It was not a Happy Friday for the stock market. We saw the Dow, Nasdaq, and S&P each fall around 2.5% to close out the week.
The market has been stuck in neutral through June. The S&P and Dow are around where they were when we entered the month. Investors have grown more cautious as the rising number of COVID-19 cases in some parts of the country threatens the economic recovery.
There are two big questions for the market in July which will influence what happens next.
1. Will consumer spending slow down because of the rising number of COVID-19 cases?
2. What is Congress going to do to support the economy as the small business loan program and expanded unemployment benefits winds down?
What We Are Watching
1. What are consumers up to?
- Data from the TSA shows more than 600,000 fliers traveled on Thursday. The data shows the number of fliers continues to increase, but the pace is beginning to slow down. Commercial air travel is still down more than 75% from pre-COVID-19: https://www.tsa.gov/coronavirus/passenger-throughput
- Open Table has been providing data on people going out and dining in restaurants. While the numbers have been bad compared to pre-COVID, we had been seeing a steady increase in people going out to eat. We saw this week, that nationally, the recovery has stalled. We want to see more than one week of data before we draw conclusions, but we will be certainly monitoring data for next week to see if this was a hiccup or a developing issue: https://www.opentable.com/state-of-industry
- When we look at the data by state, we can try and get a sense of whether or not rising COVID cases in certain areas are impacting consumers. Arizona, Texas, and Florida have all seen a decline in people going out to eat over the last two weeks, according to the Open Table data. We want to see if this concerning trend continues into July
- JP Morgan has been putting out a spending tracker using data from its own customers. They put together the study using a seven day average and the data lags slightly. However, it has continued to show consumers spending more which is a positive sign for economic recovery: https://markets.jpmorgan.com/research/open/latest/publication/9002054
- Another great tool for tracking consumers comes from GasBuddy. The platform uses its data to determine gasoline demand and has found that while demand has recovered, there appears to be some stalling in that recovery: https://twitter.com/GasBuddyGuy/status/1275822299971756033?s=20
2. Jobs, Jobs, Jobs
- We were incredibly discouraged by the claims report that came out this week. For the third straight week, initial jobless claims were about 1.5 million: https://www.businessinsider.com/us-weekly-jobless-claims-filings-unemployment-insurance-coronavirus-recession-economy-2020-6
- We saw continuing claims drop below 20 million, which beat expectations, but that is still a very high number given that many states have reopened their economies. The big concern here is that jobs are not returning and we'll see a large amount of permanent job losses that cause long term economic pain: https://www.cnbc.com/2020/06/25/weekly-jobless-claims.html
3. More Stimulus?
- Republicans and Democrats have both expressed a willingness to provide more economic stimulus this summer. However, they are all over the place in what they want and that could make compromising and actually drafting a bill very difficult: https://www.cnbc.com/2020/06/23/trump-says-second-round-of-1200-stimulus-checks-could-happen.html
- The enhanced unemployment benefits (the federal government providing an extra $600 per week for unemployment claims) will expire at the end of July. The market will want to see those benefits extended, but Republicans have been apprehensive. Conservatives, especially in the Senate, are worried that these big unemployment checks will discourage people from going back to work: https://www.nytimes.com/2020/06/11/us/politics/unemployment-benefits-coronavirus.html
4. Oh yeah, there's an election this year!
- We have an election this November. There have been several polls showing Joe Biden ahead and some polling indicating that Democrats could sweep and flip the Senate this November. While we think its way too early to start guessing who wins, the market will start to react to polling as the election gets closer: https://www.npr.org/2020/06/26/883336183/poll-trump-disapproval-hits-all-time-high-and-he-trails-biden-by-8
- We have been searching out evidence to see if investors are changing their behavior because of recent polls. The movement in the market seems to indicate that the election is not a big driving factor right now. But! There was this nugget from Fox Business on Friday that some hedge funds would not be thrilled with a Biden win: https://twitter.com/CGasparino/status/1276598863546257408?s=20
- Final point on the election (you will hear this a lot from us the next few months). Investors do not like change and when a new person heads into the White House, there will be investors who let their political bias influence their behavior. When President Obama was elected, there were investors who sold, and that proved to be a bad move. When President Trump was elected, there were investors who sold, and that was a bad move. No matter what happens in the election later this year, please, do not let your political bias lose you money.