Stocks had a great week as vaccine hopes and better than expected data on jobs boosted investors appetite for risk. The market has been able to shrug off fears of a “second wave” of COVID-19.
The momentum to the upside is just too strong and has withstood a couple of brutal days. We saw the DOW plunge 1700 points a few weeks ago and then 700 points last Friday, but in both cases investors jumped back in to buy the dip. The two bad days remind us that volatility is still high and we have to avoid getting too complacent - the market can change quickly.
The two big July questions are still waiting to be answered.
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?
We’ll start with the positive news. Consumer confidence hit a 3 month high in June, showing a nice boost from numbers that came out in May: https://www.marketwatch.com/story/consumer-confidence-jumps-to-3-month-high-but-still-well-below-precrisis-levels-2020-06-30
The number of people flying continues to increase, but the evidence appears to show the recovery starting to stall out. The last available data from the TSA is for July 1st, and the agency will not provide weekend numbers until Monday morning. We would expect a nice bump with Independence Day this weekend: https://www.tsa.gov/coronavirus/passenger-throughput
The most concerning consumer evidence comes from Open Table. The platform measures people going out to eat at restaurants. If you are looking for evidence that shows rising COVID-19 cases are influencing consumers’ behavior, this would be your stronger argument. The numbers out of Arizona, Florida, Texas, and California have declined over the last one to two weeks: https://www.opentable.com/state-of-industry
Gas Buddy, a platform which examines how often people fill their tank, showed more bad news. The number of people going out to fill their tank declined week-to-week. People staying in more means less people going out to eat and going shopping. If this trend continues, it could also dent oil prices: https://twitter.com/GasBuddyGuy/status/1278694593027063808?s=20
JP Morgan saw a decline in spending on its debit and credit cards. A trend we want to continue to monitor through the beginning of July.
The data that has come out in the last week is mostly negative as it relates to consumers. If these trends progress, it will give us a disappointing answer for July’s question one. However, there is still not enough data yet to draw conclusions. We will get more clarity on how rising COVID-19 cases are influencing consumers over the next two weeks.
2. Jobs!
The jobs report saw the US economy add nearly 5 million jobs in the month of June. It was a big beat from what many economists were expecting. The unemployment rate fell to about 11%. The report showed about 40% of the jobs growth came in the leisure and hospitality, which makes sense as states try and expand reopenings: https://www.cnbc.com/2020/07/02/jobs-report-june-2020.html
We do find a negative in the jobs report - permanent job losses. Initially, a vast majority of job losses were considered to be temporary, but this report indicates that a growing number of job losses are long term.
We are once again disappointed with what we see in jobless claims. The weekly report shows about 1.5 million people filed initial jobless claims for the fourth consecutive week. We are also still discouraged at the high number of continuing claims: https://www.cnbc.com/2020/07/02/weekly-jobless-claims.html
3. Housing Data
The Case-Shiller Housing Index gave us a look into the housing market and found that it’s holding up well during the pandemic. Home prices have risen across the country in the nation’s largest cities. Phoenix is leading the pack with home prices rising by nearly 9% in the city from last year: https://www.spglobal.com/spdji/en/index-family/indicators/sp-corelogic-case-shiller/sp-corelogic-case-shiller-composite/#news-research
4. Vaccine Hopes
Medical experts emphasize that there is still a long path ahead for developing and mass producing a vaccine, but we did get some good news from Pfizer this week. A paper was published on a vaccine they are working on and it looked at data from the first clinical trial. Some patients who took the vaccine had “immune responses” which is the goal. The paper has not yet been peer-reviewed and there is much more testing to be done, but the progress is good news: https://www.statnews.com/2020/07/01/covid-19-vaccine-from-pfizer-and-biontech-shows-positive-results/
5. Congress + White House = Stimulus?
Congress and the White House both say they want to put together another stimulus package, but will they come to an agreement on anything? President Trump and Republican senators both said this week that they do not want to keep giving out the expanded unemployment benefits after they expire at the end of July. The president said he is in favor of one more big check to Americans. Democrats in the House have passed a bill on infrastructure which they argue would help boost the economy. They also passed what they dubbed the Heroes Act, which had provisions to expand unemployment benefits, more checks to Americans, and aid to state and local governments. The infrastructure bill and Heroes Act stand very little chance in the Republican led Senate. Do we need another stimulus bill? Yes. Will Republicans and Democrats agree on anything? I hope so: https://www.nbcnews.com/politics/congress/600-federal-unemployment-benefit-ends-month-gop-senators-say-enough-n1232588
6. US and China
The relationship between the United States and China is not getting any better. China has aggressively stripped Hong Kong of its independence which has angered not just the United States both Europe too. The White House has been reluctant to take economic sanctions against China because the president does not want to rock the stock market before the election. However, the Senate and House overwhelmingly passed legislation that would take action against banks if they do business with Chinese officials who “violate the autonomy of Hong Kong.” If and when President Trump signs this bill, China will most likely find a way to retaliate: https://www.reuters.com/article/us-hongkong-protests-usa-sanctions/global-banks-seeking-details-of-u-s-sanction-threat-against-china-individuals-for-hong-kong-law-idUSKBN244128