The Pulse – What’s happening in the Economy and the Capital Markets: 10/26/20 – 10/30/20

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The Pulse – What’s happening in the Economy and the Capital Markets: 10/26/20 – 10/30/20

Executive Summary

GDP numbers depicted the fastest growth the U.S. has experienced since the government began tracking GDP post-WWII. The positive numbers reflect the economic rebound experienced from July to August, which is stronger than what we’re currently experiencing as evidenced in the high frequency data.

The economy continued to generate mixed results, with consumer trends reporting positive, yet indicating anxiety. COVID-19-impacted sectors saw a decline and the industrials sector momentum appears to be waning. It was also a rough week for the markets with October performance reporting as the lowest since March.

The Markets

The final week of the month was significant for the markets solidifying October as the worst performing month since March. The sell-off across various assets and geographic locations signals that investors may be raising cash.

Also visible in the market this week are concerns over the global rise in COVID-19 cases which have led to shutdowns in Europe. Meanwhile, there has been no progress in the U.S. on further fiscal stimulus. Fear and uncertainty (as traditionally measured by investors) jumped approximately 30% this week, up to the same level as early June when COVID-19 cases were spreading across the Sunbelt and California.

Earnings season holds strong with 88% of S&P 500 companies’ Q3 earnings above analysts’ expectations.

The Economic News

As expected, we saw a record GDP announcement of 33% for Q3 – the highest since WWII. Similar to our Q2 comments, GDP reflects an annualized number, as if the change between Q3 and Q2 occurred for all four quarters in the year, which we know is unrealistic.

  • According to Bloomberg, the majority of the GDP surge occurred early in Q3.
  • Year-to-date, the economy has contracted about 3.5%.
  • The market is expected to grow 2.5% in Q4, meaning the current economic forecasts a shrink of 3-4% in in 2020.

The trailing economic news remains positive while real-time shows a slowing of the economy.

The last few weeks have seen a continuous decline from historically high levels in Initial and Continuing Jobless claims which is significantly positive news. The current levels are extremely elevated compared to pre-pandemic levels and have been for nearly seven months; however, the absolute levels are down nicely compared to recent weeks.

While Jobless claims figures were positive, numbers are weak across more COVID-19-impacted and consumer-related activities. Weekly Retail Sales and Travel & Leisure were down, and consumer expectations (according to The Conference Board) were well below forecasts.

Last week, the Leading Economic Indicators pointed to a slowing of economic recovery. This week, the most recent reading of the Chemical Activity Barometer Index confirms such. As chemicals are core components of goods across the economy, the activity index provides insight into future economic growth based upon demand for inputs into a variety of products.  When considering the spike from earlier in the year, this reading clearly signals a slowing.

CHEMICALS ACTIVITY BAROMETER

Two positive reports for the Manufacturing and Industrials Goods sectors:

  • Durable Goods reported better than expected at 1.9% beating September’s 0.4%.
  • Capital Goods Orders (ex-Defense) reported better than expected at 1%, though down from September’s 2.1%.

Focus of the Week – The Consumer

 Personal income grew 0.9% in September and personal spending grew 1.4%, both exceeding expectations and August stats.

The Consumer Confidence Index, measured by the Conference Board, reported marginally positive numbers, though below expectations and September levels. The figures indicate consumers are positive about their current situation, but nervous about the future, with expectations declining significantly compared to September’s survey.

Inflation was modest in government reported numbers having increased 0.2% month-over-month, in line with expectations and slightly below August. The year-over-year increase was approximately 1.5% and slightly below August’s levels.

A Few Stories that Caught My Eye

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