Advisor Talking Points: A Faster Than Expected Economic Rebound
Year-to-date, the S&P 500 Index is only down -1.1%, and for the past year, it is now up 13%. The tech-heavy NASDAQ index is up 9.4% year-to-date , and it is currently up 29.6% for the past year.
Again, given the near-complete shutdown of the U.S. economy, the S&P 500 Index only being down -1.1% is quite amazing.
A V-Shaped Stock Market Recovery?
Over a month ago, in one of my weekly commentaries, I said I believed we would see a V-shaped recovery in the stock market. A V-shaped recovery is a sharp upturn in growth and economic recovery that follows a short collapse in economic activity.
It seems that investors are starting to bet that America will be able to both contain the COVID-19 virus and reopen businesses at the same time.
It is also starting to look like a V-shaped recovery for both the S&P 500 Index and the NASDAQ Index.
Another signal that the U.S. economy is growing faster than anticipated is the growth of the composite of leading economic indicators.
Employment Gains Surprise
As the U.S. reopens in stages, more jobs are being brought back into the economy. Unemployment officially fell to 13.3% in May as businesses added 2.5 million jobs.
This figure was the best one-month growth rate since the Bureau of Labor Statistics started tracking the data in 1939. However the Labor Department stated the rate might have been understated due to those being classified as employed but absent from work.
Analysts had previously estimated the unemployment rate would be over 20%. But no matter how you look at it, this is a dramatic drop in unemployment which has improved much quicker than anyone expected. This report also provides encouraging evidence that unemployment may have bottomed.
From restaurants to retail shops across America, people are returning to work. Here are the businesses that reported the highest gains:
- Restaurants and bars added back nearly 1.4 million jobs in May as they started reopening.
- The construction industry added 464,000 jobs, gaining back nearly half of what it lost in April.
- Retail stores added back 367,800 jobs, with clothing stores seeing the most substantial gains.
- Factories added 225,000 jobs as plants started up again.
- Dentist offices reopened and added back 244,800 jobs. Dentist offices alone accounted for a full 10% of the jobs gained last month across the entire American economy.
One Last Thought
I believe the worst of the economic damage from the shutdown is over, and the economy will come back faster than many economists are predicting.
I think many analysts have underestimated how many people are going back to work and have not recognized there are some parts of the country where the Coronavirus cases have not been as bad as in many major cities.
Although much of the economy has started to reopen, New York City has just begun to partially reopen today. Restaurants and indoor retail shopping won’t start until July.
Airlines have seen increased bookings, and many restaurants are booked up even though at an enforced 50% capacity. Housing prices are up, and auto dealers have seen very strong sales. This is why so many of the leading economic indicators are ticking up.
One large chain of 150 sports bars said their business was down 62% in April with only takeout.
In May, they were only down 15% year-over-year, even with reduced seating. They said their customers were eager to eat out again.
The leisure and hospitality industry, which includes restaurants, had severe losses in April but was up 14.4% in May.
If consumers continue to spend and show confidence in the economy, then a strong recovery could become a self-fulfilling prophecy.
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Paul Dietrich is the Chief Investment Strategist for B. Riley Wealth Management. B. Riley Wealth Management offers comprehensive financial solutions to clients through its network of over 160 experienced financial advisors across 13 states. The firm manages more than $11 billion in client assets and serves approximately 34,000 client accounts.