The Pulse – What’s happening in the Economy and the Capital Markets: 9/7/20 – 9/11/20


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The Pulse –  What’s happening in the Economy and the Capital Markets: 9/7/20 – 9/11/20

Executive Summary

The Pulse of last week’s economic and market data was mostly disappointing. We are seeing the economic recovery going in fits and starts. Select industries continue to experience incremental improvements such as manufacturing and residential real estate. However, employment continues to be a concern. Highlights from this week’s report include:

  • The stock market – experienced a tough week, as investors sold to take August’s profits off the table.  Meanwhile, we had drama in M&A and the allegations of the 2nd major new economy fraud this summer.
  • Economic data – also revealed that inflation is starting to return toward more historical levels.
  • The focus of the week: healthcare – We’ll take a closer look at data relating to COVID’s impact on healthcare services.

This week’s data may reflect evidence the economy has mostly adjusted to operating in a COVID world. For more analysis and our perspectives read on.

The Markets

Markets chart

This week saw investors take some of the gains from a hot market in late August, with the Nasdaq returning to levels of a month ago. There has been a shift toward reliable, dividend-paying sectors such as utilities, industrials and healthcare to ride out the volatility of the faster-growing technology. The International markets, which have lower valuations and do not have a highly- polarized election ahead of them, have performed better. Oil remains very weak.

Two top news headlines this week relate to mergers, acquisitions and partnerships.

  1. The first is the soap opera that is Nikola, the electric vehicle truck manufacturer. On Tuesday, it announced a partnership with GM, with GM taking a $2 billion ownership stake in the company, sending shares up 40%. The next day, a well-researched short report identifying Nikola as a fraud surfaced, sending shares plummeting, so that the stock finished the week down about 10%. (see the link in A Few Stories that Caught My Eye)
  2. LVMH, the parent company of Louis Vitton, approximately 10 months ago agreed to acquire the iconic mass luxury retailer, Tiffany’s. Then COVID happened. This week, LVMH and one of the world’s richest men, sued to get out of the deal, citing the French government and US trade policies. (see the link in A Few Stories that Caught My Eye)

The Economic News

Three key pieces of economic news this week – 1) Modest economic rebound,
2) Disappointing unemployment report, and  3) Inflation data points.

Economic activity and mobility are picking up modestly as school resumes. The pace of the recovery is uneven (according to the Dallas Federal Reserve).

Mobility and Engagement Index

Source: Dallas Federal Reserve Board

The unemployment report showed persistently high initial unemployment claims and continuing unemployment claims that regressed and were worse than expected. When factoring in the Pandemic Unemployment Assistance, the employment picture has completely stalled, signaling that there is permanent job destruction from COVID. This week’s data contrasts with the rosier picture from last week’s August Unemployment Rate which was lower than expected.

Unemployment report 9.14.20

Initial claims 25 weeks consecutive above the prior record. 884k vs. expected 850k and last week’s 884k.

Continuing claims negative surprise – 13.4m vs. 12.9m expected and 13.3m last week. When factoring in the PUA claims, Unemployment has not improved in three months.

Inflation is returning toward more normal levels and was marginally higher than expected.

The Core Consumer Price Index (CPI, excl food & energy) – +0.4%, higher than expected 0.2% and down from July’s 0.6% growth.

  • Core CPI change last year +1.7%, higher than expected 1.6% and July’s 1.6%.

The Core Producer Price Index (PPI, excl food, energy & trade) – +0.3%, higher than expected 0.2% and flat with July.

  • Core PPI vs. last year – + 0.3%, higher than expected 0.2% and July’s 1%.
  • The greatest surprise this month was used auto prices, which surged due to low inventory. Airfares increased for the 3rd month as well as wireless phones.
  • These are offset by the cost of housing/shelter, which has not shown traditional weakness in rents and is becoming apparent. It was the softest reading in over a decade.

From the High Frequency Data, we see steel production strength and a rebound in travel.

High frequency data 9.14.20

Focus of the week – healthcare

The impact of COVID on the U.S. healthcare system will be transformative. This week we look at 3 pieces of data as it relates to the delivery of physician services to patients.

For nearly 20 years, consumers had spent approximately 3.5% more per year on doctors’ services. During COVID, that plummeted 40% to a level last experienced in 2003. The industry has recouped much of the decline so that the July reading was just 8% off the February peak.

Real Personal Consumption Expenditures of Physician Services

In contrast, Dental practices have had a very different experience. Coming into COVID, dental expenditures, which are considered more discretionary than medical care, had rebounded 2% per year for 6 years after the industry’s Great Recession decline. COVID sent dental expenditures down nearly 65% from February’s peak. They have rebounded a little less than half of that and are still off 33% from February.

Real Personal Consumption Expenditures of Dental Services

Real Personal Consumption Expenditures of Dental Services

We are starting to see how significant the migration to telehealth is becoming. According to Fair Health, an organization that tracks medical claims from private insurers (i.e. excluding Medicare and Medicaid), telehealth is now a significant portion of claims nationally, even as patients have returned to office-based visits. It’s still early to determine at what level this trend will mature, the general population’s exposure to it will make it an important part of healthcare access and delivery.

Telehealth -% of Claim LInes


A Few Stories that Caught My Eye

  • GM, Nikola & Fraud (link)
  • LVMH’s story behind exiting Tiffany’s deal (link)
  • VMWare, Twitter and others are cutting pay for Bay Area workers leaving the Bay Area to work remotely (link)
  • Netflix founder Reed Hastings explains how Netflix’s culture determined success (and it’s not a culture for everyone) (link)


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