Up-ended.  Stocks sold off in yesterday’s session as uncertainty around the path of the virus continued to instill fear in the markets.  The President’s warning of a rough two weeks and the potential for 240,00 US deaths weighed heavily on risk assets yesterday.




Have work – will purchase.  In yesterday’s note I wrote about the importance of Consumer Confidence in propelling the economy forward.  It is always one of my favorite topics and I cover it here often.  In this current environment: crisis mode, a discussion around it is perhaps even more apropos than when things are just chugging along.  Last Thursday, the Department of Labor announced that 3.2 million new unemployment claims were filed in the prior week, setting a new record.  Many were surprised but, frankly not shocked.  You just have to head to a local grocery store or pharmacy to see all of the shuttered retail businesses to get a sense of just how many people are most likely out of work.  Today, we will get the same report but for new claims from last week. Economists are expecting 3.7 million new claims, though the whisper number is for a far greater 5 million (a whisper number is a fancy Wall Street term for what is really expected based on gut and not numbers).  Going with the average economist expectation of 3.7 million would mean that 6.9 million people became unemployed in the past two weeks alone, and that only reflects those who apply for unemployment benefits.  That is a lot of people out of work in a very short amount of time.  Conventional wisdom would suggest that people who are unemployed would spend a lot less, diverting their resources to only life necessities such as shelter, food, and personal care items.  Companies that provide those would fall into what is referred to as Consumer Staples (probably not surprising is that alcohol and tobacco are classified as staples).  Things that would not necessarily find their way onto the shopping list would be non-essentials such as apparel, entertainment, durable goods, automobiles, and electronic items.  Companies who provide those products and services fit into a group referred to as Consumer Discretionary.  Getting back to conventional wisdom in this unemployment environment, one would expect that Consumer Discretionary companies would be losing value and Staples would outperform, right?  Well, maybe not, because this time… things are a little different.  Last week’s unprecedented moves by the Government with the $2 trillion CARES Act and the Fed’s massive liquidity injection change the rules.  The CARES Act enables people who are unemployed as result of the virus lockdown to get 100% salary replacement for an extended period.  Typically unemployment provides for far less than lost wages.  If an unemployed worker has a Government agency backed mortgage, they may be able to delay making payments without penalty.  Federally backed student loan debt payments may also be delayed.  So most of the unfortunate folks who have recently lost a job or have been furloughed due to the virus should, in theory, be able to continue consuming at the same level as in the past.  But it still all comes down to confidence for not only the unemployed, but for all consumers.  Uncertainty (which is aplenty of late) diminishes confidence and a lack of confidence is what really hurts the economy.  Even though many discretionary items can be purchased online (including cars), consumers may very well begin to reduce these as uncertainty reaches a crescendo.  Once confidence is lost, history shows us that it takes time to regain it.  Many economists are arguing these days about the shape of the post-crisis economic recovery using letters to describe the growth path.  The famous one is the V which feature a sharp bottom followed by a sharp recovery.  There is also the U, the W, or worst case L.  The big unknown really remains the timing and duration of the virus.  The shorter the duration, the more likely consumers may retain some of that pre-virus confidence.  The good news in the sea of bad news is that Government seems prepared to do whatever it takes to minimize the financial blow to consumers wallets.  Stay confident.




Stocks sold off yesterday on more and more fears about the magnitude of the Coronavirus.  Shares opened in the red and remained under pressure throughout the session with selling accelerating into the close.  The S&P500 fell by -4.41%, the Dow Jones Industrial Average sold off by -4.44%, the Russell 2000 dropped by -7.03%, and the NASDAQ Composite Index lost -4.41%.  Bonds gained ground and the 10-year treasury yields fell by -8 basis points to 0.86%.  Crude was off slightly yesterday but got a boost WHILE YOU SLEPT as it was announced that major energy CEO’s will be meeting with President Trump this Friday.




– Initial Jobless Claims are expected to show that 2.763 million new unemployment claims were filed last week, following a 3.283 million in the prior week.

– Factory Orders (Feb) may have increased by +0.2% compared to a -0.5% decline in January.


daily chartbook 2020-04-02


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