Skip to main content

Sound Advice: July 8, 2020

Jobs Are Up, But So Are New Infections

Through the spring months, most of the economic data was extremely negative, with record declines in employment and consumer spending.  The speed of that decline had no modern precedent.

We are now in a recession.  

The shortest recession on record occurred in 1980 and lasted just six months.  Second place goes to a seven-month recession in 1918-19, which was tied to the Spanish flu pandemic. 
The big question is: When will this recession end?
Given surprisingly strong data in May, April may have been the bottom of this economic cycle.  If so, it will have been the shortest recession on record.  With massive support from the Federal Reserve, the federal government, and the reopening of previously closed businesses, employment surged unexpectedly.  At the same time, pent-up demand, stimulus checks, and generous unemployment benefits led to a reacceleration of commercial activity.
Still, not all is rosy.  
In his recent testimony before Congress, Fed Chief Powell said, “Many businesses are opening their doors, hiring is picking up, and spending is increasing.  Employment moved higher, and consumer spending rebounded strongly in May.  We have entered an important new phase and have done so sooner than expected.”
But he also recognized the need to keep the virus in check.  “The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus.  A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities.”
We are seeing a spike in Covid-19 cases in many states, which is creating a new round of uncertainty.  It has fueled choppier day-to-day activity in the market.  Yet, at least so far, a resurgent market seems to be coexisting with the rise in cases. 
Despite higher infection rates, deaths continue to trend lower.  This reduces fear somewhat and in turn reduces odds of new lockdowns.
Economists give economic recoveries what might be called a letter grade when discussing possible paths.  It’s not the traditional A through F scale.  Instead, the letter intuitively describes the shape of the recovery: V, U or W.
A V-shaped recovery would be ideal, as it would represent a robust bounce.  Might we get a V? The latest data was surprisingly strong and cautiously encouraging.  Still, even during what we might consider normal times, forecasting is difficult.  Today, there’s no playbook and no framework to model outcomes.
I could give you reasons why we may see a strong V-shaped rebound and I could give you reasons why a sluggish U-shaped recovery might take place.  What we hope to avoid is a W.
The strong rebound in stocks since the late-March low is astounding, especially given the economic damage.  Fed support, rock bottom interest rates, the reopening of trade, and stronger economic data have helped.  No doubt, investors are looking past this year’s hit to corporate profits and are expecting an upturn in 2021. 
Simultaneously, the jump in daily cases has renewed volatility, and it bears watching, but it has yet to knock the bulls off course.
Some folks are itching to get back to normal, while others remain on guard against the disease and are taking a more cautious approach.  It may take time for some businesses to fully recover.  Some never will.
Either way, investors are betting that an economic bottom is in sight.
Ultimately, the path of the virus will play the biggest role in how the economic outlook unfolds.

N. Russell Wayne, CFP®
www.soundasset.blogspot.com

Comments

Popular posts from this blog

Sound Advice: September 21, 2022

The Professional Approach To Stock Selection There are various approaches to stock selection, but the two that predominate are fundamental analysis and technical analysis.  Fundamental analysis is a numbers-based method that evaluates key factors such as income and financial health, including the past, present, and future.  Technical analysis emphasizes movements and formations of stock prices. Fundamental analysis is based on factors that over time have proved to have a meaningful impact on stock price movements.  The optimal picture of corporate profitability is steady growth, both in the past and, prospectively, in the coming years.  Steady growth is rewarded by higher valuations of underlying earning power than those accorded companies with erratic progress. When professionals screen (filter) the data of the broad universe of stocks, they look for companies that move ahead every year, regardless of the prevailing economic conditions.  Although high pas...

Sound Advice: July 26, 2023

Is Day Trading a Good Idea? Day trading can be both exciting and potentially profitable, but it also comes with significant risks and challenges. Whether it's a good idea depends on several factors, including your financial situation, risk tolerance, time commitment, and knowledge of the markets. Here are some considerations to keep in mind: Risk and volatility: Day trading involves buying and selling securities within a short time frame, often within the same day. This exposes you to the inherent volatility and risks of the market. Prices can fluctuate rapidly, and unexpected events can have a significant impact on stock prices, making it challenging to consistently make profits. Time commitment: Day trading requires a substantial time commitment. It involves closely monitoring market movements, conducting research, and executing trades. It can be stressful and demanding, as you need to be actively engaged in the market during t...

Sound Advice: May 31, 2023

High Yields, Yes!  But There Are Risks Now that failure to get much done in Washington seems to be the bottom line for lots of talk, but little action, it’s hard not to wonder whether we’re missing something.  Yes, the Federal Reserve Board has aggressively raised interest rates in the hope of putting a damper on excessively high inflation, but one would think that there might be some good news as a result of these efforts. The hoped-for result is that inflation is indeed moderating.  Also of importance, though, is the sharp improvement in interest rates on fixed-income investments, usually a.k.a. bonds.  For much of the past decade or more, interest rates have languished at or near historical lows, which created considerable shortfalls for folks living on fixed incomes. Thanks to the Fed’s hikes, the returns on bonds and the like are beginning to be of interest.  But . . . and that’s a big but . . . there are risks involved. For short-term investing at ...