June 2020
Marketing Briefing

U.S. Markets

Recap

For June, U.S. stock markets showed remarkable buoyancy amidst the murky and turbulent waters of this recessionary period. After plunging 7% on June 11th, the DJIA climbed upward to end the month up 0.27%. Investors’ continued optimism for technology companies lifted the tech-laden NASDAQ up a lofty 5.99%.

In early March, independently, but practically in conjunction with the sudden need for shelter-in-home restrictions, the Federal Reserve Board slashed the target range for its overnight funds rate to 0% – 0.25%, while also skipping release of quarterly economic projections. On June 10th the Fed resumed its release of quarterly forecasts, which included its projection that the U.S. economy will shrink 6.5% in 2020. The central bankers also kept interest rates near zero, with chairman Jerome Powell emphatically stating that they are “not thinking about raising rates”, and “not even thinking about thinking about raising rates.”

The massive government economic measures – interest rate cuts, individual stimulus checks, unemployment aid, emergency business grants, an array of lending facilities – initiated by the U.S. in March, were further augmented in June with extensions of the Paycheck Protection Program (PPP). Additionally, the Fed announced that it had started to buy corporate bonds, which, according to economist Frank Norhaft, “The purpose is to help these companies remain good employers in the marketplace, stand on their feet, not lay people off and hopefully bring people back to the workforce.”

By late June, jobless claims appeared to have plateaued when instead of falling further, the unemployment rate rose ever so slightly to a level of 13.4%. While losses in the labor market are enormous and grim, this level is less than the 19% that analysts were predicting previously.

Also late in June, the Commerce Department reported a rebound in b. Although positive in direction, it still leaves spending 11% below its pace before the pandemic hit.

Likewise, consumer confidence rose to a reading of 98.1 for June, which was a bit less pessimistic than economists had anticipated. The index had stood near a 20-year high at 132.6 in February before the pandemic restricted swaths of the economy. It fell to as low as 85.7 in April.

Looking Ahead

July’s economic reports, along with Covid-19 developments across the nation, will be closely scrutinized for indications of economic stabilization and resiliency. Employment conditions, consumer sentiment and consumer spending all have the potential to greatly sway consumer behavior and investor confidence.

While it’s true that the pandemic has brought some sectors of the economy to a grinding halt, and impeded others, that’s not true for all. As reports are released, visibility will be gained for the magnitude and uneven impact on the various sectors of the economy and its participants.

Also with July comes the release of earnings for Q2 2020. Earlier this year, amidst the staggering uncertainties of this prevailing Covid-19 period, numerous companies withdrew guidance for their earnings outlook for the remainder of 2020. So much of the world – individuals, companies and governments – have only begun their grappling with new patterns of living, not for a “post-pandemic” existence, but for a “with-pandemic” existence.

Thus far, investor confidence has been supported by the massive flood of government stimulus and intervention. With the arrival of earnings season, investors are bracing themselves as the estimated earnings decline for the S&P 500 is -43.8%, the largest decline since our country’s last recession 12 years ago in Q4 2008.

In recent weeks, the easing of shelter-in-place restrictions has allowed for the restoration of some commercial activity. Much of this has been too recent to have significantly impacted Q2 earnings, especially for sectors that have been hardest hit. More should be reflected in Q3 results.

Beyond Q2 2020, analysts currently forecast a choppy U.S. recovery gaining traction. They project decelerating earnings declines throughout 2020, with a return to earnings growth in Q1 2021.

Any specific securities referenced in this commentary may or may not be held in client portfolios.
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