(New York)

The S&P 500 hit a wall last week and saw its worst performance in a couple of months. Today notwithstanding, the market could be in for another big fall, according to Barron’s. Stocks fell 2.7% and it could be a sign that a reversal is coming. According to Nomura, “If [the S&P 500] continues to fail, you’ll hear about topping patterns, lower highs, exhaustion, and a lack of momentum”.

FINSUM: So the argument here is basically “death spiral caused by attrition”, so sort of like someone pushing a boulder up a hill and when they can’t quite get it to the top, they tumble back down. We are inclined to disagree here given that the Fed is sending such strong support signals.

(Washington)

Fed chief Powell made an interesting warning today. Powell said it will probably take a vaccine to get the economy into a full recovery. “For the economy to fully recover, people will have to be fully confident. And that may have to await the arrival of a vaccine … it may take a while . . . it could stretch through the end of next year, we really don’t know”, he said. Despite the hesitancy, the Fed has been very supportive in its statements of the support it will provide, saying the central bank could do a much more to help the recovery if needed.

FINSUM: This statement is really helping markets today, as combined with good news on a promising new treatment and the lack of a second wave forming (yet), things are looking up.

(New York)

After falling nearly 3% last week markets went off like a rocket ship today. From well before the main trading open, futures had been jumping on rising optimism. The big gains seemed to be centered on three critical aspects. Firstly, the Fed made a strong statement of support for how it would continue to help the economy. Secondly, there was good news about a new potential vaccine. Thirdly, despite broad reopening across the country, there has been little sign of a “second wave”.

FINSUM: As of the time of writing, today’s gain had already exceeded last week’s losses. Is it time for another big push higher?

(New York)

Data released today painted a very grim picture of the economy. The data was bad in its own right, but what was very disheartening is that it showed that one of the supposed bright spots of the economy is actually doing poorly. Retail sales fell a whopping 16.4% in April after also falling steeply in March, the worst tumble in American history. Car dealerships and gasoline, which comprise a big part of retail sales, were slaughtered. Even grocery sales—one of the areas that seemed to be doing well—dropped 13% (!). The only bright spot was ecommerce, which still only rose a little over 8%.

FINSUM: This is a pretty devastating report. The big question is whether this speaks to the state of the US consumer (which to some extent it obviously does) vs to what extent it is just a temporary fear of the virus. We think this recession is going to last until at least the end of the year.

(New York)

There have been all kinds of predictions for how COVID will affect real estate. The virus’ implications for commercial real estate are clearly bearish, at least in the short-term, but residential is a different story. While viewings are done, supply of housing is so tight that prices in April actually rose from last year despite the huge disruption to the economy. Home owners don’t want to move right now, so either aren’t putting their homes on the market, or are taking them off.

FINSUM: The other key thing to bear in mind is that home equity/leverage was in a very healthy place as this crisis unfolded, so homeowners are not underwater like they were in the last big crisis. Thus, there is a lot less pressure to fire sale.