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Friday Morning: What's next for markets?

Friday Morning: What's next for markets?

| May 15, 2020
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Markets see-sawed back & forth all week after a strong run in the technology sector last week.  It appears as if there is a struggle for investors to digest what's going on in the virus response.  Right now market movement is all about the virus--new cases, containment, and possible re-opening of economies state by state.  Expect persistent volatility as re-opening moves in fits & starts.

Here's what I'm reading this week:

Economic Data Is Bad, but That’s Not What’s Worrying Investors -- Cetera Investment Management

  • Economic data continues to be bad -- Example: Initial jobless claims for the past two months are near 37 million. To put this in perspective, we gained 22 million jobs over the just-ended 11-year economic expansion, which was the longest on record.

  • Slower U-shaped recovery now more likely. While the amount of stimulus being pumped into the economy is enormous, it will take time to work its way into the real economy

Watch for three policy shifts in China to cushion virus impact -- BlackRock Blog

  • The GDP target could be de-emphasised -- It may be a silver lining that the coronavirus gives the Party the room to move away from GDP targets. This may allow more of a focus on quality growth rather than quantity.

  • Hukou reform--Hukou is China’s household registration system that ties one’s official residence with the right to many public services such as education and healthcare.

  • Fiscal stimulus, which will include special federal Government Bonds already announced--This is a once-a-decade policy move previously seen in 1998 and 2007.

5 realities of this recession -- Capital Ideas by Capital Group

  1. We’ve been here before (sort of) -- The largest post-1950 quarterly GDP decline was 10% in the first quarter of 1958. 

  2. Recessions have tended to be short; the subsequent expansions have been powerful.

  3. It’s about the consumer -- The U.S. consumer accounts for approximately two-thirds of the economy. With unemployment claims skyrocketing — although many may be temporary — and consumers staying in their homes, a weakening economy is no surprise.

  4. Lower oil prices may be a tailwind for the economy -- While the negative impact of lower oil prices is likely to be felt in U.S. oil fields, lower energy prices can provide a tailwind for consumers and transportation-heavy industries.

  5. Timing may not be everything -- Waiting for the all-clear may leave investors missing out on market gains. 

 Past performance cannot guarantee future results.

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