COVID-19 Briefing Memo

1 COVID-19 Briefing Memo June 11, 2020 Exec Summary: After a week or so of not leading newspaper headlines, the coronavirus is starting to make them again, and not for positive reasons. In fact, the coronavirus’ resurgence in many U.S. states was one of the main factors fueling a sharp fall in the major stock indices today. As reported by The Associated Press, “stocks fell sharply Thursday on Wall Street as coronavirus cases in the U.S. increased again, deflating recent optimism for a quick economic recovery and raising more doubts about how long the market’s scorching comeback can last.” Adding to the drop off in the markets was investor reaction to comments made by Federal Reserve Chairman Jerome Powell Wednesday regarding the state of the economy. The AP continues, “Investor optimism for a speedy recovery was also dimmed by the Federal Reserve, which warned Wednesday that the road to recovery from the worst downturn in decades would be long and vowed to keep rates low for the foreseeable future.” At the same time, this week’s jobless report showed another 1.5 million people applied for unemployment insurance for the first time last week and Axios this week wrote that “the U.S. saw its largest ever decline in the number of business owners between February and April, as at least 3.3 million shut their doors.” Further, the “reduction from February to April this year [was] more than four times” as much as the entire amount of businesses owners lost across the entire Great Recession. What’s incredible is that even while this bleak economic news continues seemingly day after day, consumers still remain optimistic about the economy’s future. According to a new report from the Federal Reserve Bank of New York, “Americans are growing more upbeat about what lies ahead for the economy, even as they brace for what they see as a rise in inflationary pressure.” Further, the bank said, “consumers [in May] grew comparatively more optimistic about labor market outcomes with earnings growth, job finding and job loss expectations all slightly improving,” though many key readings still remain “far below” where they were before the pandemic. So, again, we are seeing some dissonance between the optimism consumers feel about their economic future, and what may be the actual reality based on the broader economic data. It could be that the news coverage of states reopening, and a subsequent return to normal activities, is driving this sense of consumer optimism, even though tens of millions of Americans remain unemployed, and for some who have returned to work, it’s been to a job with less hours and/or less pay. While we just don’t know yet what a second resurgence of coronavirus will do from an economic impact standpoint, what it will likely not do is cause a second round of stay-at-home orders, according to The New York Times. As the paper writes, “in the longer term, as outbreaks wax and wane, public health officials say, there might need to be a period of repeated closings and openings. And that could prove a much harder sell. Amid economic pain unlike anything seen in generations, there simply may not be the same political will, or even desire, to shut things down again. And while the public largely went along with restrictions (which were often not really enforceable on a wide scale, in any case), it remains to be seen if citizens would be so accommodating a second time around.” Again, as The Atlantic wrote last weekend, “the United States has moved from attempting to beat the virus to managing the harm of losing.” 2 Even as the coronavirus begins to make another concerted comeback, many Americans are (for now) still exhibiting a lack of concern regarding the threat of the virus. In this week’s Axios-Ipsos poll, the survey showed that “more Americans are getting braver about testing how they rejoin society.” According to the research, “… just 21% of respondents say they’re very concerned about a coronavirus outbreak, the lowest share since mid-March. And only 13% say they’re very concerned about the possibility of getting sick.” Additionally, “nearly 1 in 4 went out to eat last week, the highest percentage since mid-March,” while “43% see a large or moderate risk in going to grocery store, down from a high of 70% in mid-April.” Lastly, “45% of Americans visited friends or relatives in the last week, up from 38% two weeks ago and basically in line with the 48% in early March” and only “50% of Americans report wearing a mask ‘at all times’ when leaving the home.” As we continue to head into the summer of travel, and as Americans from all 50 states venture back out to do many of the things once denied them, the spikes in nationwide coronavirus cases serve as an enduring reminder of the lingering threat of the “invisible enemy.” And if a second wave of shutdowns isn’t an option, the