We rely upon the ‘history’ of the market and the ‘science’ of evaluating economic indicators, but this period of uncertainty has pushed us to ‘think outside the box,’ and add an element of creativity to our investment views.
In recent weeks, the unprecedented surge in claims for unemployment benefits pointed to a horrific economic impact from COVID-19. That sinking feeling has been reinforced by the major economic releases, which have shown a sharp deterioration in economic activity in March – enough to substantially weaken the first quarter as a whole.
All three major U.S. equity indices saw double-digit recovery in April, though most levels are still far from pre-coronavirus highs.
COVID-19 has affected the data collection process for the major economic reports, including employment, consumer prices, retail sales, and industrial production. However, the incoming economic figures imply a stunningly swift, sharp decline in economic activity.
The broad range of economic data signal that a recession began in March. Real Gross Domestic Product (GDP, the total of final goods and services produced in our economy) is expected to have fallen in the advance estimate for 1Q20. The 2Q20 figures will show an unprecedented decline in activity.
Additional relief packages are expected to take shape in coming weeks, which may provide additional support for the markets and economy.
Lawmakers, business leaders and healthcare professionals around the country are searching for solutions to curtail the spread of COVID-19 and reopen the U.S. economy.
Economic data reports are generally backward-looking. There’s a lot of noise, reflecting statistical uncertainty and seasonal adjustment difficulties. Reports for March 2020 present a greater challenge.
Though it may not feel like it, the S&P 500 index just experienced its strongest 16-day period since 1938.
Initial claims for unemployment benefits totaled 6.61 million in the week ending April 4, down from 6.87 million in the week before. Prior to seasonal adjustment, 15.1 million people have filed claims in the past three weeks – that’s 9.2% of the labor force – and the figures understate the degree of job losses (as not every laid-off worker can file a claim).
For the most part, assessments of the economic impact of COVID-19 have been more qualitative than quantitative. Data reports are backward-looking and often distorted. However, in recent weeks, the unprecedented surge in jobless claims has helped us to begin assessing the economic damage from social distancing.
While we still hope “April showers bring May flowers,” more so we are wishing that “April distance will bring May existence”—so continue social distancing!
Although the full extent of the economic impact from COVID-19 and social distancing measures remains uncertain, some things appear to be taking shape.
The phrase “a picture paints a thousand words” seems truer than ever as images of lockdowns flood our newsfeeds. From the eerie emptiness of Time Square to closed retailers, there is concrete evidence that all are doing their part to combat the outbreak.
There’s always a story behind the economic data. The Employment Report understated the labor market deterioration in March, while seasonal adjustment amplified the level of job losses in the first half of the month. More importantly, claims for unemployment benefits doubled from the astronomical level of a week earlier.
CIO Larry Adam discusses the COVID-19 outbreak and emphasizes that investors should exercise patience, not panic.
To say that a lot has changed in the last month is a tremendous understatement. The markets are playing a weak supporting role to the worst healthcare challenge in our generation, as well as the worst economic problem since 2008.
The US economy will likely struggle temporarily, but the combination of aggressive monetary policy and substantial fiscal stimulus should deter the worst case scenarios from occurring. These efforts will serve as a ‘bridge’ to a place not too far in the future (hopefully June) where the virus is contained, a therapeutic response is developed and the economy returns to normality.
The economic impact of COVID-19 has been shockingly large and swift, but most of the information has been anecdotal. Economic data reports are by their nature backward-looking. However, the latest unemployment claim figure and the University of Michigan’s Consumer Sentiment Index point to a sharp contraction in economic activity.
Lawmakers in Washington struck a compromise on a major fiscal stimulus package to help combat the effects of the COVID-19 pandemic. The bill, already passed by the Senate and awaiting House vote, packs in a lot, with upward of $2 trillion slated to provide important support for the economy.
The economic and financial market carnage of the coronavirus continued in yet another unbearable week for investors. The S&P 500 suffered its worst daily decline since October 1987 on Monday, and has fallen ~30% from its February 19 high—the fastest decline and entrance into bear market territory in the history of the US equity market.
In recent weeks, COVID-19 has led to escalating economic concerns. What started as a seemingly sharp, but likely temporary, reduction in Chinese activity, including disruptions to global supply chains, became more worrisome as the coronavirus moved to the rest of the world.
