Recession Arrives as First Quarter GDP Contracts By 4.8%; Companies Cutting Dividends at Record Pace

Dispensing with the usual diatribe over coronavirus and the botched government response, today's edition of Money Daily will focus on stocks that pay out quarterly dividends, the mother's milk of investing, as Larry Kudlow might phrase it.

But first, US first quarter 2020 GDP was just announced at 8:30 am ET, and the result was as Money Daily predicted, a decline of 4.8%. A few weeks back, various analysts from the likes of Bank of America Merrill Lynch and Goldman Sachs were making projections for second quarter GDP losses, somewhat overlooking what we considered obvious: a negative number for 1Q GDP. While the corporate analysts were busy downplaying the effect of a nationwide lockdown on business activity, they were missing an existential point.

Assuming that the second quarter was going to be in the red, a decline in first quarter GDP would satisfy the textbook requirement for a recession, which is two consecutive quarters of declining GDP growth. The definition is something of a non sequiter because nothing in nature actually grows at a negative rate. A truer definition might be worded as "two consecutive quarters of contraction," and that's now in play meaning one might as well assume that there's already a recession, and it started roughly the second week of February, when the world started to become focused on coronavirus and how to halt its spread.

Thus, we have the first quarter contraction of 4.8%, which will be revised twice, in late May and again in late June, though the number is so far into the red that there's no practical probability of it being revised into the positive. Second quarter GDP will be an outright train wreck. Figure on something on the order of -40% just for openers. That kind of number will have even the most ardent equity investor seeking safe harbor and scurrying away from stocks. Even today's figure should give everyone pause, and, in normal times, stocks would be falling into the ocean, but, thanks to the generosity of the Federal Reserve, the major indices will likely post more gains.

Underscoring the absurdity of the Fed's fool's errand - one in which they will bankrupt themselves - stock futures all soared higher on this morning's GDP announcement. How's that for in-your-face obstinance and stupidity?

Along with higher stock prices (unbelievable), the political ramifications are stupendous. This places the economy and a recession as front-and-center issues for the election season. Second quarter results will be in place come late July, and they will be undeniably ugly, since April was a complete washout and May isn't going to look much better. There are still vast swaths of the economy that are not operating at even 50% of optimal productivity and others that are not operating at all. Small businesses were shut down across the country for roughly six weeks to the tune of hundreds of billions of dollars in lost revenue and GDP, to say nothing of the lack of velocity in the economy. From late March through all of April and into May, velocity was basically stalled out.

What this means in terms of elections is the very real possibility of a President Biden and a takeover by the Democrats of the Senate, which would give the socialist movement firm footing in the three important branches of the federal government, the presidency, the House, and the Senate, which spells doomsday for America because socialist ideology will only exacerbate the already horrid condition of money-printing and profligate spending. It's doubtful that any of this has been factored into the Wall Street calculations. Current prices on the major indices and in "recovering" individual stocks reflect that, glowingly.

With the opening bell just minutes away, Money Daily will wrap here for Wednesday morning, cutting a little short the look at dividend stocks.

Wolf Richter of WolfStreet.com penned a noteworthy post on Tuesday, titled, Dividend Massacre in This Crisis is Already Breaking Records, But it Just Started, within which he details the number of companies which have already slashed or canceled their dividend payouts and how 2020 compares to other recent years in which dividends were targeted, 2001, 2008, and 2009.

What investors often lose sight of in times of financial turmoil is how mathematics deceives and often leads to false conclusions when considering buying a particular stock.

Picking up this theme on Thursday, along with the latest unemployment figures, the 30 stocks that comprise the Dow Jones Industrial Average - all of which pay dividends - will be examined, with considered opinion on whether or not these companies will maintain, increase, reduce or cancel their normal dividend payouts.

For today, the recession has arrived, though many in the know already think we're at the beginning of what is being hailed as "The Greater Depression."

At the Close, Tuesday, April 28, 2020:
Dow: 24,101.55, -32.23 (-0.13%)
NASDAQ: 8,607.73, -122.43 (-1.40%)
S&P 500: 2,863.39, -15.09 (-0.52%)
NYSE: 11,319.70, +54.86 (+0.49%)