Back In Action

Back in action.  Stocks were all over the map yesterday as investors weighed bad economic data against hopes that someday, soon things will start up again for business.  Yesterday’s economic data painted a dreary picture, but most investors were prepared for the worst.

 

N O T E W O R T H Y

 

Alphabet soup.  You hear about it now and again and I have even mentioned it in my daily notes.  Of course, I am referring to the shape of the economic recovery… using letters.  The most famous one, possibly because it is the one that most of us hope to see is the “V-shaped” recovery.  It’s slightly younger sibling, the “U-shaped” recovery seems to be a favorite of economists and Fed governors, perhaps because it doesn’t require too much conviction.  Like in most families, there is a trouble maker.  That would be the tempestuous “W-shaped” recovery, which means a lot of volatility with ups and downs before we get back to stable growth.  Finally, there are the dark ones with little or no hope:  the “L-shaped” or the painful “M-shaped” recoveries.  Right now, it is clear that we are in the thick of it.  The vast majority of the US Economy is either completely on ice or operating under-capacity. Yesterday, weekly newly filed claims for unemployment came in at 5.245 million, which is staggering.  That brings the three week total of filings up to around 22 million people.  Still, yesterday’s number was lower than expected and was also lower than the number of new filings last week.  Encouraging signs, perhaps, but we can’t ignore the sheer number of workers who have been affected.  Sometimes, it is important to step back and get a broader picture in order to get some perspective, even though these times require strict focus and diligence for not only one’s physical health, but also financial health.  So here is the bigger picture.  Economies go into recessions, though we haven’t had one in what seems like forever.  Economies also recover and resume expansion. Recessionary times vary, but in the period after the Great Depression, contractions were not as long as you might think.  We have had 14 recessions since the Great Depression, which lasted 1 year and 9 months.   Since then, durations were as short as 6 months with the longest being the Great Recession / Financial Crisis, which lasted 1 year and 6 months. For reference, the bursting of the dot-com bubble recession only lasted 8 months.  So since the Great Depression, the longest recession was the Financial Crisis which was painful, with peak unemployment reaching 10% and many fortunes erased as the S&P500 gave up almost -50% from peak to trough.  Remember that?  I am sure that I don’t have to remind you that the recession ended and unemployment reached 60-year lows while the S&P500 grew by +338% from the lows to the highs earlier this year.  Once again, it is too early to tell exactly how long this economic pullback will last or exactly how many bumps there will be along the way, but we know that there will be a recovery, and expansion will come back. Enough of the big picture… let’s get back to the finer details of today.  As we observe other countries and regions who are ahead of us in the pandemic cycle, we can start to see some recovery patterns emerge.  First, not all industries are created equally.  Re-opening manufacturing, offices, and even small stores (Germany will allow small stores to open on Monday) is a lot simpler than opening larger facilities such as malls and entertainment venues.  A report from Bloomberg noted that rush hour traffic patterns in China have come back to 80% of their pre-pandemic levels… during the workweek.  On weekends, traffic remains much lower, indicating that individuals are choosing to stay at home when they have a choice.  That means consumption patterns have changed.  So even if a mall is opened for business, consumers may avoid them initially.  The good news is that the trend is positive. The bad news is that it is not going to be so easy to determine which industries and companies will bounce back first. The take-away here is that defining our recovery with one simple letter is not possible. Rather each industry, or even company will recover with a different pattern.  Diligence, diversification, and long-term focus is the prescription, once again.

 

THE MARKETS

 

Stocks were all over the place yesterday, bouncing between red and green as investors attempted to remain focused on bringing the economy back to life while weekly unemployment numbers hinted that things are bad, but possibly peaking.  The S&P500 rose by +0.58%, the Dow Jones Industrial Average advanced by +0.14, the Russell 2000 slipped by -0.50%, and the NASDAQ Composite Index jumped by +1.66%.  Bonds advanced and 10-year treasury yields slipped by -1 basis points to 0.62%.  Crude oil remained under pressure and under $20 / barrel yesterday putting further pressure on the already shaky energy sector, which gave up -3.97% yesterday.

 

NXT UP

 

– The Conference Board’s Leading Economic Index (March) is expected to have declined by -7.2% after growing by +0.1% in February.

– St. Louis Fed President James Bullard will speak today.

– Last night WHILE YOU SLEPT a report suggested that Gilead Sciences has had positive early results in their human testing with Remdesivir on COVID-19 patients.  The news sent equity futures up overnight and they are pointing to sharp gains at the open.

– This morning Schlumberger and Procter & Gamble beat estimates while Regions Financial and Citizens Financial fell short. We will hear from State Street and Kansas City Southern before the bell.

– Next week we will get more housing numbers, Durable Goods Orders, manufacturing/services PMI’s, University of Michigan Sentiment, and lots more corporate earnings.  Check back on Monday for details and calendars.

daily chartbook 2020-04-17