Market Outlook | Summer 2020
Updated: Jul 29, 2020
Jobs, Jobs, Jobs: The biggest concern for economists about the fallout from the Covid-19 virus and subsequent closing of our economy has been the potential loss of great numbers of jobs.
Indeed, since consumer spending contributes roughly 70% to our GDP, and since most consumers aren’t big spenders when they do not have a reliable income, this concern seems reasonable. In fact the unemployment numbers, until the Friday June 5th report, looked downright awful.
The U.S. unemployment rate went from 3.5% in February to 14.7% in April!*. Many economists predicted the unemployment rate would reach 20% in May. However, perhaps buoyed by the bipartisan payroll protection plan (PPP), the unemployment rate for the month of May came with a DECLINE to 13.3%! Still a shockingly high number, but the fact that it actually declined in May has some economists re-thinking their forecasts for GDP growth in 2020. The stock market reacted to this positive labor news by promptly rallying (DJIA up 829, NASDAQ up 198, S&P up 81)**. The question of whether or not the worst of this virus is behind us has been replaced with a concern of whether or not the virus re-emerges.
Short of an additional outbreak, the economy appears to be recovering quickly. Considering the amount of economic stimulus that has been applied, both momentary (low rates) and fiscal (PPP, stimulus check) our overall economy should be very strong throughout the rest of the year.
Potential headwinds include:
1. Trade deal with China: has the virus jeopardized the deal that is in place?
2. Slow global recovery: Will Asia and Europe experience similar economic strength?
3. Cost of reconstructing supply lines: Making things in America will be more costly and less efficient than making them overseas. The security of making our own drugs and computer parts may be worth the cost of this inefficiency, but there will be an economic drag from this policy.
4. The Fall election: elections are wild cards. Markets dislike uncertainty and the economic policies of the two candidates are widely different.
As the race gets closer, market volatility could increase. What we have seen this year is the strongest employment market since the 1960’s immediately ... followed by the highest unemployment rate since 1939, immediately followed by the largest drop in the unemployment rate since 1939*. All of this happened in the same year we have had the worst pandemic since the 1918 Spanish Flu. 2020 certainly has had plenty of surprises and big news events, and the year isn’t even half over yet! Let’s hope the second half of this year is better than the first!