America is on the road. But is it on the road to economic recovery or a pandemic relapse? This is not a post-pandemic stage, we are still within the pandemic as the virus continues to spread. We are still in wave 1.
Another 1.5 Million filed for unemployment. There are still nearly 20 Million Americans unemployed and they continue to collect unemployment benefits from the Government. The weekly number of the newly unemployed keeps sliding from the initial 7 Million workers let go that week in late March. Remember that 7 Million report? I sure do. That was a shock the country has never before experienced. Prior to COVID-19, the record weekly jobless claim was 695K, back in 1982.
The Market has finally awoken to the conflicting guidance regarding the virus. President Trump and White House officials have largely downplayed concerns about the uptick in coronavirus infections. The White House has pointed out that while infections are rising, the mortality rate has not. They have also claimed that only 12 states are experiencing increased cases. This is clearly going to be a major issue heading into November.
There has also been focus on increased testing as the driver of the growing infections, along with the fact that younger people are making up a larger percentage of new cases. This is flying in the face of heated debate. The debate has been both scientific and political. Everything is political these days. Science cannot be.
The White House has made it clear it has no plans to change its strategy to combat the pandemic or to provide states dealing with a spike in cases additional money or new resources. In addition, there are no Federal plans to call for broad shutdowns of states and the focus is expected to remain on reopening the economy.
Reversing course though, both Texas and Florida have said they won’t move forward with reopening plans. These are key “Battleground States” for the election. They are also states amongst the hardest hit. But they are not reimposing lockdown measures either. The Governor of Texas rolled back some plans for bars and restaurants while Florida reported a whopping 80% increase in daily coronavirus cases. San Francisco delayed some reopenings too. This, as the US as a whole marked a daily record of nearly 40,000 new infections. What’s interesting and really telling, the American people seem to be retrenching on their own, faster than government representatives react.
The new outbreaks have forced business leaders struggling to decide whether they should continue to open, close or find some sort of compromise. The US Economy was effectively shut down in March. It has attempted its reopening with different approaches from state-to-state. It is not shocking to the scientists that the states which were slowest to close and quickest to open are the ones facing the new spikes.
The politics of corona matter. These are critical states for the November election. Disney is slowing down its reopening plans and Apple is closing more stores in response to the virus uptick. The CDC estimated that infections might be 10x higher than reported. The discussion continues about how infections among younger, healthier people are rising and even though they might not risk death at the same rate as elders, there could very well be long-term implications yet unknown.
Politics cross oceans. It has been reported that Chinese officials have been telling their US counterparts that if Washington keeps meddling in issues Beijing considers off-limits, including those related to Hong Kong and Taiwan, it could adversely impact the Phase 1 Trade Deal. This came after the White House called the Deal over, before quickly retracting.
Rhetoric on Trade is expected to remain heated heading into the November election. There have been thoughts that the Trade Deal is too important to an economic recovery to jeopardize. And President Trump knows full well the health of the US Economy will play a major role in his chances of reelection.
As a potential preview for July, Nike just reported it missed expectations on earnings and revenues. The results were significantly impacted by the closings of stores during global lockdowns, though digital sales soared 75%, representing about 30% of total revenue. China is an important market for this global shoemaker. Nike, like most companies, had already withdrawn guidance for 2020. Earnings Season will be telling. It starts up again in a couple weeks.
2020 is in crisis. It started with the pandemic which led to an economic crash followed by a sharp jump. Ultimately, for the rest of the year and possibly a large portion of 2021 will now be a crawl to get back to 2019 levels. The Market seemed way ahead of itself. The S&P closed Friday below its 200-Day Moving Average of 3020. It isn’t a significant technical level from our work. But it is widely followed throughout the Market, so it cannot be quickly dismissed.
We expect a rocky road ahead as we move into the second half of 2020. The election in November is going to be so huge and the Market is starting to pay attention. The lows from 2 weeks ago around 2950 will likely be in play next week and there is pretty substantial support around 2800. That coincides with roughly Dow 24K.
Our sense is that 2800 level gets tested and holds at first. It will be so telling to see how it responds. The unabated rally from March into June went much higher than we expected. The Fed-fueled rally has been so powerful. It became bubbly. But there’s only so much the Fed can do.
We thought the 2800 level on the S&P reached in May was going to be it for the rally before a healthy, corrective process of back and filling. It clearly went much higher. Perhaps this is now the healthy corrective price action. But with all of the unhealthy events going on around the world, we aren’t so sure. It could be more. Call it guarded optimism.
We are long-term investors equipped and ready to deal with short-term issues. We don’t want to come across as too short-term focused here. But with so many concerning issues and unknowns and a fast-moving Market environment, we want to dynamically share our thoughts with you.
We continue to navigate this uncharted territory in 2020. We suspect the fast and linear path higher for stocks has run its course for now. It’s going to get a whole lot bumpier we think. We are ready. We are with you every step of the way.
Have a nice weekend. We’ll be back, dark and early on Monday.