5/17/2020: Weekly Wrap-up & What to Expect

As the economy reopens, a crowd gathers excitedly at Red Lobster.


Market Movers

This week we saw the "Second Scare," a dip in the markets due to lack of confidence in the United States' ability to successfully reopen the economy. As Dr. Anthony Fauci testified to the Senate on Tuesday, "there is a real risk that you will trigger an outbreak that you may not be able to control." The S&P 500 dipped by nearly 6% in three days before recovering half of the losses by closing bell on Friday. Here are the details:

  1. Dr. Anthony Fauci Warned Senate Against Reopening Too Quickly. On Tuesday, Dr. Fauci warned senators that states may face serious consequences if they opened up too quickly. He stated his concern that states were "jumping over various checkpoints and prematurely opening up." While Dr. Fauci was simply warning against reopening recklessly and not advocating against reopening, investors interpreted his sentiment to be the latter, and began selling off stocks, driving the S&P 500 down nearly 6% in a matter of a few days.

  2. Furthermore, Retail Sales Dropped By 16.4% In April. Combined With 14.7% Unemployment, This Does Not Bode Well For Economic Recovery At First Glance. On Friday, the U.S. Census Bureau released the "Advance Monthly Sales for Retail and Food Services" report for April, indicating that sales have dropped by 16.4% vs. March numbers. Reduced sales and high unemployment (14.7%), does not bode well for economic recovery at first glance. However, we must remember the unprecedented amount of government support for unemployment and business stimulus that has been injected into the economy to keep citizens and businesses afloat during quarantine. As economies open again, we can expect consumer confidence to start increasing as well, driving the economy upwards.

  3. However, the House of Representatives Just Passed Another $3T Stimulus Package to Provide COVID Relief. On Friday, the House passed a $3T bill for COVID relief on a vote of 208 - 199, despite opposition from Republicans and moderates. While the bill will not likely pass the Senate, it is good preparation in case there is a need for additional quarantine once states fully open up. With this said, if there are additional outbreaks, we believe quarantine will be local, similar to what we've seen with China, rather than national. We should probably not expect significant stimulus to come from a national level, moving forward. 

  4. To Date, All But Four States Have Either Reopened to a Degree or Plan on Reopening Soon. As new COVID cases and hospitalizations have declined significantly, almost all states have reopened their economies to a degree. Based on a small sample size of consumer research, we have heard that airports, specifically Chicago O'Hare International Airport, have started becoming crowded again and restaurants in Texas are starting to fill up. This is a good indication that people are excited to return to a "normal" society again.  

  5. Georgia Has Been Open for 3 Weeks - Business is Coming Back, Slowly But Surely. All eyes have been on Georgia, the first state to reopen restaurants and stores. Having been reopened for three weeks, Georgia has not yet seen a rebound in COVID cases. With that said, the rate of new cases have only been trending unsteadily downward in recent days. As for business, owners have seen more activity than normal. Several shops are picking up new clients/customers while others remain closed. The owner of Southern Lanes, a bowling alley in Douglasville, stated, "It's picking up. We even had to turn away some bowlers. I'm thankful we're doing enough to get by." Georgia's successful reopening to date allows us to understand how other states may do with their reopenings.  

Despite reduced retail sales and high unemployment, WX Capital remains optimistic about the U.S. economic recovery. We must remember a couple of things. First, while COVID is unprecedented, the amount of economic support and stimulus is also unprecedented. Second, the stock market is not a representation of the current economy; it is a representation of people's expectations for the future. We need to shift our perspective to what the U.S. will be like in 6 months or 1 year. Finally, COVID is a problem addressable through medical treatment, rather than a fundamental issue like we've seen with the tech bubble and housing crisis. We believe COVID will pass much faster than it has taken previous economic crises that were based on fundamental issues to resolve themselves. We look forward to the next couple of weeks.