Weekly Market UPDATE





THIS WEEK IN REVIEW: May 24 - May 30




Markets rise on reopening euphoria, then slump to end the week

Reopening optimism drove markets up early in the week, but increasing tension with China, violent protests in Minneapolis in the aftermath of a man’s death in police custody and the president’s escalating fight with Twitter drove markets down as we ended the week. Overall, we were still up on the week, thanks to two +500 days on the Dow on Monday and Tuesday. However, the mood has definitely shifted from reopening optimism to one of apprehension driven by national and international events.


Two weeks in one!

It was a short week for the markets, with Memorial Day on Monday. We continued the previous week’s run and added over 1,000 Dow points by Wednesday. Then we began hearing about China’s new security law curtailing Hong Kong’s “one country, two systems” status that was supposed to continue until 2047. Closer to home, President Donald Trump escalated his conflict with social media platforms, specifically Twitter, around the fact-checking of his tweets. This led to the president signing an executive order extending liabilities to social media companies, which they have previously been exempted from.


President Trump gave a speech on Friday laying out a new strategy toward China. Then violent unrest began in Minneapolis after George Floyd’s brutal treatment by police officers. All of these events combined to overwhelm the market’s enthusiasm from the beginning of the week, focused around more and more states reopening. New unemployment claims continued to decline, business activity has been picking up (although rather erratically in some places), and despite all the dismal numbers, any improvement was viewed in a positive light early in the week. Once the focus shifted, markets pulled back on new uncertainty late in the week.


Reopening and the true state of unemployment

Since mid-March, we have been pummeled with a weekly barrage of new unemployment claims every Thursday. This week’s number was 2.1 million new claims, but new claims have steadily and consistently declined from the monstrous 6.8 million weekly reading at the beginning of April.


To date, since the coronavirus shutdown was implemented, over 40 million people have filed new claims for unemployment insurance. This number has been cited frequently in an effort to paint as grim a picture of the economy and unemployment situation as possible. There is no need to embellish the pain people are feeling, and this is not the venue to explore why people would want to promote the negative versus the positive. Forty million claims in 10 weeks is a mind-boggling number, but is it a true representation of what is really going on?


The 40 million number is an accumulation of all new claims in the past 10 weeks and would lead you to believe that everyone who has filed is still collecting unemployment insurance. Also, 115 million people are considered regular adult workers, out of a population of 330 million, which includes children, seniors, the disabled, etc. So 40 million out of 115 million makes for sensational headlines, and that’s why that number is so often cited.


Yet statistics are often hijacked to make whatever point the user wishes. We should consider not initial claims but continuing claims because continuing claims account for people who filed for and continue to receive unemployment checks. Some of those 40 million people have returned to work; this week, we saw new claims come in at 2 million while continuing claims dropped from 25 million to 21 million. In a week where we saw 2 million people lose jobs, 4 million people returned to work.


To be sure, 21 million continuing to be unemployed is horrible enough without stoking more despair by invoking the even worse 40 million number. There will be plenty to wring our hands over when the monthly unemployment situation for May is released on Friday, which will probably show close to a 20% unemployment rate. We should focus on the positive development that a net 2 million people have returned to work, rather than focusing on the absolute worst number reported.


What in the world are we going to do with China?

China is already in the global penalty box for its response to the coronavirus outbreak. Now they’ve passed a new national security law, which will curtail many of the agreed-upon freedoms afforded to Hong Kong upon its handover from the British in 1999. The original scheme, dubbed “one country, two systems,” was meant to allow the ingrained democratic principles afforded to Hong Kong as a British possession to stay in place until at least 2047.


After last year’s pro-democracy rallies and clashes in Hong Kong, China decided it was time to bring the unruly possession under full submission. We don’t know how this will all turn out, but it will certainly not help the already-tense relations between the U.S. and China. After nearly two years of trade negotiations and tariffs, it is debatable if Phase 1 of the China trade deal will ever be implemented and doubtful if any additional progress with respect to trade will ever be made.



COMING THIS WEEK


• Unemployment numbers for May will be released on Friday. We are looking at a rate near 20%. Weekly unemployment claims will be reported on Thursday, and the rate of new claims should continue to decline.

• Protests and riots will dominate the news this week and may overshadow optimistic reopening developments.

• Other numbers reported this week include construction spending, auto sales and factory orders.

• We’ll all be keeping an eye on what’s happening in Hong Kong and what it means for U.S.-China relations.