Unshakable Unemployment, Economic Indicators Tick Up, and the Suffering Energy Sector

Another 2.2 million Americans filed for unemployment assistance last week as the pandemic continues to wreak havoc on the labor market. Claims have now been falling for 11 straight weeks and the trend is likely to continue as re-openings roll on—New York City will begin phase two of its reopening plan on Monday—but claims are still topping double the previous record high and unemployment remains above 20% in Nevada, Hawaii, and Michigan. The New York Fed’s National Economic Activity Index has ticked up again though and manufacturing activity looks to have surged back into growth territory, so things are headed in the right direction. But as demand for gasoline is slowly coming back to life thanks to easing social distancing restrictions, energy is still suffering under the weight of the COVID-19 crisis and is projected to be one of the hardest hit sectors. The world grinding to a halt and the oil price war—Q1’s other black swan event—have already had a significant impact, and US crude oil production is down 19% year-over-year. Meanwhile, correlation among risk assets has soared since the start of the crisis, and even some historical “safe haven” assets are showing correlation to equities. Where will investors look for shelter in the next downturn?