Hello, summer

Fed Speak

This week’s Fed speak actually started on Sunday evening when Fed Chairman Jerome Powell made an appearance on 60 Minutes. The message from Powell during the interview was fairly simple – the Fed hasn’t exhausted its arsenal to help the economy get through this crisis and there’s “no limit” to what the Fed will do to lend money to the markets. While he cautioned about the high levels of debt because of all the fiscal and monetary stimulus being pumped into the economy, he also stressed that stopping spending could risk to long-term damage to the productive capacity of the economy. 

Moral of the story: The biggest concern for Powell is a second wave of the virus, and many health experts are expecting that to occur later this year (the Spanish Flu in 1918 had three waves). Right now, the Fed is monitoring health data like it monitors economic data, but believes the economy can start recovering by the third quarter this year. Let’s see what happens when the flu season rolls around again in the fall, but it seems clear the Fed is here to provide support until we can get back on its feet. 

The bloodshed continues 

Jobless claims increased another 2.4m last week, and if you take away the seasonality adjustments the government does on these numbers, the actual number of jobless claims filed was actually 3.3m. The total toll on employment from this crisis now sits at about 44m, including 35.5m through state unemployment filings and another 8.1m through federal unemployment filings. As states have started reopening, many who filed for unemployment have gone back to work. Continuing jobless claims, which is probably a better measure of those still unemployed, still stands at ~22.9m and is ~2m higher than last week. 

Moral of the story: While reopening states will bring some of these jobs back, I think there’s going to be a structural change in the level of unemployment we have in this country. The 3.5% level of unemployment we saw before will probably be closer to 5-7% when we come out of this factoring for jobs that have been permanently lost by retailers and other impacted companies that won’t be able to survive this crisis. 

Watchlists 

Actual economic data has been pretty anemic this week as most of Wall Street, exhausted by the last few months, headed into a long-weekend. We did get earnings reports from major retailers like Walmart, Home Depot, Lowes, Best Buy, and Target – all highlighting the importance of having a strong e-commerce platform. However, the biggest item on investors’ to-do this week has been watching states that have started reopening. What does consumer behavior look like, are people going back out to the shops and restaurants? Are COVID-19 cases increasing in those states? 

Moral of the story: All states have taken steps toward reopening economies heading into Memorial Day weekend. The weather is nice. You can officially wear white. I’m willing to bet most people will act like a bunch of dummies let out of quarantine and we’ll see another wave of cases. Honestly, I don’t think this will be behind us until we have a vaccine but we’ve been hearing positive development on that front from a few companies like Moderna and AstraZeneca