector’s Internet Services & Infrastructure industry, which has risen 3.7% ytd and is the third best-performing industry we track (Fig. 7).

At the core of these technologies are semiconductor companies. Their stocks are down ytd but are still outperforming the broader index. The S&P 500 Semiconductor industry has fallen 9.2% compared to the S&P 500’s 17.7% decline (Fig. 8).

Nvidia is a chip maker with products in cloud servers and in high-end gaming laptops. Its exposure to the market’s hottest areas no doubt has helped its stock climb 10.1% ytd. At an analyst meeting in late March, Nvidia said “demand remains strong from ‘hyperscal’ cloud service providers that use Nvidia’s chips in their data centers” and the company is enjoying a “‘surge in PC game play’ as more workers and students are sent home,” a March 24 WSJ article reported. The company also has encouraged investors by maintaining its revenue forecast.