The recent selloff continued this week as the market showed additional signs of weakness. After months of record setting spikes in economic data, recently released figures are beginning to indicate that the recovery is losing steam. Will dovish comments from the Fed be enough propel the market higher or are we headed back down to the lows from March? We discuss this and look deeper into the significance it may have on the upcoming election, as well as the news on Ruth Bader Ginsburg, during this week’s Market Update Blog.
Here are the top things we are covering this week’s blog:
The S&P was down -0.64% on the week but it certainly was not a clear path to get there with a great deal of volatility surrounding the Fed announcement on Wednesday. At the time Fed Chairman Jerome Powell began speaking the S&P was up over 2.5% on the week. From that point on, the market fell heavily and finished trading on Friday well into negative territory. We expect to see more rollercoaster weeks like this one in the near term as election day looms closer.
New Claims decreased last week and came in at 860,000. This was the third week in a row that New Claims were virtually flat. One bright spot in the report was in New Pandemic Claims, which fell over 200,000 to 658,737. Overall this brings last week’s Total New Claims to slightly above 1.5 million, which continues to be a concern as we move closer to the common virus season.
Continuing claims decreased slightly last week to 12.628 million. This was a positive drop but still almost 11 million above the levels seen at this time last year.
Total Claims for Unemployment from all programs followed a similar pattern and increased marginally to 29.7 million. It now appears that the employment recovery has begun to taper off heading into the fall season. If the trend of poor employment data and a falling stock market continues, we very well could see increased pressure on Congress to pass a new stimulus package to support the American people.
The August Retail Sales numbers were released last week and showed a 2.6% growth Year over Year (YoY). However, the Month over Month increase was just 0.6%, well below the 1% growth expected. Overall, we are seeing growth continue to slow as many Americans struggle to make ends meet without additional Government stimulus.
Another way of looking at Consumer Spending is through the lens of individual categories. In the chart below, we can see that both Total Spending and Restaurants & Hotels Spending have fallen significantly compared to Pre – COVID levels. In contrast, Grocery Spending has increased 14.5% as many consumers attempt to limit unnecessary purchases.
Industrial Production also experienced a slowing in recovery during August improving by 0.4% from the previous month to -7.7% YoY. The reading came in just below analyst expectations of 0.5% and provides another catalyst against any claims of a V – shaped recovery.
The chart below shows Industrial Production with the past 50 years of Recession dates highlighted in gray. Even with the recent spike higher, Industrial Production remains near the depths of every recession (outside of 2008-2009) since the 1970s. If the recovery of Industrial Production continues to slow the resulting effects could be very long lasting.
Elections and Volatility
News broke late Friday of the death of Ruth Bader Ginsburg, the second woman appointed to the Supreme Court and a leader in the women’s rights and gender equality movement. Given the already contentious nature of our current political environment, it is not a surprise that the focus in the news became more about whether there would be a nomination and vote on her replacement before the elections, given a similar scenario prior to the 2016 election. This will likely add more uncertainty and headline risk over the coming weeks ahead of the election.
An important election indicator that we will be watching closely in the next two months is how the market performs leading into the election. Historically voters are more likely to pick the incumbent present if they feel positively about the economy. This could be a year where there are so many other issues that the economy, while still important, won’t be the determining factor. Also, we have seen an increase in volatility recently so the likelihood of September having a positive return would require a large rally over the final 10 days of the month.
Articles of Interest
Fed Meeting Recap – The Federal Reserve met on Tuesday and Wednesday of last week to discuss monetary policy and future interest rates. While the initial announcement was viewed by many as quite dovish, the subsequent press conference by Chairman Jerome Powell caused a stir in the markets. Check out this article to see the highlights of Chairman Powell’s press conference as well as his most important forward guidance.
Stimulus Update – As the hiatus between Congress over stimulus extension negotiations drags on, a group of bipartisan House members (known as the Problem Solvers Caucus) presented a $1.5 trillion stimulus package last week. Despite failing to gain major support from either parties leaders, those involved feel optimistic that it may help to get the ball rolling Congress. Check out this article to read more about the proposed package and other stimulus headlines.
Consumers Spending Less in September Even as Economy Reopens – After an increase in spending over the summer, Americans look to be saving more in September as the likelihood of a second stimulus package remains uncertain. Check out this article to see why economists are beginning to fear the economic recovery is at risk.
Social Media Post of the Week
I had the pleasure of co-hosting and education event for 50 CPAs and Financial Advisors last week, going over our framework for working with business owners to help them Capture, Create and Realize Value in their companies!
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Non-Financial Story of the Week
My wife and I watched the Netflix documentary, The Social Dilemma this week. I think there were some powerful messages in here about the dangers of Social Media and the impact it has on those that get addicted to the dopamine hits that come from the “likes”. It also spoke to some of the dangers that come from the social unrest that seems to be a biproduct of some of these platforms. In a vacuum, it seems like these platforms could be the source of some of these issues. However, if you take a step back, I would argue that we are going through a much larger societal change that is outlined in the great book, The Fourth Turning. I have mentioned this book in previous posts and have been discussing this with a few clients. This book was written in 1997 and in the first 6 pages, it basically predicted the issues we would be facing today. It is a powerful message and also challenging as if the thesis of the book is true, many of the issues we are facing today are a natural part of the generational shift we are going through and that we may be dealing with this for years. This is a long term challenge that will not necessarily impact our recommendations for our clients in the short run but something we are going to be paying more attention to.
For months we have been suggesting that the historical economic recovery would have to slow, and it appears that is now beginning to occur. This pullback was bound to happen after months of nonstop gains. While at this point, we do not expect the market to drop all the way back to the levels seen in March, it certainly has more room to go down. Next week will be critical in determining if the market has found a base or if the selling is just starting to pick up steam.
If you have any questions about any of the information in this week’s blog or what you should be doing right now with your personal and business planning, do not hesitate to reach out to us by sending an email to firstname.lastname@example.org or calling us at 253-236-7000.