Dazed and Confused

By Charlie Bilello

21 May 2020

If the dichotomy between markets and the economy has left you dazed and confused, you’re not alone.

For on one side of the ledger, you have…

  • 16.5% of the US labor force on unemployment, the highest on record (data back to 1967).
Peak % in Past Recessions…
1973-74: 4.9%
1981-82: 4.1%
1990-91: 2.8%
2001: 2.5%
2007-09: 4.3%
  • US Employment to Population Ratio down to 51.3%, a new low. The prior low was 54.9% in 1949 (data back to 1948).
  • US Total Vehicle Sales at their lowest level ever (data back to 1976).
  • US Retail Sales down 17.8% over the past year, the largest decline on record (data back to 1992).
  • US Housing Starts down 30% over the last month, the largest monthly decline ever (data back to 1959).
  • US Industrial Production down 15% in the past year, with the Capacity Utilization Rate falling to 64.9%, the lowest level on record (data back to 1967).
  • ISM Manufacturing and Services down to their lowest levels since early 2009.
  • S&P 500 earnings at their lowest levels since the first quarter of 2009, down 64% over the prior year.

And on the other side of the ledger, you have…

  • The largest-ever economic stimulus in U.S. history, totaling nearly $3 trillion thus far (more is expected) and over 13% of GDP.
  • Included in these stimulus bills were non-taxable payments to most Americans ($1,200 for individuals and $2,400 for couples with $500 additional for each dependent subject to income limitations) and non-taxable forgivable loans for small businesses (equal to 2.5 times monthly payroll costs up to $10 million).
  • Also included was an additional $600 per week for unemployment from the federal government, which means workers in more than half of the country are being paid more on unemployment than from working at their jobs.
  • A willingness of both political parties to substantially increase the national debt, which surged past $24 trillion in April and then less than a month later past $25 trillion. At 118% of GDP, it has never been higher.
  • The Fed almost immediately cutting interest rates back to an all-time low of 0-0.25% and taking the Reserve Requirement Ratio for banks down to 0%.
  • A $2.8 trillion increase in the Fed’s balance sheet, with many trillions more expected. This includes for the first time purchases of corporate and municipal bonds, including ETFs (both investment grade and high yield).
  • 77 other Central Banks around the world joining the Fed in cutting rates this year.

Is the combination of record government stimulus and the most accommodating Federal Reserve in history enough to outweigh the worst economic collapse since the Great Depression?

The markets, particularly technology stocks, are saying a resounding yes.

Microsoft, Apple, Google, Amazon, Facebook, and Netflix are all said to be immune from a pandemic-driven recession, and actually benefiting from people staying at home. The Nasdaq 100 (QQQ) is behaving as if nothing ever happened.

Meanwhile, indices like the Dow that include more stocks from the “old economy” (ex: Boeing, Caterpillar, Exxon Mobil, JPMorgan) seem to be less sanguine that a v-shaped recovery is on the horizon.

Who is right?

Only time will tell.

In the meantime, it’s ok to admit you’re dazed and confused and unsure how it will all play out.

You’re not alone.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For our full disclosures, click here.

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