Joel’s Weekly Talking Points – 6/1/20
- Rally caps are on – still: Last week, most stock markets rallied mainly again with the Russell 1000 rallying 3.11%. Almost all other indicies followed suit; even International Markets (EAFE up 5.11%) and Emerging Markets (up 2.86%). Value stocks once again beat Growth with Value up 4.42% and Growth “only” up 2.15% (based on the Russell 100 Value and Growth respectively).
- Thesis: My current thesis is that the markets have run too far, too fast to the upside, or as a recent Citi strategist put it, “Markets are way ahead of reality”. There are still many unknowns out there: A) is COVID-19 really under control here in the US or will there by a 2nd wave B) Is the economic damage over? C) What exactly is the economic damage? D) When will the unemployment rate drop, and/or dip below 10%? I could go on and on here, and I haven’t even talked about the current social unrest in the US.
- The Economy: Jobless claims fell to 2.123 million new initial claims last week. Once again, there are some folks out there praising this as “improvement” from the previous weeks and now months of really bad data. I always like to remind folks that the previous record for weekly initial claims were 695 thousand set in 1982. We have now beaten that record for 9 consecutive weeks.
- The Economy continued: Durable goods orders fell 17.2% in April, and March was revised even lower. This is an important gauge to look for in terms of an economic recovery – durable goods as the name implies are generally longer-term products that require at least some sort of capital investment.
- Earnings and savings rates: One interesting quirk in the data last week was that annualized earnings actually increased in the month of April – entirely due to the massive stimulus passed by Congress. Unfortunately, the data suggests that Americans are not spending that money – the savings rate in the US increased by 33% in April far surpassing the previous record of 17.3% in 1975.
- Fun information for the week: A JACKSON A DAY – Retail sales in the USA in April 2020 were $403.9 billion, down 16.4% or $79.5 billion from just a month earlier. The monthly decline is equal to every US household (124.4 million) spending $21 less per day during April than the dollar amount they spent per day in March (source: Commerce Department).
Bottom line: While everyone in the US was focused on the current social strife in the US last week and over the weekend, the trade tensions with China started to escalate again. While President Trump announced last week that the “Phase 1” trade deal will remain intact there are far larger geopolitical issues that are being mentioned as well – namely the fate of Hong Kong. Clearly, between the COVID-19 concerns, a jagged and uneven national reopening of the economy and now social strife – we don’t need any other issues to contend with right now. All of the issues I mention above, alone would be cause for concern and they are hitting us all at once. While we remain cautious in the short run, we still believe that Americans will find a way to push past this and remain optimistic in the intermediate and long-run.