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@theMarket: Jobs Jubilee
A funny thing happened before the market opened Friday morning. Jobless claims, which were supposed to come in at a loss of 8 million, actually did the reverse. Investors were stunned when the Department of Labor announced a gain of 2.5 million jobs. That was cause to celebrate.
Total nonfarm payrolls for the month of May revealed an overall unemployment rate of 13.3 percent, but that was a far cry from the 18.5 percent rate economists had expected. Indications from the most recent data argue that the re-opening of the economy is going far better than expected. That, combined with another $1 trillion in stimulus out of Congress that investors expect to be passed next month, sent stocks up over 2 percent on the opening.
This week, American Airlines also announced that they were planning on increasing their load capacity in July to 55 percent, which is a substantial jump from the airline's present capacity of 20 percent. Given that airlines (along with cruise ship companies) have taken the brunt of business losses during this pandemic, the news heartened the markets and also sent airline stocks in general up anywhere from 20 percent to 50 percent.
Over the last two weeks, given that the economic news has been better than expected, the rally from the March lows has started to spread out from a handful of "FANG" mega-cap, technology stocks to more economic-sensitive sectors like financials, industrials, and even basic material sectors. That was a good sign. The durability and confidence of bull market rallies increases as the breath of the market expands and more stocks participate in the upside. That is what is happening now.
Another indication that the worst may be over is that the bond market is starting to get back to normal. As stocks rise and the economy begins to revive, interest rates should start to move up (and bond prices fall). Of course, it is early days, and when I say rise that's really a relative term. The U.S. 10-year Treasury bond, at 0.925 percent, is still yielding less than 1 percent.
The U.S. dollar (a traditional safe haven asset) has also weakened somewhat, which is another sign that investors around the world are starting to become more confident that things are improving. That is despite the fact that in places like Brazil the number of COVID-19 cases is still in an upward trajectory.
Gold has also taken it on the chin this week, falling almost 2.5 percent on Friday as investors dumped the precious metal for "risk-on" trades in the equity markets. As it stands, the S&P 500 Index (down 1 percent year-to-date) is still below its highs, while NASDAQ has regained its losses from the entire decline. As such, technology is taking a back seat in the last few days as other sectors play catch-up. That should continue. The question you may be asking is for how much longer.
In my last column, I outlined the importance and power of remaining above the 200 Day Moving Average (200 DMA) on the S&P 500 Index. We did that and look, a week later we have gained almost 100 points. Can we go even higher? I expect so. Look for the S&P 500 to hit 3,220-3,250 next week before pausing to catch its breath.
Bill Schmick is now the 'Retired Investor.' After working in the financial services business for more than 40 years, Bill is paring back and focusing exclusively on writing about the financial markets, the needs of retired investors like himself, and how to make your last 30 years of your life your absolute best. You can reach him at billiams1948@gmail.com or leave a message at 413-347-2401.
The Retired Investor: Will Jobs Come Back Postpandemic?
As this week's job report looms ever closer, investors have become inured over data showing job losses in the multimillions. The present thinking among economists, strategists and politicians is that all these jobs will come back. The question is when.
Readers need to realize that prior to the onset of the pandemic, the unemployment rate at 3.5 percent was a historically low level. The spread of COVID-19 forced the country's economy to shut down. The first Americans to lose their jobs were those low-paid workers in the service industries, those that could not work from home. Fortunately, the government's response was to provide fiscal stimulus (in the form of extended and increased unemployment insurance), plus direct payments to those below a certain income level. That effort boosted household income and somewhat cushioned the pain of historical job losses.
Many of those jobs in restaurants, retail stores, and the like are expected to come back as the economy re-opens and there is evidence that they already are. However, layoffs in other areas, such as white-collar jobs and among women, are continuing to escalate. In fact, white-collar jobs continue to shrink and have done so every week since the pandemic started.
