Monthly Insights - June 2020 thumbnail

Monthly Insights - June 2020

No two recessions are the same - that has never been more true than today. The U.S. has not experienced an economic decline like the one that started in March since the Great Depression. Even more, the sheer speed of the decline is unparalleled. This might seem like a negative, but it is actually a positive. The quicker the decline, the quicker the recovery can begin. 

Depths of Economic Activity

Recently released data suggests economic activity bottomed in April. This makes sense as April coincided with the most stringent stay-at-home orders. As states started to reopen in May, activity picked up. From jobless claims to manufacturing PMI to non-manufacturing NMI, the rebound is occurring.

For the past few months, the Allegiant team has talked about the transition from bad and weakening economic data to bad and improving data. (For more information read our Feature on Quadrants of Possibilities). This transition is important as markets are priced based on forward-looking expectations. This helps explain why markets have moved higher over the past couple months. Investors have now updated their pricing models to include the nascent recovery. 

As I mentioned earlier, the speed of the decline is important. Instead of investors having to price in further economic declines over the coming months and quarters, the focus can quickly shift to the recovery.

A Second Wave

While the economic recovery has begun it does not mean we are completely out of the woods. Data suggests we have flattened the COVID-19 curve. But flattening the curve is different from conquering the virus. 

As I write this the U.S. is still averaging roughly 22,000 new cases per day. Even more, if we exclude the New York/New Jersey epicenter from the data it is less encouraging for the rest of the U.S. Looking at the data (ex-NY/NJ) shows average daily new cases near the highest level ever. 

Increased testing explains some of this, but it does highlight a potential risk moving forward. There are still more cases than we would like. In other words, the curve has flattened but the results could be better.

As more businesses return to full capacity the risk of another outbreak increases. If we do experience a second wave it will probably look different than the original outbreak. We are more prepared today to deal with an outbreak than we were three months ago. Now we can better isolate regions with outbreaks versus shutting down the entire country. Even this more targeted approach would negatively impact the economic recovery, but the damage would probably be less than what we experienced earlier this year.

The Newest “New Normal”

Businesses and consumers alike are being forced to reevaluate how they operate. The short-term impacts from this pandemic are front and center, but there will be many long-term impacts as well. Consumers are realizing many things they previously viewed as non-discretionary spending are actually discretionary. Businesses are realizing that they need to shift how they operate to accommodate a more remote workforce and more distant customer. These changes are already occurring and will continue to play out over the coming years. This presents both risks and opportunities for investors.

From an investment standpoint, the new technological improvements over the past decade have allowed us to gather information from less traditional sources. We no longer have to wait for delayed government releases. We can now gather daily insights from Google search data, Apple map data, OpenTable, etc. The Allegiant team has scoured the universe of open source databases and from those we have curated a library of datasets that gives us an earlier look at the economic transition occurring. This leads to better insight and allows us to provide you with more interesting and relevant information.  

In order to present you with a glimpse of curated data we constantly analyze through a variety of tools, I’m thrilled to release our newest Chart Book. This slimmed-down version of our Monthly Insights book provides updated easier-to-read graphics and a fresh glance at the most pertinent information we are examining today. As always, I welcome any feedback you have on this new tool. I hope it provides you with more valuable insight into what is happening in the world. Please feel free to pass along to your friends, family, or anyone you think might benefit from the information.

As always, for a more detailed look at everything happening in the economic and financial markets, click below to view or download our Monthly Insights book. 

Benjamin W. Jones, CFP®, AIF®
President, Chief Investment Officer, Principal

  • Published: June 22, 2020
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Monthly Insights - May 2020

  • Published: May 25, 2020
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Monthly Insights - April 2020

  • Published: April 13, 2020