Eq: Total Market
Investors are wondering how we are going to escape this exhaustingly choppy market. Markets are fighting higher generally, but it seems like 2 steps forward, 1.9 steps back. So how we will we break out of this mode? The answer might be another $1 tn+ stimulus package from the government. Some are skeptical this will happen because many believe Demcorats in the House don’t want another package because it might help Trump’s chances. That seems to be short-sighted analysis, as Democrats need another package to help avoid layoffs in key states they want to win, which could jeopardize their odds. Republicans want more stimulus to aid in their various reelection bids.
FINSUM: Both sides want a package. The big issue seems to be the continuation and size of expanded unemployment aid. Rumor is a deal might come before July 31st.
Markets were up big yesterday. Most of the reason why seemed to be some great indications from an ongoing COVID vaccine study. Moderna seems to have reached a breakthrough in its COVID vaccine trials, and the promising results ensured a bigger study at the end of this month. All stocks that are considered COVID-sensitive, such as airlines and cruise lines, rose on the news. According to Invesco, “The way it’s looking at the moment, it really looks as though a vaccine is the only hope. This thing is not going away”.
FINSUM: That Invesco quote is sad, but appears entirely accurate. COVID does not seem to be fading whatsoever on its own, so a vaccine is the only thing that is going to return the world, including markets and the economy, to normal.
In what comes as a possibly worrying sign for the nascent economic recovery, California has announced that it is reversing its re-opening process. Note that this is not merely a “pause” to re-opening, but a reversal, with restaurants, bars, and cinemas closing. The renewed rules were probably the most sweeping and decisiveness action taken to re-lockdown a state. COVID cases have been surging across the Sunbelt, but so far California’s measures to contain the second wave are the most stringent. This has investors worried other states may follow suit.
FINSUM: Two thoughts here. The first is that California is a huge state and highly influential, which makes it more likely other states will follow suit. That said, it is a very liberal state, so larger conservative states (e.g. Texas and Florida) are less likely to follow California’s lead.
There has been a quite a bit of consternation over the current labor market, and with good reason. Over a million people have applied for unemployment assistance ever week for over 4 months. All told, over 30 million people have lost their jobs. However, there is an encouraging trend: unlike in past recessions, there is still plenty of hiring going on. New job postings have not plunged the way they did in the past. In previous recessions, including after the Crisis, a lot of unemployment had to do with a combination of attrition and a lack of hiring-much more so than outright layoffs. However, that does not appear to be happening now as job postings are still holding strong at their 2015 levels.
FINSUM: This is an encouraging sign for the economy and for individual job seekers. There is still a chance that demand hollows out—especially if we have another full scale lockdown—but for now things look positive.
Coronavirus cases across the country are surging. On Wednesday the US announced there were 62,000 new COVID cases, exceeding the record set the previous Friday by almost 5,000 cases. Some states, like California have actually started to reverse opening plans, not merely pause them as so many other states have. The huge surge in cases is leasing investors to fret that large-scale second lockdowns may be in the works. Anthony Fauci even openly said this yesterday, adding to fears.
FINSUM: Whether or not you think the case rise is just because of increased testing, the fact remains that as numbers soar, there is growing discourse about lockdowns. That is an undeniable risk to markets.
Those who lean right might not want to consider it, but polls have been showing Biden and the Democrats leading (poll issues being a major issue, but ceteris paribus….). That said, investors have a duty to consider what would happen in the event of a Biden win, or a Democratic sweep. While Democratic wins in the House and presidency are quite plausible at this point, a win in the Senate still looks like a challenge. Let’s consider two scenarios then: a Biden win with a split Congress, and a Democratic sweep. In the first scenario, markets do not worry a whole lot. The Republicans holding onto the Senate would mean many of the left’s more radical proposals would be blocked. What about a Democratic sweep? That could be different, as Democrats could push through anything they wanted. However, even that scenario is looking less dire for investors because Biden is not moving to the left as much as feared. Also, since his priority will be to reopen the economy, sharp increases in taxes seem unlikely in the near term.
FINSUM: It still seems unlikely that Democrats could sweep given the Republican’s 53-47 lead in the Senate. So if Biden wins and the Democrats keep the House, it would probably be an okay (no big moves) scenario for investors.