MARKET UPDATE: June 22, 2020

The Good News, Bad News Pendulum

The Good News

Last week, we learned that retail sales in the U.S. jumped 17.7% in May—much better than forecasts of 8%. 

  • Clothing sales increased 188%.
  • Furniture sales increased 90%.
  • Electronics and appliances sales increased 51%.
  • Restaurants and bars sales increased 30%.

While U.S. unemployment hovers around 14%, the number of new unemployment filings decreased last week by 8.2%, marking 11 straight weeks of improvement. 

The median listing price for houses is growing at 4.6% over last year—just above the pace seen pre-Covid-19.

Last Monday, the Federal Reserve officially opened its Main Street Lending Program for small- and medium-sized businesses. Later in the week, the Fed started purchasing individual corporate bonds, as part of its continued commitment to keep the credit markets from freezing. 

Also of note, last week American Express was given approval to launch bank card clearing services in mainland China, becoming the first foreign payment network to process domestic transactions in yuan. MasterCard and Visa are also eyeing opportunities. These headlines suggest the possibility that trade tensions may be easing.

On June 15, the U.S. announced it will allow a total of four round-trip flights per week by Chinese airlines in response to China’s decision to allow the same number of flights for U.S. carriers. Delta Air Lines and United Airlines will each have two flights per week to China.

On June 18, we learned the Conference Board Leading Economic Indicator (LEI) increased 2.8% in May, following a 6.1% decline in April, and a 7.5% decline in March. The LEI is a highly regarded metric that tracks a number of U.S. economic factors, including improvements in labor markets, housing permits, and new orders in manufacturing.

The Bad News

While the increase in retail sales was welcomed, more subdued data regarding industrial production and factory utilization offset that news.

On Friday, the U.S. reported more than 30,000 new Covid-19 cases, the highest number of daily infections recorded since May 1, according to data compiled by the Johns Hopkins University. That same day, Apple closed stores that it had recently reopened in four states where the coronavirus is surging.  On Saturday, we saw a repeat of Friday’s Covid-19 cases, adding to the fear of a significant second-round surge. Across the country, many Americans increased their risk of infection as they returned to bars, restaurants, shopping malls, and beaches.  

In Beijing, more than 20 million people were placed under a partial lockdown due to a resurgence of Covid-19. Chinese authorities sealed off residential neighborhoods, closed schools, and barred hundreds of thousands of people from leaving the city. 356,000 people are reported to have been tested in five days.

Many believe herd immunity will ultimately be the answer to this pesky virus. Without a vaccine, our individual risk-avoidance behaviors remain the most significant deterrent to infection.

Pandemic Policy Implications

There will be lasting effects from the pandemic policy responses. The required fiscal stimulus to address the economic shutdown has significantly increased the federal debt burden payable by future generations. Likewise, monetary stimulus from the Federal Reserve has added trillions to the Fed’s balance sheet with the likelihood of adding trillions more over the coming months. The federal government will need to address the ballooning debt, and the Fed will need to explore and implement new ways to withdraw the stimulus. Further, across the country, many states, cities, and municipalities are suffering from lost tax revenues, adding to the economic risks of the pandemic.  (We will expand our commentary on these topics in future PWA publications.)

What does this mean to PWA clients?

Looking ahead, as the pendulum of “good news, bad news” continues to swing between optimism and caution, expect more bouts of market volatility. The 2020 market has tested—and will continue to test—investor risk vs. reward tolerances. The volatility presents investors with the opportunity to reassess goals vs. their risk tolerances. Therefore, over the coming weeks, we will be sending a questionnaire aimed at accurately assessing and documenting every client’s appetite for risk.

PWA Wealth Management studies the economy and the markets to ensure we are prepared to assist our clients in achieving their financial goals. We have a single goal—to help you achieve yours!

The U.S. economy is legendary for its strength and resilience—and our national character is persistently innovative and bold. We are a nation of achievers and problem solvers. We seek opportunities to improve the quality of life for all people. Our history and heritage suggest we will triumph over the pandemic and return to prosperity.

With this note of confidence, PWA congratulates all fathers, trusting that yesterday brought much happiness. We are hopeful that all dads had a wonderful Father’s Day!  

Thank you for your continued confidence.

Stay strong.

Joseph A. Scarpo

Founder & CEO

Investment News  //  Market Pulse
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