Happy Friday! We’ll be available to you for normal business through Thursday next week but will not be sending a Friday email due to the Independence Day holiday. We hope you have a fun and safe long holiday weekend and we will be back in touch on July 10 with a weekly update. Meanwhile, do not hesitate to contact us – there is frequently at least one person in the office now (while the team works remotely).
- Automobile orders surged 28% last month, driving a strong durable goods report.
- Retail sales for May were quite strong, rising 8.9%.
- State and local governments will likely lay off millions more workers in coming months, given the magnitude of their budget crunch.
- Consumer savings spiked this year (chart at right from the Commerce Department). Spending on services, which helped drive the economic growth over the past 3 years, declined significantly.
Two steps forward, one step back
The S&P 500 peaked June 8 and has become more volatile, falling just below the 200-day moving average today. The Shiller P/E ratio continues to be over 30, compared to a historical mean of 17. This is somewhat justified due to low interest rates. A 10% correction would bring stock valuations back in line with long-term earnings estimates.
Even without the coronavirus, summer months before an election usually kick off the slow market decline until election day, simply due to uncertainty. Once the outcome is known, regardless of the result, the stock market usually recovers. Of course, coronavirus adds an additional layer of uncertainty this time. This is generally a good time to make regular weekly deposits to take advantage of the low prices.
Most Clear Perspectives portfolios are in the lower end of the target range in stocks in preparation for a correction, unless you have directed us otherwise.
In pandemic news, the spread around the globe has recently been intensifying after several weeks of declines in cases. In the US, Covid-19 cases are up
30% compared to the beginning of this month.
- The Texas governor first paused and then rolled back the state’s reopening, closing all bars again. (Texas Tribune)
- 16 NBA players tested positive for coronavirus.
- Worsening outbreaks in sunbelt states (TX +70%, FL+66%, AZ+77%) have led to record rates of hospitalization. The increase in the percentage of positive tests means this is not driven just by increased testing.
Updated chart of new U.S. cases through today, June 25:
What does this mean for the economy?
- Additional stimulus from the Federal Reserve or Congress is almost certain to occur.
- Lockdowns could return if the outbreak continues.
- Corporate earnings will likely be affected by the new lockdowns, and companies say their statistical forecast models are not holding up. Their forecasts now include the assumption of additional federal stimulus and are based on a series of other assumptions instead of just computer models.
- Mortgage forbearance: After declining for three weeks, the number of borrowers delaying their monthly mortgage payments due to the coronavirus grew to 8.9% of all mortgages.
- Weekly jobless claims show a loss of momentum in the economic recovery. There were another 1.5 million new claims again this week, as there were for each of the past 3 weeks.
Regulators eased Volcker Rule restrictions yesterday, driving bank stocks higher. Federal financial regulators said they plan to make it easier to let banks invest in venture capital funds and relax some limitations on derivatives trading. The jury is out as to whether this will look like a good idea or a bad idea when the coronavirus crisis is resolved.
We continue to monitor these economic impacts and trends and realize that you value our weekly updates. If you ever have questions or concerns, don’t hesitate to reach out.