The invisible hand of market forces steering our economy is still a corona virus. The economy contracted at a record 30+% pace when this pandemic spurred a national lockdown and when COVID metrics improved from late April to mid June we saw an improving economic scorecard as many cities slowly reopened for business. When viral case loads spiked in mid June hospitalizations spiked 2 weeks later and on the third week we witnessed a new modest uptrend in deaths that persists through July. This current surge has stalled the reacceleration of our economy in July as cities halt or reverse their opening plans. While more testing, younger age patients and better treatments will keep COVID deaths less correlated with rising cases that was evident in the first wave in March and April, Mayors and Governors will not encourage their businesses to grow until the curve has fallen for a couple weeks.
Credit card spending has also correlated with COVID trends, accelerating from late April to late June. As medical alarm bells caused political leaders to re-shut some businesses and scare consumers in late June, we can see how the trend to normalize consumption levels has stalled at 30% below 2019. We would expect this COVID 2nd wave trend to run a similar course as the first wave with a caseload peak soon and a fatality peak in August, after which credit card spending may continue to move higher once again as pent up consumption demand builds.
A correlating metric mirroring this credit card data is reflected by the number of restaurants that are open. In many countries, such as Germany and Ireland, 100% of restaurants are open again for business. The US began allowing restaurants to open earlier than these countries before deaths rates had been beaten down substantially and consequently in late June restaurants began closing again as hotspots halted or reversed consumers social outlets. This implication of the economic recovery slowing in July was echoed today by the first uptick since early May in people filing claims for continuing unemployment. More service operations are being forced to layoff workers once again in high risk States. The good news is, there is no doubt a new $2 to $3 Trillion stimulus package is coming in early August as politicians know payroll protection and above normal unemployment benefits are still needed to prevent companies from mass terminations and to maintain artificially elevated spending courtesy of our Fed’s digital printing press. There is also no doubt that stock market speculation will be supported by this boost to consumer savings and confidence.
Mobile tracking data confirms that many offices remain shuttered since March and leisure travel is still down about 78% from 2019, according to the latest TSA checkpoint data. Instead of normal work and vacation travel most people, es expected, are staying home more watching streaming TV, Zooming, imbibing more alcohol and shifting to take out food and delivery services. The most popular new activity outside the home is a healthy mass migration to our Parks and trails. Logically, bicycle sales are double last year with the biggest spike since the 1970’s OPEC Oil squeeze. The few publicly traded bicycle makers (all foreign) have more than doubled in stock price from their March lows.
While TV, liquor, video conferencing and related software for the stay at home economy have boomed, house hunting is also proving to be a resilient winning trend with or without COVID. Our housing report last week is again supported by this weeks mortgage applications report that continue to outpace last year by 20%. Even with social distancing and a severe shortage of homes available to choose, buyers are still scrambling to find shelter – away from the city. The pace of home building, home purchases and home supplies should only accelerate when the COVID scare subsides over the next year and outperform the average stock.
The stock market since June has been tugged lower by increasing restrictions on economic activity by Governments and slowing consumption patterns in July and possibly August as a consequence. However, stocks are also being pushed higher by a never ending supply of fiscal stimulus and monetary liquidity with guaranteed record low borrowing rates. Thus, a stock market correction may occur soon, but as we discussed last week, the amplitude of any decline may be modest without a mini Black Swan news trigger. The V shaped fall and rise of the stock market since March has been transitioning into a choppier sideways market since early June. While stimulus may allow slight new highs this quarter after more price corrections, a general sideways trend may continue until the November 3rd elections as the uncertainty over very contrasting campaign promises will provide increasing uncertainty during an already tenuous COVID influenced economic recovery cycle.