The COVID-19 pandemic is a global health crisis that has also become a global economic crisis.  It was announced on Thursday (3/26) that a record 3.28 million workers applied for unemployment benefits last week.  The number of Americans filing for claims was nearly five times the previous record high.

The economic damage for the next 1-2 quarters, minimally, will be great especially for the leisure, travel and energy industries.  How much further beyond that and how quickly the economy will recover will be a function of whether the unprecedented fiscal and monetary policy that has been provided will limit the damage done to a temporary event or is the damage permanent.

Contact us if you have questions about managing your portfolio.

 

Historically, epidemics like SARS, Ebola, Swine Flu, … (see list below) have had short-term impacts on the economy and stock market.  Obviously, not all viruses are the same and no one knows the total impact yet of the coronavirus.  There is no doubt that the coronavirus will minimally impact GDP and corporate earnings for the current quarter.  Also, as we wrote on February 5^th, “While the liquidity backdrop is favorable and the economy is growing, investors should brace for more volatility due to these ongoing developments and the proliferation of trading algorithms, which can cause wide swings in prices.”  We have seen this daily over the past several days, and expect it to continue in the near term.

 

 

While the volatility has been massive, it also presents opportunity. At a minimum we expect a healthy bounce. When stocks trading below their 50-day moving average fall below 15 percent, it has generally been a good opportunity for additional commitments. As of Friday February 28th, that reading was 3.1 percent. Moreover, Chairman Powell recently reiterated that the Fed will use tools aggressively if they are needed.

While volatility is likely to remain high, so are the opportunities. That said, financial markets rely on confidence, and when confidence erodes accidents can happen. For that reason, it is critical that all politicians work together to focus on a solution for all rather than score political points.

Click here to read the full report.

U.S. financial markets began 2020 with the continued momentum seen late in 2019 on the easing of trade tensions, steady economic growth, and an accommodative monetary policy. The Dow Jones Industrial Average closed above 29,000 and the S&P 500 closed above 3300 for the first time in history. The markets were able to shrug off concerns about rising geopolitical tensions with Iran and the impeachment trial in the Senate until fears about the coronavirus started to escalate.

U.S. equity markets declined by roughly 3 percent in the last six days of January as the World Health Organization declared the coronavirus a global health emergency. Adding to those concerns is the lack of transparency about the origins of the virus and the general distrust of government institutions.

Click here to read the full report.

 

The ISM Manufacturing Composite Index is a subcomponent in the Economic Cycle indicator in TJT’s proprietary InVEST Risk Model®.

The ISM Manufacturing Composite Index increased to 50.9 in January from 47.8 in December.  It was the first expansionary reading above 50 since July 2019 for US manufacturing that has been contracting for five straight months.

Readings above 50 in the ISM manufacturing index signal month- to-month growth for U.S. manufacturing as a whole, while those below 50 indicate monthly contraction. For the economy as a whole, historically readings above 60 signal national GDP growth of 5 percent, while those below 43 signal GDP contraction.

Contact us to learn why this is important when managing your money.

 

 

The 2019 year began with the ongoing partial government shutdown, the Robert Mueller investigation into election interference, the continuation of the trade war with China, and a Federal Reserve that rattled markets by raising interest rates four times and stated the reduction of their balance sheet was on “automatic pilot.”

As the 2019 year came to a close, the Mueller Report turned out to be a non-event, a “Phase 1” trade agreement with China was announced, the Federal Reserve cut interest rates three times and began to increase the size of their balance sheet again, and the S&P 500 index rallied by more than 28 percent.

The political drama in Washington continued, however, with the House of Representatives voting to impeach President Trump primarily along party lines, yet the articles of impeachment have not been sent to the Senate at this time. The 2020 New Year began with rising geopolitical tensions as a result of a deadly drone strike on an Iranian general.

Click here to read the full report.

 

The 4-Week Moving Average of Initial Claims is a subcomponent in the Economic cycle indicator in TJT’s proprietary InVEST Risk Model®.

New unemployment claims are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time. An increasing (decreasing) trend suggests a deteriorating (improving) labor market. The four-week moving average of new claims smooths out weekly volatility.

Initial jobless claims for the week ending 12/7 jumped to 252,000, up 49,000 from the prior week’s 203,000. This moved the 4-week moving average up to 224,000.

Historically, weakness in the economy tends to show up in weekly initial jobless claims prior to the overall unemployment rate increasing. The large week over week increase bears watching to see if a trend develops or if it was an outlier.

Contact us to learn why this is important when managing your money.

 

 

The U.S. equity markets recorded all-time highs in November as momentum from trade deal optimism along with a liquidity injection from the Federal Reserve boosted risk assets. In addition, some money that had moved out of equities on concerns about an economic recession and the impeachment inquiry came back in, and some hedge funds that had bet against the market were forced to cover their short positions.

On October 11, 2019 President Trump announced a partial trade deal with China saying ”we have come to a very substantial phase one deal.” On October 13, 2019, President Trump tweeted “My deal with China is that they will IMMEDIATELY start buying very large quantities of our Agricultural Product, not wait until the deal is signed over the next 3 or 4 weeks.”

The “deal” announced in October was supposed to have been signed in November. Yet on December 3, 2019, President Trump said at a NATO summit “in some ways, I think it’s better to wait until after the election” to do a deal with China.

Click here to read the full report.

 

On October 11, 2019, in response to overnight lending rates surging due to extremely tight liquidity, the Federal Reserve announced it will be purchasing 60 billion dollars of Treasury bills per month at least into the second quarter of next year in order to maintain ample reserve balances.  This was the first time since 2014 the Fed’s balance sheet is intentionally growing.  While the Fed points out that this “Balance Sheet Normalization” is required to address the need for additional reserves in the system and not technically “QE” (quantitative easing), it nonetheless is adding additional liquidity to the system.

Click Here to learn why this is important when managing your money and what else is On Our Radar.