alternative will be shifting our mindset from defeating the virus − outside of vaccine development, wearing masks and continuing to practice social distancing, of course − to continuing to find the best and safest ways to go on living life with it. 3 1) Key Economic Indicators Dow Jones/S&P 500/Nasdaq One-Month Look Back (as of close 6/11): [Google Market Summary, 6/11/20] • Associated Press: “Dow sinks 1,800 as virus cases rise, deflating optimism.” ॰ “Stocks fell sharply Thursday on Wall Street as coronavirus cases in the U.S. increased again, deflating recent optimism for a quick economic recovery and raising more doubts about how long the market’s scorching comeback can last.” • “The Dow Jones Industrial Average sank more than 1,800 points and the S&P 500 dropped 5.9%, its worst day since mid-March, when stocks went through repeated harrowing falls as the virus lockdowns began.” • “Many market watchers have been saying that the comeback in the market since late March was overdone and did not reflect the dire state of an economy in its worst crisis in decades.” • “Investor optimism for a speedy recovery was also dimmed by the Federal Reserve, which warned Wednesday that the road to recovery from the worst downturn in decades would be long and vowed to keep rates low for the foreseeable future. Those factors, along with the recent run-up in stock prices, set the stage for the wave of selling Thursday.” [The Associated Press, 6/11/20] • The Washington Post: “Another 1.5 million workers filed for unemployment insurance.” ॰ “Another 1.5 million people applied for unemployment insurance for the first time last week, adding to the tens of millions who have applied for the benefits since the pandemic began and continuing a months-long downward trend in initial claims.” • “The number of gig and formerly self-employed workers who also applied for jobless benefits newly available to them under the expanded federal program went up to 705,000, from 620,000 the week before, according to the Labor Department.” • “The total number of people receiving benefits edged down to 20.9 million, from a revised 21.3 million the previous week, a staggering toll on the labor force. More than 44 million people have applied for unemployment benefits during the pandemic − about 29% of the workforce.” [The Washington Post, 6/11/20] 4 • Bloomberg: “Dovish Powell Sees Fed Keeping Foot on Gas Until Jobs Come Back.” ॰ “Federal Reserve Chairman Jerome Powell sent a powerful message Wednesday that the central bank will keep pumping stimulus into the U.S. economy until its traumatized labor market has healed from the harm of the coronavirus pandemic.” • “We’re not even thinking about thinking about raising rates,” he told a video press conference after the Federal Open Market Committee held its policy benchmark near zero and almost all officials forecast keeping it there through 2022.” • “Acting on mortgage-backed securities and Treasuries underscores their belief that more support is needed,” said Diane Swonk, chief economist with Grant Thornton in Chicago. “The Fed does not see a victory in the employment bounce-back. The risk of deflation is still high and the economy needs more support to heal more fully.” [Bloomberg, 6/10/20] • Bloomberg: “A Booming Stock Market Could Come Back to Bite the Recovery” ॰ “If you were to look only at the stock market and nothing else, you’d probably have no clue that 21 million Americans are still out of work. You’d probably think everything in the world is fine. Great, even. … The argument is that market buoyancy such as that on June 5, when a climb of 2.5 million jobs in payrolls sent the S&P 500 up 2.6%, will undo the urgency for more economic stimulus at a time when unemployment still sits above 13%.” • “The market has been relying on another stimulus package coming,” says Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research. If the markets do well and continue to improve, the risk is that Congress may decide not to do more, or at least not to do as much as investors have been counting on.” [Bloomberg, 6/6/20] • The Wall Street Journal: “Coronavirus Obliterated Best African-American Job Market on Record.” ॰ “Near the end of a decadelong economic expansion, African Americans were finally finding some financial stability. Unemployment had reached record lows, and their wages had begun rising modestly. … The coronavirus pandemic and shutdown brought all of that − one of the most promising economies in recent memory for African Americans − to a crushing end.” • “The black unemployment rate, which at 5.8% in February was near the lowest since records began in 1972, tripled to 16.8% in May, according to the Labor Department.” • “Even when unemployment was low, African Americans’ overall economic situation was fragile.

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