July 13, 2020
We are starting a new format with the weekly video and blogs we are putting out. While we want to continue to provide weekly updates on the key data we are watching, I also wanted to go a bit more in depth by including articles that I feel are good summaries of what we are looking at as well as other strategies and ideas we believe are important to be considering. We hope you like the changes and look forward to any feedback you may have.
The top things we will cover in this week’s blog:
· The Market – The S&P 500 was up 1.85% for the week. While the spread of COVID is dominating the headlines, the market continues to hold steady.
· Unemployment – We saw a drop in New and Continuing Unemployment Claims but had a significant increase in Total Unemployment Claims from all programs.
· Liquidity/Solvency – While the Fed and Treasury have provided significant liquidity over the last few months to deal with the fallout of COVID, it has not alleviated the challenges consumers are facing, evidenced by 32% of mortgages not paid in full the first week in July. As many of these liquidity programs begin to expire, we will need to watch closely the impact on consumer and business solvency.
In Non-Financial News:
Our kids’ school officially closed their campus in mid-March as the rest of Washington state shut down due to the Coronavirus. While we initially hoped the distance learning would only be for 3-4 weeks, we soon realized it would last the rest of the school year. As everyone took this virus seriously, it was a long time before our kids were able to see any of their friends and really do much more than walks and hikes. However, last week, their school opened up for their summer camps (with very strong health measures in place). It has been great to hear the stories of what they are doing, especially from our 9 year old going into 4th grade. She is a big Harry Potter fan and they are doing a Hogwarts camp and get to play Quidditch every day! Fingers crossed that schools will be able to open in the fall!
Top Stories From Last Week:
· The market continues to be resilient in the face of challenging economic data and the rise of COVID cases across the country with the S&P 500 up 1.85% while many wait to see what is to come with corporate earnings.
Unemployment (data sourced from: https://www.dol.gov/ui/data.pdf )
· New claims came in at just over 1.3 million, which was slightly better than expected but still the 16th week in a row over 1 million claims.
· Continuing claims dropped to close to 18 million, which is close to 1 million lower than last week’s reported number after adjustments. This is a significant change in the positive direction.
· Total Unemployment claims – While new regular and continuing claims made positive moves, more troubling is the Total Claims from all programs actually jumped over 1 million to almost 33 million. The largest increase came from over 1.5 million claims for Pandemic Unemployment Insurance.
· One of the major areas I have been discussing on previous videos is the concern about what happens if all of these programs the Fed and Treasury have been funding for individuals and businesses go away without an equal replacement?
These programs have been providing a significant amount of fuel with reports showing a large amount of those funds went into the stock market. If small business begin more layoffs post PPP funds and if individuals have lower monthly income due to the additional Pandemic Unemployment Benefits going away or being reduced, this could reduce the flow of new capital going into the markets which will take away some key support for the market.
Articles of Interest:
· COVID Cases and Deaths on the Rise - https://www.usnews.com/news/health-news/articles/2020-07-09/coronavirus-deaths-increasing-in-states-with-resurgences
o Cases have been rising for the last month but we had yet to see any meaningful increase in deaths, rather the opposite, as daily deaths continued to drop through early July. However, in the last couple of days, we have started to see daily deaths begin to increase, at least in a few states.
o The mood from the market at least, appears to be that while there is some concern over rising cases, that deaths have not shown the same spike and that there is limited risk to further shutdowns that would derail the current economic recovery.
o Can the market go up forever, in spite of all of the bad economic data? This article from June provides the case by a market analyst, Jim Bianco, who was very bearish on the market up until the last month or so. He believes that the narrative of the Fed Put – the belief that the Fed will do whatever it takes to prop up the market – along with a large amount of new retail investors, will continue to drive markets higher, even if there is no fundamental reason for it. His caution is that if there is a strong enough force, most likely data that does not support a V shaped economic recovery over a longer period of time, the markets could go down significantly.
o In July, 32% of Homeowners missed part or all of their housing payment. This comes off of similar numbers in June (30%) and May (31%) which indicates that there is still a solvency problem that is not improving. As we have discussed in previous blogs and videos (June 15th Blog, June 1st Blog) while there has been a lot of liquidity provided to the system through the PPP loans for small businesses and direct checks and extended unemployment for individuals, it has not done much to solve the longer term problems with revenue and job losses. This is something that will need to be watched closely as mortgage forbearance programs as well as the other programs outlined above begin to roll off this month. They are likely to be extended but to what extent? And probably more importantly for the market, when?
Book I’m Reading Right Now
· The Fourth Turning by Neil Howe and William Strauss -
o This article gives a good description of what I am reading in the full book. I am about half of the way through right now but by the first 6 pages I was wondering if Neil Howe and William Strauss had a crystal ball when they wrote this book back in 1997. Their thesis is that every 4 generations or so (the span of a long human life), we go through a major change in society that is the result of how each generation views and experiences the world differently. It is a fascinating read but also concerning as typically Fourth Turnings end in major conflict that is preceded by significant social unrest.
Social Media Post of the Week
See our post about our newest team member, Max Graber, and his story about shunning the traditional college path! https://www.facebook.com/konvergentwealthpartners/posts/3258855420848511
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I hope you like the format of our weekly market update blog. We will continue to make adjustments to bring you the most relevant and valuable information. 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.