One reason that Congress is working on yet another stimulus program is that once the impact of the last stimulus wears off, they worry that the layoffs could continue to spread. Consumer spending and a rebound in economic growth may take more time than most expect. From the outset, economists believed that many of the service jobs would come back. Those lay-offs were considered to be temporary, a "quasi-furlough," as opposed to an outright firing. However, the losses of the higher-paid, white-collar jobs that are continuing will be more difficult to gain back and could be permanent.
There is also another alarming unemployment trend facing the nation this summer. The problem centers around working women with children. Readers may recall that for the first time in many years, women made up the majority of the workforce in 2019. As such, it should come as no surprise that during March and April of this year, women suffered the most (55 percent) job losses in this country. In those sectors that are heavily represented by women, the losses were even greater.
Recall my column of last month in which I outlined the one-sided difficulties working women were facing in juggling work commitments, child care, home schooling, cooking, cleaning and a variety of other chores during this pandemic. None of those issues have gone away. In fact, they have multiplied. Online schooling, where it existed, has helped but it will end soon. As the summer begins, working women have no child-care support to rely on while they go back to work.
As it is, they are losing more jobs than men, and have, in general, less paid sick leave than their male counterparts. As school winds down, women are now being forced to make some hard choices. Do they quit their job (or possibly get laid off) because there is no one to take care of the kids this summer? At the very least, they will be forced to scale back their professional ambitions, while continuing to balance an even more untenable situation between work and children.
Well, you might ask, why don't their spouses, or male counterparts, stay home instead? The answer is an economic one. Women still make about 20 percent less than men, so an already cash-strapped family will need to opt for the man's higher salary. So what is to be done?
Although a long shot, government might finally recognize the needs of the working women, something I have been writing about for ages. The pandemic would be the perfect excuse to establish policies that would equalize the pay scale, provide additional child-care support, and institute flexible working arrangements, among other initiatives for women. Unfortunately, I expect that our government will likely cast a blind eye to these needs. So, it is up to us. What, therefore, can you do to help?
In our case, my wife and I (along with the other grandparents), are scheduling weekly internet dates with the grandkids throughout the summer. We will set times and schedules, just like in summer camp. For starters, I will play (and probably lose) a weekly chess tournament with my 8-year-old grandson, chess champion Miles.
In addition, my wife will begin a photography course for both Miles, and 5-year-old, Madeline. That summer project, in addition to teaching them the rudiments of photography, will hopefully result in a photo book of this pandemic from their own perspective. Now, it is your turn.
Bill Schmick is now the 'Retired Investor.' After working in the financial services business for more than 40 years, Bill is paring back and focusing exclusively on writing about the financial markets, the needs of retired investors like himself, and how to make your last 30 years of your life your absolute best. You can reach him at billiams1948@gmail.com or leave a message at 413-347-2401.
@theMarket: The Market's Line in the Sand
Over the last two weeks, as Americans returned to work, the stock market climbed rapidly. It has now reached, and breached, an important historical technical indicator. If it can remain above it, investors will begin to believe that the worst is over.
The S&P 500 Index (as opposed to the Dow Jones Industrial Average) is what most professionals consider the benchmark index. This week, buyers pushed that index above the 3,000 level for the first time since the pandemic caused the markets to crash back in March. Why is that important?
That is the level that coincides with what is called the Two Hundred Day Moving Average (200 DMA). The 200 DMA is where investors historically draw a line in the sand. It is considered a long-term indicator of the health of the stock market. The indicator appears as a line on a chart of stock prices. It moves higher and lower along with the longer-term price movements of the financial instrument it follows; in this case, the S&P 500.
As long as the index is above the 200 DMA, stocks are considered to be in a long-term uptrend. If that sounds a bit like voodoo, so be it, but that little line has proven to provide uncanny support for stocks time and time again. Below the 200 DMA (where we have been for the last few months), technicians and chartists would say that markets are still in a down trend.
Now, remember, this is far more of an art than a science. Sure, this week we have closed above the 3,000 level two days in a row. That is a good sign, but I would feel more confident if we remained above that level for a few more days. Friday should give us a good test case of the market's willingness to remain above the line, thanks to President Trump.
