The Pulse – What’s happening in the Economy and the Capital Markets: 10/5/20 – 10/9/20|
Reading Time: 4 minutes
In a slow week for economic news, the focus was primarily on the markets and how they will interpret the 2020 U.S. election results.
Betting markets have a Biden presidency and Democratic controlled Senate both at 65% probability (an election sweep at 61%). The market is quickly adapting to this scenario with expectations of a large fiscal stimulus bill (including an infrastructure bill) which would be good for stocks, especially those focused on the U.S. economy.
The high frequency data still shows continuous improvement, though at a slow pace. As COVID-19 cases continue to rise, concern about the impact of state shutdowns remains. This is demonstrated by a Natixis report that a basket of stocks correlated with “staying home” recently outperformed a basket of stocks associated with “opening up.”
The market experienced its strongest week in months. It is becoming more likely that a strong stimulus agreement between the White House and Congress will be reached, though the timing is still undetermined. This confidence is visible in the recent strength of the Russell 2000, which reflects more small and mid-sized companies that typically are most sensitive to the U.S. economy, as well as the recent strength in the materials, industrials and financial sectors. The market is also exhibiting more comfort with a Biden presidency and Democrat controlled Congress with the anticipation of a large fiscal investment in the U.S. economy.
Flows into other economic sensitive investments have been strong – the U.S. high yield bond market continues strong flows and lower interest rates are available to issuers.
JP Morgan committed $30 billion (in excess of its normal course of business) to close the wealth gap by funding loans, investments and philanthropy in minority communities. The bulk of this is tied to housing (loans, mortgage, investments).
The Economic News
We continue to see marginal improvements in the economy. Rising COVID-19 cases, as well as layoff announcements by large employers, have economists concerned about the durability of recovery, however, this is not yet visible in the high frequency economic data.
NY FED WEEKLY ECONOIMC INDEX – CONTINUED, ALBEIT UNEVEN IMPROVEMENT
HIGH FREQUENCY DATA
The weekly initial and continuing jobless claims mostly fell in line with economists’ expectations. Generally, these continue to improve on a weekly basis; however, the pace of improvement remains slow and on an absolute level extremely high.
Economists are concerned that the consistently high numbers are a significant sign of permanent job destruction.
Focus of the Week – Hospitality
This week, we look at industries that were initially and directly impacted by COVID-19 – Hospitality, Travel, and subsequently, gasoline.
Restaurant dining trends were higher as consumers become more comfortable with their personal budgets and the restaurants have adapted to fewer in-establishment diners, but increased take-out services.
What happens once the weather cools? Goldman Sachs speculated that with temperatures of 45 degrees this week, outdoor dining will significantly decrease.
OPENTABLE – YEAR OVER YEAR % DECLINE – TRENDS IMPROVING
HOTEL OCCUPANCY – CONTINUES TO STRUGGLE
Source: Calculated Risk blog
The key metric for the hotel industry is Revenue per Available Room (RevPAR). Over the last four weeks, it has averaged a decline of 50% compared to the same period in 2019 – a marginal improvement over the 55-60% decline in June and July.
AIR TRAVEL (TSA PASSENGERS – 7 DAY AVG) – SLOW RECOVERY
The modest pace of recovery has been relatively consistent for months. However, the volume of passengers is still down approximately 60% from the same period in 2019 (notable as travel can be seasonal), with passenger volumes averaging about 800,000 this week compared to over 2.3 million last year.
A vaccine or readily available COVID-19 treatment is likely necessary to yield a return to historic levels.
DEMAND FOR GASOLINE – NEARLY FULL RECOVERY
After recovering most of the lost volume from the COVID-19 recession, gasoline demand has plateaued with a decline of about 5-10% from 2019’s levels.
- This may be a result of the popularity of “work from home” policies that companies are employing as they explore how to bring staff back to offices.
A Few Stories that Caught My Eye
- Rent costs were down 17% in September. Manhattan apartments haven’t been this cheap since 2013.
- The 50 richest Americans are now worth as much as the bottom 50%.
- Want to own a piece of the Redsox and Liverpool Football Club? Owner in talks to go public via the increasingly popular SPAC vehicle. Will this be a trend with sports teams?
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