Weekly Market UPDATE





THIS WEEK IN REVIEW: June 28 - July 4




A long time ago, in an economy far, far away

2019

(Imagine this as Star Wars scrolling text!)

A few weeks ago, markets began tailing off as renewed fears of a second wave of coronavirus infections began sowing the seeds of doubt in the markets as to the pace of the recovery and reopening of the economy. It was beginning to look like the prior economy was some distant figment of our imagination which would never, ever return. Those fears are still present, but strong data helped turn mid-June’s frown into last week’s smile. Consumer confidence and new jobs data helped close out the best quarter for the Dow since 1987 and the best quarterly gain for the S&P 500 in more than 20 years. The Nasdaq posted new records and is up over 10% year to date. We reached these levels over just four days (or more like 3.5 days, with markets muted on Thursday preceding the Independence Day celebration).


It’s hard to believe we are halfway through 2020, but I, for one, am eager to put the past six months behind us and look forward to a better and less volatile second half of 2020. That might be wishful thinking, as the second half of the year will probably be just as wild but with a flavor all its own!


The data strikes back

Fear was displaced by hope over the past week, as we began learning more about the virus and our self-imposed lockdown, with its corresponding impact to the economy, started coming to an end. As we started the re-emergence, expectations were for a quick and successful rebound once the coronavirus was vanquished. Anticipation of the proverbial “V”-shaped recovery helped drive markets to their best 50-day returns in history. First the Nasdaq regained its 2020 losses, followed by the S&P 500. Then the Nasdaq did everyone one better by setting new records once the economic recovery began taking hold, helped largely by big-tech stocks.


We began hearing increasingly louder whispers that the recovery would not, in fact, be “V”-shaped but instead would be hampered by a second wave of infections. Hope faded as a result, even though the May jobs report showed that 2.5 million jobs were created in defiance of the expectation for 8 million jobs to be lost. Unemployment, which was expected to rise from 14.7% to nearly 20%, dropped to 13.3%. Despite these improvements, the pundits were not satisfied, and the markets drifted lower as fear increased.


But we began receiving actual data, which built upon the May employment numbers. We first saw retail sales make a strong upward move, followed by a spike in consumer confidence. The pundits said it wasn’t a surprise that retail sales and confidence rose given the near-zero activity in April, but the June jobs number would be a good indicator of whether the recovery was taking hold.


Well, the data is getting its day in the sun and also some measure of respect. To say that June’s employment report was impressive would not do the numbers justice; we saw 4.8 million new jobs created in June, versus the expected 3 million. The unemployment rate dropped from 13.3% to 11.1%, compared to the expectation of a 1% rate drop to 12.3%. May’s number was also revised upward from 2.5 million new jobs to 2.7 million. Now the data seems to be driving us back toward the initial expectations of a fast and strong recovery, which is a good thing for all involved, but how long will it take for fear to creep in once more?


The revenge of the governors

One of the key concerns to our robust economic recovery has been fears of a second wave of the coronavirus. Various state governors began to either delay reopening their states or institute new restrictive measures to combat the spread of the virus.


The real issue: How much of a drag on the upward momentum of the economy’s reopening will be caused by the states’ actions? Will they find a balance between controlling the spread and allowing the economy to reopen? The whole point of turning the lights off on the economy in March and April was to give states the ability to gain the upper hand on the virus, stockpile supplies, develop and enact thoughtful policy to allow us to go forward, and get people back to work in a safe, responsible manner. The answer to renewed fears of coronavirus cases is not to shut off the lights again. Rather, the governors need a more precise approach; more like a light dimmer, rather than an on/off switch.



COMING THIS WEEK


• Not much major data this week.

• We’ll get reports on motor vehicle sales on Monday, May job openings on Tuesday, consumer credit on Wednesday and PPI on Friday.

• Look for new unemployment claims to decline on Thursday, continuing their downward trend.

• Let’s see what mood the country is in after a long holiday weekend.