With the market staring at an early close today and the prospects of a three-day weekend, market movement is likely to be quiet as traders square positions and get ready to head for the door. While the Memorial Day weekend has typically signaled the beginning of summer and all manner of outdoor activities, this year it will be, like everything else these days, a little different. While most states are slowly lifting stay-at-home orders and businesses are gradually reopening, the enthusiasm that usually greets this weekend is obviously more muted. And that’s the risk that equities are starting to ponder, that even as things start to reopen will the consumer be there with the enthusiasm and unrestrained spending of years past? At least in these early days of partial reopenings the answer to that is no. It will take weeks, and probably months, to convince some to reengage as before. Others will return more quickly but with a healthy dose of caution and restraint. We saw a good example of that with Disney Springs (Disney World’s dining, retail and entertainment venue) partially reopening on Wednesday. Guests were required to wear masks, follow distancing measures, and crowd levels were controlled. Guests, however, seemed in good spirits, welcoming the chance to grasp some form of normalcy, different though it may be for now.
Last week in this space we talked about consumer sentiment/confidence taking quite a hit from the coronavirus fallout but readings were holding above the depths confidence sank to during the last recession, and if that continues to be the case it may provide something of a foothold to begin climbing out of the virus-induced hole. This week we take a look at business confidence and the damage that that has taken compared to the recession brought on by the Great Financial Crisis. The graph below looks at the Philly Fed Business Optimism Index and as you see the latest reading of –43.1, while lower than the expectation of –40.0, was an improvement from the –56.6 level in March and just below the –40.0 low of the prior recession.
Much like the consumer, if business confidence can hold near the prior lows of the previous recession, it may indicate improving odds of a decent recovery. We won’t say it speaks to a V-shaped rebound but consumer and business confidence, while taking serious body blows, appear to be weathering the barrage similarly to the recession twelve years ago.
Leading Index for April: Still Ugly but Better Than March and Expectations
We’ve referenced the Leading Index often over the past year as it has had a good track record of forecasting prior recessions when the index drops below zero. Of course, last year the economy was chugging along pretty well but the Leading Index was flirting with the zero-level and that led us to believe the economy may not be as strong as some believed. Well, after the virus-inspired decline, the index is firmly in recession territory. The silver-lining may be that the index for April improved from a –7.4% March reading to –4.4% and better than the –5.4% expected. If the March level represents a low for this crisis, it may bode well, like the confidence readings, that some footing is being developed from which recovery can be launched.
Continuing Claims Imply 20% Unemployment Rate
In the spirit of the long weekend, and the beginning of summer, we’ve tried, in the spaces above, to provide some silver-linings to what are truly awful reports but now we have to take the medicine unadulterated in the form of the weekly initial claims. While initial claims continued to drift lower to 2.438 million versus a downwardly revised 2.687 million the week before, continuing claims jumped from 22.5 million to 25.1 million as the stable reading the week before was resolved to the upside this week. That forced the insured unemployment rate up to 17.2% which implies a BLS unemployment rate around 20.0%. And those unprecedented numbers represent real people and families that are truly bearing the brunt of this economic fallout. It’s those folks, along with the memories of our fallen service members, that we stop and reflect on this weekend.
|Treasury Curve||Today||Chg Last Wk.||LIBOR Rates||Today||Chg Last Wk.||FF/Prime||Rate||Swap Rates||Rate|
|3 Month||0.11%||UNCH||1 Mo LIBOR||0.17%||-0.01%||FF Target Rate||0.00%-0.25%||3 Year||0.263%|
|6 Month||0.14%||UNCH||2 Mo LIBOR||0.36%||-0.03%||Prime Rate||3.25%||5 Year||0.362%|
|2 Year||0.16%||+0.02%||6 Mo LIBOR||0.59%||-0.09%||IOER||0.10%||10 Year||0.652%|
|10 Year||0.65%||+0.06%||12 Mo LIBOR||0.71%||-0.06%||SOFR||0.02%|