The Pulse – What’s happening in the Economy and the Capital Markets: 9/21/20 – 9/25/20


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The Pulse – What’s happening in the Economy and the Capital Markets: 9/21/20 – 9/25/20

Executive Summary

The economy and markets are providing signals of caution, while there are bright spots emerging in the new COVID economy. With news of rising cases in Europe and the Midwest, and Washington focused on the Supreme Court and the election (not additional stimulus) investors took risk off the table this week. Meanwhile, the high frequency data is showing plateauing progress in several measures, while a few others continue to improve, but are below pre-COVID levels.

The Markets

The market is increasingly concerned about the economy and the political environment heading into the election. The consensus view is that while the Fed and the Treasury have expressed the importance of more stimulus to Congress, Congress will be focused on political positioning and the process of filling the Supreme Court opening. The uneven nature of the recovery, including the stalling of the recovery in several sectors, has the market more cautious.

Additionally, rising COVID caseloads in Europe have investors concerned about what could happen in the US. Remember trends in European caseloads led the U.S. by 1-2 months previously. Meanwhile, the U.S. is seeing a rise in cases in the Midwestern U.S.

This affect has been seen in equities as the strongest performance for the week was in the relative safe havens of the S&P 500 (still down) and the Nasdaq. More cyclical, smaller and international indices declined more, while the high-yield debt market saw spreads widen relative to government securities.

The Economic News

Consistent with what we have said in recent weeks, in aggregate, the economic recovery looks to be stalling, at approximately 70-80% of pre-COVID levels.

Dallas Federal Reserve Mobility and Engagement Index

 NY Federal Reserve – Weekly Economic Index

 High Frequency Data

We see the plateauing with initial and continuing Jobless Claims, which have decreased overall but have not meaningfully declined recently. They are still at exceedingly high absolute levels.

Travel (air traffic remains down 70% from pre-COVID), gas consumption and other sectors also have plateaued. Yet, we are seeing improvements in some segments, such as restaurant reservations and housing.

 U.S. Demand for Gasoline

Focus of the Week

Homebuilders are at their highest levels of optimism in generations. The local, residential housing market has been a real beneficiary of the reaction to COVID. Increased demand is coming from millennial remote workers moving away from city-based apartment buildings toward houses with more space as lower interest rates have made homeownership more affordable.

Supply, however, has been limited as land acquisition, permitting and building processes have been slow to adjust. This has created a temporary spike in prices.

Our economy could sustainably benefit if homebuilders are able to build affordable, first home purchase housing inventory, which would have a positive ripple effect on local jobs and tax bases. Two significant challenges to work through are the supply of skilled labor and affordable land.

National Association of Home Builders Index (>50 = Optimistic, <50 = Pessimistic)

Optimism is based upon record low inventory – ~ 3 months – for Existing and New Homes

Existing Home Sales – +2.4%, in-line with expectations and +11% from one year ago.

New Home Sales – 1.0 million (seasonally-adjusted), above 840k expectations and 860k in July.

  • This was the highest level in 14 years
  • Builder backlog is at the highest level in 14 years.
  • New Home sales increased by 4.8% vs. July 2020 and 43% compared to August 2019.

A Few Stories that Caught My Eye

  • COVID silver lining: 1 million new businesses started since COVID (Iink)
  • California announced that starting in 2035, all new car sales must be electric vehicles (link)
  • Special Purpose Acquisition Companies (a/k/a SPACs) are a hot thing in finance these days: Alec Gores turned $25k into $80 million in months (link)


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