The S&P 500, tracked by the C Fund and many other retirement funds in the country, is an index of most of the largest 500 public stocks in the United States and represents about 80% of U.S. equity market value. It has been in a sideways pattern since it reached a local peak in early June:
Stocks enjoyed a fast rebound from the March lows as the U.S. government and Federal Reserve provided trillions of dollars of fiscal stimulus and quantitative easing into the economy and financial markets, but lately both fiscal support and monetary support have tapered.
Politicians are discussing another round of fiscal stimulus, but it remains unclear what form that stimulus will take or how large it will be. Expected earnings for the S&P 500 on average for 2020 are much lower than 2019, so the price/earnings multiple of the index is very high at the moment.
Four states have been reversing their re-opening plans, such as closing bars again or setting limits on restaurant capacity and various similar venues. Several other states have paused re-opening, with no setbacks but a delay in re-opening:
This is because a number of these states have experienced a surge in new cases of COVID-19. For example, Germany has almost 3x the population of Texas, but Texas now dwarfs Germany in terms of new cases per day:
So far, these rising case counts in many U.S. states in June haven’t resulted in a spike in the death rate, although deaths happen with a sizable lag, so we won’t know until perhaps late July how bad this is. Overall, the fatality rate has continued to decrease, as vulnerable populations such as nursing homes are more protected, and as the virus has been hitting a younger demographic on average.
The Houston area has been reporting capacity issues at its hospitals over the past week, and maintaining hospital capacity is a key variable for keeping the fatality rate low, because it ensures that patients can get optimal treatment.
The U.S. Unemployment Situation
Policymakers find themselves with difficult choices, between protecting hospital capacity in their states and wanting to improve the harsh jobs situation.
As of the most recent weekly numbers, there are over 19 million Americans that are filing continued unemployment claims:
The June payroll report looked slightly better, with a partial rebound in jobs that represents about a 15 million decline in jobs since the February peak (compared to the bottom that was a 22-million job loss):
Neither of those charts include the Pandemic Unemployment Assistance (PUA) program, which was put in place by the CARES Act and provides about 12 million self-employed people with unemployment insurance that normally wouldn’t be covered by it.
So, the economic situation and financial markets are in a tough spot, with high equity valuations, an unclear job situation, and a policy dance between trying to fully re-open the economy and ensuring that hospital systems don’t reach capacity limits.
So far, European and East Asian regions have slowed the spread of the virus more effectively, and many countries in Asia such as Japan, Singapore, South Korea, and Taiwan managed to do it with less stringent lockdowns.
Lyn Alden is a financial writer and an engineer, and holds a bachelor’s in engineering and a master’s in engineering management, with a focus on financial modeling and resource management. She specializes in analyzing and presenting financial data. Her investment work can be found on LynAlden.com.