I gave readers a heads-up last week on the concerns I have over the president's ploy to switch the market's (and the nation's) attention from the pandemic to blaming China for almost everything, including his own failures. In a classic Trump tactic, he is pointing his finger at the Chinese for reneging on the trade deal, for starting the pandemic, for changing the rules of the game in Hong Kong and, if we wait long enough, who knows what he will come up with.
That is not to say that the Chinese are blameless, because they are not. My beef is that Trump's timing is off. The problem with China is that its leadership has shown in the past that they neither bluff easy, nor give in to threats, especially where they perceive their national interest is threatened. If Trump wants to go down the road of sanctions, trade duties, etc., so will the Chinese. Ask yourself "do we really need another potential trade embargo, or another disruption in supply chains on top of what our economy and work force are already grappling with?"
Up until now, investors have focused almost entirely on the pandemic, the economy, and its aftermath. The consensus seems to be that, barring another resurgence of the virus, the economy and the markets have weathered the worst and things are looking up. Enter Donald Trump, stage left, and his new beef with China. Depending on the outcome, which will hopefully be revealed sometime later today at his press conference, investors will either run for the hills, or stay put. Readers will know the verdict by simply watching the 200 DMA.
Bill Schmick is now the 'Retired Investor.' After working in the financial services business for more than 40 years, Bill is paring back and focusing exclusively on writing about the financial markets, the needs of retired investors like himself, and how to make your last 30 years of your life your absolute best. You can reach him at billiams1948@gmail.com or leave a message at 413-347-2401.
The Independent Investor: The Culling of America
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As the death toll attributed to the coronavirus breached 100,000 in the Unites States this week, among the hardest hit Americans are those in the elderly population. The numbers simply illustrate what we all know. Eighty percent of the known fatalities were at least 65 years old. As such, the virus appears to be very good at selective slaughter.
As one of those who are most susceptible to dying from this virus, I have done a lot of soul searching over our future. Today, I will begin to share some of these thoughts. Aside from the human loss, for example, what potential impact will this pandemic have on health care costs in the future?
Today, according to the most recent statistics, firms and individuals spend between 10-15 percent of Gross Domestic Product on health care. While the elderly account for about 16 percent of the population, they represent over 35 percent of total health-care costs. Most of these people are oldsters like me. Statistically, they tend to be older and white, with 40 percent of those expenses accounted for by inpatient stays.
Part of the reason for this trend happens to be the large segment of the population that is now represented by Baby Boomers. One can assume that, as they age, their medical costs are going to escalate and grow to an increasing portion of the country's health care costs. That seems to be a no brainer.
However, one wonders how the ongoing pandemic will alter that equation. For example, if COVID-19 is here to stay (in one form or another), and continue to prey on the elderly, will the nation's health care costs go up or down? One's first thought would be up, but that may not be true. The coronavirus is an efficient killer. Victims either recover, or die fairly soon. There does not seem to be many cases where the victims linger on.
Why is this important? Because medical spending in the last year of life accounts for 16.8 percent of total costs for those over 65 years old. Just think of it — machines, specialists, MRIs, chemo, radiation, surgeries — the list goes on and on. It is even worse for those that make it over age 70. They can expect to see health care costs double from the ages of 70 to 90. Will death by virus alter that spending outcome? I think so.
I realize that's a pretty gruesome argument but one that is nonetheless realistic. I wonder if nature, in the form of this pandemic, is taking a hand in culling our human herd, and, if so, how does one avoid the slaughterhouse?
We know that those suffering from low immune systems, diabetes, cancer, and other ailments are highly susceptible to dying from this virus. In fact, the sicker you already are, the higher your risk. The silver lining in this crisis is obvious.
