New York Governor Andrew Cuomo rang the bell to mark the reopening of the NYSE yesterday and the markets were quickly off to the races; the S&P 500® Index even briefly topped the 3,000 level and its 200-day moving average. But U.S. equities—though still far outpacing the rest of the world—are at historic concentration, and it could spell trouble for the future. For now though, many economic indicators are sending positive signals as states begin to emerge from quarantine and activity picks back up. The long-beleaguered manufacturing sector has started to stabilize (even in New York) and the housing market remained surprisingly resilient in April, topping analyst expectations. Meanwhile, could climbing corporate debt and increasing incidences of forbearance create a crisis for both borrowers and banks? Credit agencies seem to think so and aren’t being shy with ratings downgrades… have you checked your portfolio lately? Finally, the trade war may have been bumped from the front page as COVID-19 emerged as a global threat, but the conflict is far from over and China may have just made another move. Infection rates are still staggering, even as states begin to reopen, so let’s hope our government is prepared to multi-task.
1. The U.S. continues to outperform the rest of the world. Led by FAANG+. Is a systematic risk being created by so much value resting in so few companies?
Source: WSJ Daily Shot, from 5/21/20
2. As we adjust and reopen in stages, manufacturing is responding; let the recovery begin!
Source: WSJ Daily Shot, from 5/27/20
3. Even the NY Fed, whose region has been the hardest hit so far, is showing signs of stabilization…
Source: WSJ Daily Shot, from 5/27/20
4. Low interest rates and some Covid cabin fever kept the housing market busy, especially in starter homes…
Source: WSJ Daily Shot, from 5/27/20
5. What a rebound! The low interest rates spurred a way to work around Covid. What other segments of the economy will find a way to get it done?
Source: WSJ Daily Shot, from 5/27/20
6. More apparent good news: Rent delinquencies or non-payments have not been as bad as feared. Worth keeping an eye on, but perhaps the PPP, boosted unemployment benefits and other stimulus is working…
Source: WSJ Daily Shot, from 5/27/20
7. Another possible systemic risk:
Source: WSJ Daily Shot, from 5/21/20
8. Covid has helped spark a $1 trillion corporate borrowing spree. If the debt is not enough to keep companies afloat, then does this become the lender’s (banks) problem?
Source: WSJ Daily Shot, from 5/27/20
9. With all types of business and personal loans at risk, will this become another systemic issue for the banks?
Source: WSJ Daily Shot, from 5/26/20
10. Credit agencies are using the current economic climate to “catch up” on their downgrades. They have downgraded ~375 companies just in the junk bond category…
Source: WSJ Daily Shot, from 5/26/20
11. U.S. oil production has slowed, but not collapsed. As energy prices recover, will this trend reverse?
Source: WSJ Daily Shot, from 5/27/20
12. Remember the trade war? Beijing is letting their currency fall again, making all their goods and services cheaper…
Source: WSJ Daily Shot, from 5/27/20
13. Some great historical context:
Source: WSJ Daily Shot, from 5/27/20
14. Another Covid trend that is just starting. Did companies do enough to keep their employees safe?
Source: WSJ Daily Shot, from 5/26/20
15. Covid did not spread evenly or in a set time frame. Depending on where you live and the local protective measures, states are in very different situations…
Source: WSJ Daily Shot, from 5/27/20