Joel’s Weekly Talking Points – 6/22/20

  1. Market recap:  For the most part, stocks and bonds rallied last week on mostly positive data (more on that below).  The lone exception was the REIT space which has been, well – interesting, to watch this year.  From the February highs to the March lows, that space as measured by the FTSE ERPA Nariet Global index fell 44.86%.  Then from that March low to the most recent high on June 8th, the index rallied 49.3%.  Year to date the index is still down 21.7%.
  2. Data contradictions (good): Last week we saw a pretty decent rebound in economic data – except for jobs.  Retail Sales, which is critically important in the US given that nearly 70% of our economy is consumer based, rose 17.7% in May.  Granted, this is coming off of a near total collapse in April so a contextual view is warranted here.  In addition, one has to take the stimulus into account – not surprisingly auto’s lead the way in May with a 44.1% increase in sales month over month.  On top of the retail sales numbers, both industrial production and housing starts also improved in May.
  3. Data contradictions (bad):  Initial jobless claims fell last week, but not as much as expected and hoped.  Over 1.5 million Americans filed for unemployment for the first time last week.  As I have mentioned numerous times in the past few months, the previous record was 695 thousand and that record is 38 years old.  Since the 3/27 data release, we have beaten that record every single week.  For those keeping score, that’s 13 straight weeks and there does not appear to be a let up in sight.
  4. COVID-19 update:  In the “of course” category this week I have to mention the COVID-19 spikes we are seeing across the US.  Namely in states like Arizona, Texas and Florida.  The number of new cases per day in these states range from 2,500 to 4,000.  By contrast some of the hardest hit states like New Jersey and Massachusetts are only seeing 100-300 new cases per day.  The risks of a renewed spike (there is a lot of debate about whether or not to call this a “second wave”) are very high right now.  In my opinion, I still do not see any political will to go through a second lockdown at least on a national level, but until we get a scalable proven vaccine we may see localized ones to try to keep the spread under control.
  5. Fun information for the week:  THE “CARES ACT” EFFECT – The nation’s 13.3% jobless rate as of 5/31/20 (released on Friday 6/05/20) would have been an estimated 16.3% if the workers who were being paid wages from funds obtained through a “Payroll Protection Program” (PPP) loan were counted as “temporarily laid off” instead of “actively employed” (source: Bureau of Labor Statistics).

Bottom line:  Given the contradictory data, elevated (in my opinion) valuations, and a market that seems to shrug off any bad news we remain cautious in our money management at this time.  In a couple weeks we’ll start to go through Q2 earnings season and we should start to get a sense of the “real” economic damage that’s been caused so far this year.  It will be bad – but some of that may already be priced in, as stocks generally are a forward looking measure.  As I have mentioned before, in 2008/2009 the market turned positive well before the economic data started to get better.  That doesn’t mean this cycle is over by any means, as we still have very limited visibility on the virus and even the effects of the lockdown but we may be getting closer to having clarity.



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