Macro Musings August 2020
CHARTING THE COURSE 2020
- Every August, we “Chart the Course” by looking at key charts illustrating important trends in the economy and markets. We find that the data shown in many of these charts is consistent with what we see in MACROCAST™. We hope you enjoy these, and we will resume publication of our regular, monthly Macro Musings at the end of September.
CHARTING THE COURSE: THE ECONOMY
Second quarter GDP print was the 5th worst in the last hundred years. Thanks to lockdowns across most of the country, GDP collapsed in the quarter. However, the 33% decline is misleading because it assumes weakness will persist for the entire year, and GDP is expected to rebound in the third quarter.
But personal income grew?? Recessions almost never lead to higher incomes; when incomes do increase, it is by a marginal amount. This recession was truly different, with massive gains in income driven by the aggressive CARES Act passed at the end of March. Again, the annualized rate is a bit misleading because the growth won’t be sustained throughout the year; nonetheless, it was a large increase.
The combination of the above statistics was extraordinary. At no point in history did income grow as much as it did while GDP sank as much as it did. The word unprecedented gets thrown around a lot these days, but this event genuinely was.
Housing Starts have rebounded. Housing has seen a “V”-shaped recovery, thanks to record low mortgage rates and the pandemic-driven desire to relocate away from the big cities.
Retail Sales are also experiencing a “V”-shaped recovery. The strong rebound in both housing and retail sales suggests this recession could be one of the shortest on record.
It’s not just a US story. Manufacturing surveys show most countries are seeing improvements in economic activity, similar to trends in 2009.
CHARTING THE COURSE: MARKET PERFORMANCE
The S&P 500 has fully recovered from the coronavirus selloff. Thanks to an improving global economy, record stimulus, and supportive central banks around the world, the market recovered in record time.
All time highs are nothing to fear. Historically, the market’s performance after all time highs is better than average if it has been more than 5 months since the last one, as is the case today.
CHARTING THE COURSE: FUND FLOWS
Investors are pulling money out of cash and money market accounts. Assets in money market accounts peaked over 10 weeks ago. This type of reversal has historically been bullish for stocks, up to one year later (data from SentimentTrader).
The chart(s)/graph(s) shown is(are) for informational purposes only and should not be considered as a suggestion of any investment recommendation, investment strategy, or as an offer of advice to buy, sell, or exchange any investment product or investment vehicle. Past performance may not be indicative of future results. While the sources of information, including any forward-looking statements and estimates, included in this (these) chart(s)/graph(s) was deemed reliable, Corbett Road Wealth Management, Spire Wealth Management LLC, Spire Securities LLC and its affiliates do not guarantee its accuracy.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions of Spire Wealth Management LLC, Spire Securities LLC or its affiliates.
All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. MACROCASTTM is a proprietary index used by Corbett Road Wealth Management to help assist in the investment decision-making process. Neither the information provided by MACROCASTTM nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. The phrase “the market” refers to the S&P 500 Total Return Index unless otherwise stated. The phrase “risk assets” refers to equities, REITs, high yield bonds, and other high volatility securities. Past performance is no guarantee of future results.
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