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 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
- 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.
We’ve been here before (sort of) -- The largest post-1950 quarterly GDP decline was 10% in the first quarter of 1958.
Recessions have tended to be short; the subsequent expansions have been powerful.
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.
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.
Timing may not be everything -- Waiting for the all-clear may leave investors missing out on market gains.
Past performance cannot guarantee future results.