If we Baby Boomers ever needed a motivation to change our unhealthy ways, we have it now. How many of us fail even to do the most rudimentary exercises? We eat all the wrong things, and as a result, we number among the highest of all nations in obesity. In this country, fully 85 percent of us will die from chronic diseases, which could easily be avoided through exercise and diet. We know all of this and yet choose to ignore it.
Could this virus trigger a change in our collective psyche in regard to our health? Will exercising at home, wearing masks, eating healthier, and shunning fast food by necessity catch on? If elderly Americans start to perceive a life style change as a result of COVID-19, then just maybe there will be some good outcomes to this pandemic. What do you think?
Bill Schmick is now the 'Retired Investor.' After working in the financial services business for more than 40 years, Bill is paring back and focusing exclusively on writing about the financial markets, the needs of retired investors like himself, and how to make your last 30 years of your life your absolute best. You can reach him at billiams1948@gmail.com or leave a message at 413-347-2401.
@theMarket: Memorial Day Markets
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As we begin the Memorial Day weekend that usually launches the nation's summer season, investors are anxious to discover if Americans will ignore CDC warnings, and go back to their old ways of celebrating the holiday. And if they do, will new cases of COVID-19 spike?
The re-opening of much of America this week had been met with some celebratory gains in the stock market, but as I predicted, it has been an up and down week, despite the gain. The S&P 500 benchmark Index actually "kissed" 3,000 before falling back the following day. It was a first tentative probe of that level since the March declines.
However, if the S&P 500 Index can get through that resistance level over the next few weeks, we have a real chance to re-gain all of the remaining declines in the stock market. That's a big "if" and depends, as we all know, on future medical data. Investors will be watching and their future actions depend on how successful re-opening the country's economy will be.
By now, most, if not all, the bad news on the economy, on corporate earnings, and the existing data on the pandemic have been discounted by the markets. Therefore, unless something sudden and terrible should arise on those fronts, I would advise you to ignore those headlines.
Instead, readers should pay attention to two developing trends.
The first one is the United States re-escalation of trade and political tensions with China. Yesterday's column, "Chinese checkers," outlined my thoughts on this subject. Suffice it to say the Trump administration is doing all they can to shift attention and blame from the COVID-19 issue and their response to it. Focusing on "bad" China is both popular and easy, especially with elections only six months away.
In addition, China has managed to throw fuel on that fire by proposing a new national security law in Hong Kong, during the annual meeting of the country's top legislative body, National People's Congress, which begins Friday. If passed, the new law would prohibit secession, subversion of state power, terrorism activities, and foreign interference. Analysts wonder whether the specifics of the law would allow security forces, or even mainland Chinese military forces, to quell demonstrations and the like.
Hong Kong, itself, has the power to self-rule. In 1997, Great Britain agreed to return its colony to China under a "one country, two systems" form of government. It is largely a separate legal and economic system separated from China with more freedoms and limited election rights.
Under the Sino-British Joint Declaration, China promised to maintain this system until 2047. On Thursday, the U.S. State Department warned that "any effort to impose national security legislation that does not reflect the will of the people of Hong Kong" would be met with international condemnation. The president chimed in, warning China of a strong U.S. response if their government followed through on this new security law.
The second trend, also political, concerns the presidential race. As restrictions are lifted nationwide, both political parties are beginning to ramp up their campaigns. Media reports that the Biden campaign has shifted further to the left to include Bernie Sanders' supporters could alarm Wall Street. Sectors such as financials, health care, energy and technology would fare worse under a left-leaning Democratic party, according to prevailing wisdom.
Investors also fear that the Trump re-election strategy of further raising tensions with China could also damage what is already a weakened economy, as well as sentiment in the stock market. Given that a Trump re-election bid is no longer a short thing, this combination of concerns could make this campaign season especially volatile for the markets.
Bill Schmick is now the 'Retired Investor.' After working in the financial services business for more than 40 years, Bill is paring back and focusing exclusively on writing about the financial markets, the needs of retired investors like himself, and how to make your last 30 years of your life your absolute best. You can reach him at billiams1948@gmail.com or leave a message at 413-347-2401.
