The Vantagepoint Market Perspective: COVID-19 — Taking the Nation’s Economic Pulse

07/07/2020

 

The latest news on the economic front has shown some encouraging signs that the country’s businesses have started to rebound from the widespread shutdowns this spring. However, areas of concern remain, particularly in light of the COVID-19 virus’ recent spike in some parts of the country.   

The Service Sector

On Monday, the Institute for Supply Management’s June survey of the service sector came in at 57.1%, a marked turnaround from May’s 45.4% reading and the largest one-month gain since the index was launched in 1997. Readings above 50 show service-sector activity is expanding.

It’s worth noting that the increase came on the heels of widespread mandatory shutdowns in many areas of the country after businesses had started to reopen. So while June wasn’t exactly a typical month, neither was May.

The Labor Market

On Friday, the widely watched national payroll report showed the economy added an impressive 4.8 million jobs in June, the largest one-month increase on record. The leisure and hospitality industry — which suffered during the closures — accounted for about 40% of the new jobs. Meanwhile, the unemployment rate fell to 11.1% in June from 13.3% a month earlier.  

However, there were also a few reasons to take the latest jobs report with a grain of salt. For one thing, the number of people who are now counted among the permanently unemployed — rather than temporarily laid off or furloughed — climbed 588,000 to 2.883 million, the highest level in more than six years.

It’s also worth noting that surveying for the June payroll report ended June 12, so it took place before the recent uptick in COVID-19 cases in some parts of the country.

Indeed, the weekly unemployment claims data may be more reflective of the current state of the labor market. Last week, first-time unemployment claims came in at a higher-than-expected 1.427 million and continuing claims climbed 59,000 to 19.3 million.

The combination once again leaves market participants looking ahead to next month’s report in order to gauge the impact of the virus’ resurfacing and the reinstatement of COVID-19-related closures in some areas on the nation’s economy.

Increase in Infections

Meanwhile, the latest stats from The Atlantic magazine’s COVID-19 Tracking Project show the number of people testing positive for the virus, as well as those being admitted to hospitals, has increased sharply in recent weeks. According to CNBC’s tally, as of Monday, July 6, the number of people hospitalized with COVID-19 rose 5% or more in 23 states, based on a seven-day moving average. The recent increase in infections has prompted some states, such as Texas, to roll back their recent reopening efforts.

However, the stock market, which is forward looking, seems to have taken a decidedly optimistic view of the situation. On Monday, the S&P 500 logged its fifth straight daily gain, leaving it just 6% short of its February pre-pandemic peak. Meanwhile, the Nasdaq notched a new high. Market participants are apparently betting that the shutdowns won’t be widely reinstated to the level they were in the spring.

Still, much remains unknown, particularly if the infections and hospitalizations continue to grow. For example, it’s still unclear whether plans are in place for how or if schools will reopen in the fall. School reopenings involve a myriad of complex considerations, but for some parents, it’s a simple issue. Without in-person schooling, they may be unable to return to their previous jobs at their workplaces due to the knock-on impact of uncertain childcare, which in turn could imperil economic growth prospects.  

On the fiscal front, in terms of any additional federal aid that may be forthcoming, Congress has left for its July 4 recess and will not return until July 21 — 10 days before certain parts of the CARES Act, like additional unemployment insurance, are due to expire. According to some reports, behind-the-scenes negotiations are focused on additional fiscal stimulus in order to lay the groundwork for official negotiations that may occur when Congress is back in session.

The stock market seems to be relying on the safety valve of the Federal Reserve’s unprecedented efforts to pump liquidity into the financial markets and believing that some sort of additional stimulus from Congress is in the works. For the nation’s longer-term prosperity, much also hinges on the reopenings and the return to business, if not as usual, in some form. And in order for that to happen, short of a vaccine or a sure-fire cure, the hope is that the spread of the virus can be contained in fairly short order.

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Please note that this content was created as of the date indicated and reflects the authors’ opinions. These opinions are subject to change, without notice, due to market conditions or other factors.

This is not intended as a solicitation nor does it constitute investment, tax, or legal advice. Reference to any fund or asset class is not a recommendation to buy, sell, or hold that fund or asset class. Neither ICMA-RC nor its subsidiaries are responsible for any investment action taken as a result of the information provided herein or the interpretation of such information. Investors should carefully consider their own investment goals, risk tolerance, and liquidity needs before making an investment decision. Investing involves risk, including possible loss of the amount invested. Past performance is no guarantee of future results.

When Funds are marketed to institutional clients by our Defined Contribution Investment Only (DCIO) team, the Funds are offered by ICMA-RC Services, LLC (RC Services), an SEC registered broker-dealer and FINRA member firm. RC Services is a wholly owned subsidiary of ICMA-RC and is an affiliate of VantageTrust Company, LLC and Vantagepoint Investment Advisers, LLC. Learn more at www.vantagepointfunds.org.            

Disclosures:

This website is for institutional use only and is not intended for individual investors or the general public.

This information is intended for institutional use only and is not intended for individual investors or the general public.

Please note that this content was created as of the date indicated and reflects the authors’ opinions. These opinions are subject to change, without notice, due to market conditions or other factors.
This is not intended as a solicitation nor does it constitute investment, tax, or legal advice. Reference to any fund or asset class is not a recommendation to buy, sell, or hold that fund or asset class. Neither MissionSquare Retirement nor its subsidiaries are responsible for any investment action taken as a result of the information provided herein or the interpretation of such information. Investors should carefully consider their own investment goals, risk tolerance, and liquidity needs before making an investment decision.

When Funds are marketed to institutional clients by our Investment Only (IO) team, the Funds are offered by MissionSquare Retirement Services,, an SEC registered broker-dealer and FINRA member firm. MissionSquare Retirement Services is a wholly-owned subsidiary of MissionSquare Retirement and is an affiliate of VantageTrust Company, LLC and MissionSquare Investments. Learn more at www.vantagepointfunds.org.