Job losses continue to pile up with another 4.4 million unemployment claims filed yesterday. That brings our total to 26 million in five weeks. The good news is that this was the lowest number in a month. The bad news is we now have almost 45 million in total when combined with Europe. We have also lost every job produced since 2009. That is a massive number in just five weeks. It is unlikely we get back to pre-Covid employment levels anytime soon; likely years. Again, the market has priced in and expected much of this news. What we don’t know is the trajectory and speed of job gains for the next several months as we attempt to get back to normal.
The gradual reopening is underway. It looks like 30 States, representing 47% of GDP, are going to enter Phase 1 of opening before May 1st. The next few weeks of testing and case numbers will be critical in determining the speed of the recovery here in the U.S. Georgia seems to be the most aggressive, especially with gyms and spas opening. At the end of the day, it will be up to the Governors to decide what is best for their States. We hope they are all successful. Any jump in the number of newly infected would be a big detriment to the game plan. Consumers are already scared. May is going to be an awfully important month for the bullish scenario to unfold. Money printing can only do so much albeit it has already outweighed a lot of negative events.
Japan and Singapore have already seen a 2nd wave form, after they opened up their economies and have pulled back on some of their initial plans. Europe is an interesting comparison as well. Many countries shut down entirely, while some did not. This is similar to our country where 9 States never issued formal stay-at-home mandates. Gradual openings will occur in Italy and look vastly different than Sweden. China was the first to be hit and they are starting to see some green shoots. They are nowhere near where the economy was before though, and this took months to achieve. The success, or lack thereof, will be critical in determining the direction of the markets throughout May.
The notion of waiting to get back to work until a vaccine is approved is impossible. Countries cannot shut down economies for another 6-12 months, which may not even be a realistic timeframe to get a vaccine. In fact, it would be a record by a wide margin to get a vaccine that truly works. Some trials are showing decent data to prevent the disease or assist in recovery, efforts that will go a long way in keeping hospitals from being overloaded. Testing everyone is also improbable. Tracking who is/was sick is also not going to happen with full cooperation. That makes the reopening efforts today all the more critical. Measured phases make sense. NY, NJ and other hot spots will, rightfully, take longer than the Midwest where congestion is not as big an issue.
Until then, we are left to analyze earnings reports. Outside of online sale strength, some non-discretionary technology companies and stay-at-home beneficiaries, the month of March ended in disaster. That was only a couple of weeks. We will now have all of April and no benefit from hoarding that propped up some sectors. Guidance has been pulled for the majority of companies. Even a stalwart and typically predictable company like Coca-Cola# was not able to give an estimate for next quarter. When half of your sales come from purchases outside the supermarket, you can’t make any accurate projections.
We are simply left with hope. Hope that this virus subsides with warmer weather and longer, sunny days like most viruses. Hope that our social distancing efforts work. Hope that the second wave is low. Hope that our favorite small businesses can re-open and get back to work. This will take time, patience and continued caution for our elders who should stay in safe places much longer than the youth.
Until then, Governments around the world will lend support as much as possible. So far the monetary and fiscal stimulus at home equates to 36% of real GDP. That’s a massive infusion and the only reason why the market is up almost 30% from intraday lows over the past few weeks. The PPP is finally getting refunded. Some estimate it is still a few hundred billion dollars short. The program, like many government run entities, has great intentions and is aimed at the right people. Execution has been mishandled but exemplary in such a short time frame. Kudos to those involved in getting money out to the people.
Next up for the U.S. money printing machines is Phase IV. It will be met with more political bickering as they decide what to do with failing State budgets. This will take longer to clear. A lot of States were in trouble before this. As with most negotiations, sadly this will include even more “pork” than the past few deals. It is election season and politicians will take advantage of that. When the CARES Act included things like drug approvals that have nothing to do with Covid, the usual agriculture fat, a new abstinence program and funding the Kennedy Center, you can be sure the State discussions will contain many unrelated pet projects, regardless of your political affiliation.
This is slightly less urgent than the previous printing efforts, but it is not to be taken lightly. With decreased sales tax revenues due to business closures, many municipalities will not have funds ready to pay bills or cover any maturing debt. The last thing we need are defaults in this typical fixed income safe haven. The Fed will probably get involved in another Aid package of at least $400B.
At the end of the day, we are left with a complex battle of fiscal + monetary stimulus versus a global shutdown that is attempting to open back up. The Fed usually wins over time but there will be fits and starts in the near term which should keep volatility elevated. Longer term, we will get through this. The massive money printing efforts are kindling for a boom. Timing of that boom is clearly dependent upon beating this virus as quickly as possible.
Beware, Mother Nature does not work on our hopeful timetables. Much work needs to be done. Our hopes lie on educated social distancing and the fastest cure/vaccine/preventative medicines in history stemming from the billions of dollars already involved in research. The sooner the better!
Today, the first winner of American Idol, Kelly Clarkson, turns 37. Comedian Cedric the Entertainer hits 55 and the legendary Barbara Streisand is 77.
James Vogt, 610-260-2214