Our new friend, volatility
Two major stock indices – the S&P 500 and Dow Jones Industrial Average – closed lower for the fourth straight week after a good bit of volatility. If you remember, I had mentioned a while back that the stock market seemed overpriced, especially given the fact that we’re still in the middle of a pandemic. That, plus uncertainty about the election, rising COVID-19 cases, and declining hope for any additional federal stimulus this year all added layers of risk for investors to parse through.
Moral of the story: I think the market is going to basically be in this same type of holding pattern for the foreseeable future. There’s just too much uncertainty out there about the pandemic (and vaccine) and politics and nobody really knows what the world is going to look like at the end of November.
All the Fed speak
There was something to digest from multiple Fed members literally every day this week. Most notably, Fed Chairman Powell testified in front of Congress across several days this week to implore the federal government to pass additional relief for the economy. Meanwhile, Boston Fed President Rosengren said he’s less optimistic than many of his peers about the economic outlook as he anticipates another wave of COVID-19 cases this fall and winter to cause states to reenact restrictions and has little hope of any stimulus coming from Congress.
Moral of the story: The Fed’s median forecast is calling for unemployment rate to fall below 8% by the end of this year and reach 5.5% by the end of 2021, which seems optimistic given initial jobless claims continue to be over 850k every week. However, the Fed’s expectations still require some level of federal stimulus, which doesn’t seem likely to appear in 2020 at this point.
Mirror mirror on the wall
The manufacturing sector’s recovery seems to be plateauing as durable goods orders only increased 0.4% in August after gains of 7.7% and 11.7% in the prior two months. A subset of this data for core capital goods posted a slightly stronger gain in August and is actually above pre-COVID levels at this point.
Moral of the story: The manufacturing sector rebounded pretty well after the shutdown. But the marginal gain in August is indicating the boost from reopening and federal stimulus is fading. Manufacturing activity now seems to be mirroring the soft pace of recovery we’re seeing elsewhere in the economy where the initial momentum of recovery seems to be dwindling.