In recent weeks, we’ve seen economic concerns about COVID-19 moving from supply chain disruptions, to expectations of softer global growth, to fear of the impact from social distancing. The odds of a recession have been rising day by day. Some economists believe that we’re already in one.
The S&P 500 triggered the week’s second trading halt by falling more than 7% during Thursday’s market hours.
The markets seem to be vacillating between concerns for the extent of economic damage and hopes the federal government will intervene to stimulate the economy or support certain businesses affected most by the spread of the coronavirus.
COVID-19 fears continued to drive the financial markets. Share prices were volatile and bond yields dove further into record lows.
Volatility will persist until we get more clarity around the pace of contagion and the potential impact on the US economy – which could take time. Patience, not panic, is essential in order to make well-informed decisions.
The Federal Open Market Committee (FOMC) cut rates by .50% in preparation for potential coronavirus impacts.
Equities have fallen on continued news of the virus’ spread, and bonds have rallied as investors seek safety.
Markets have been skittish following the news of a coronavirus case in California with no clear point of origin.
As coronavirus cases continue to escalate in several new regions, like South Korea, Italy, Japan, Iran, Singapore and the United States, Raymond James Healthcare Policy Analyst Chris Meekins believes we are now in the midst of a COVID-19 pandemic. The word itself isn’t intended to cause panic, but rather to prompt increased awareness of the potential economic and health effects of this rapidly spreading virus.
Once again, China adjusted the criteria for recognizing COVID-19 cases (over 76,000 reported cases as of February 21, with 2,248 deaths). The immediate direct impact on the global economy is through supply chain disruptions and reduced travel/tourism (in China and throughout Southeast Asia).
The economy was mixed in 2019. Consumer spending, while uneven, was relatively strong, supported by solid fundamentals. Business fixed investment and manufacturing were weak, but not “recessionary weak.” January data are to be taken with a grain of salt – seasonal adjustment is huge and weather (good or bad) can exaggerate – but figures point to more of the same.
The spread of the coronavirus COVID-19 appeared to be slowing, but adjustments in the criteria for recognizing cases changed, boosting the reported number of infections. The change increased anxiety and uncertainty about the economic impact.
While red may be the color of the day, it’s a color investors have not seen from most asset classes over the last twelve months. For example, the S&P 500 rose ~26% and investment-grade bonds gained ~14%. However, just as in a healthy relationship, we cannot take this excellent performance for granted and become complacent about the future returns we expect to come our way.
The January Employment Report remained consistent with the broader range of labor market indicators. Job conditions are tight. Wage growth has picked up relative to a few years ago, but is not particularly high by historical standards. Thus, the Fed is widely expected to keep short-term interest rates steady in the near term.
President Trump delivered his third State of the Union address Tuesday night. In accordance with the US Constitution, the president has the responsibility to update Congress on measures deemed “necessary and expedient.” The event is not without tradition, but prior presidents have not hesitated to deliver their message in their own unique way.
Domestic stocks had a strong start to the year but soon ran into headwinds related to geopolitical risks in Iran and the Wuhan coronavirus.
With U.S. growth anticipated to be moderate this year, little was expected in the way of fiscal policy (taxes, government spending) and monetary policy (short-term interest rates), but life comes at you fast.
Trade policy uncertainty, slower global growth, a decrease in energy exploration, and problems at Boeing had a negative impact on business fixed investment in 2019. So what’s different in 2020?
Read the latest Weekly Headings by CIO Larry Adam.
Chief Economist Scott Brown discusses the latest market data.
Chief Economist Scott Brown discusses current economic conditions.
Job growth slowed last year, partly reflecting a tighter job market. However, wage growth, while higher in 2019, has remained moderate, much lower than one would expect given the low unemployment rate.
A year ago, the baseline scenario for the economy was moderate growth, but with an elevated level on uncertainty, with risks skewed to the downside. Trade policy uncertainty and slower global growth were dampening factors, but Fed policy was supportive. Investors were willing to look beyond the uncertainty.
Investor optimism remained strong in the first day of trading 2020, but news that the US. Military had assassinated an Iranian general sent share prices lower. The price of oil rose and bond yields fell in response to heightened uncertainty.
What can investors expect this year? Continued economic expansion, unaltered interest rates and new equity highs, says CIO Larry Adam.
Trade policy uncertainty and slower global growth may persist, but moderate expansion is anticipated for the U.S. economy overall in 2020.
