May 17, 2020 Weekend Market Thoughts by Matt Somberg

Sunday May 17, 2020

 

Dear Friend,

Happy Sunday evening. As customary over the last three months, we share with you a few thoughts about the week that was and the week that lies ahead.

Last week

  • The Dow Jones Index declined 2.6% and is now down 17% since January 1st
  • The S&P 500 declined 2.2% and is now down 11.3% since January 1st
  • The NASDAQ declined 1.1% on the week and is now positive .4% since January 1st

While the recent declines have been modest, the markets have regressed in three out of the last four weeks.

Last week’s drop was fueled by the following economic data and headlines:

  • 40% of the households in America that earn $40,000 or less have suffered job losses.
  • Retail sales declined 16.7% from March to April.
  • Thursday’s weekly jobless claim numbers were approximately 3 million, pushing the national unemployment number close to 35 million. A glass-half-full view is that the weekly trend continues to decline from its peak of 7 million claims per week seen at the end of March.
  • On Friday, tensions between the US and China heated up as the Trump Administration suggested it may limit Huawei Technologies’ ability to get parts from the US as it rolls out its 5G technology. You’ll recall that in the 4th quarter of 2018, the US and China entered a trade war and the S&P 500 promptly lost 16% for the quarter. Needless to say, trade tensions between the US and China are not ideal at this time. This is an issue that warrants close attention.

The Meteor and the Alien

I serve on the Board of the Connecticut Children’s Medical Center (CCMC) Foundation and I am the Chair of the Hospital Investment Committee. In both roles, I volunteer to help Connecticut’s only Children’s Hospital. I often have the opportunity to engage with physicians and experts to learn about new advances in medicine and health care. Since my day job is focused on finance and economics, I always look forward to physician presentations so that I can broaden my knowledge. With the latest news that even children may endure severe symptoms from Covid-19, I eagerly anticipated a presentation last week from a leading epidemiologist.

The epidemiologist opened his presentation to our Board with the following scenario: “Pretend that a meteor crashed into earth, and that an alien crept out of this meteor and encountered a human. Now pretend that after interacting with the alien the human seems to be suffering from a virus never before seen. This is essentially what we are dealing with as epidemiologists – trying to solve and cure something that is almost from another planet. It will be very difficult to find a quick fix to something that we have never seen before.”

I found this to be a helpful analogy and a sobering reminder that, while our economy has begun to re-open, it will be a long duration before our doctors understand everything about this virus. While we all look forward to a vaccine, human behavior will be changed until we are all vaccinated.  We continue to believe that sectors dependent upon human interaction (airlines, cruise lines, and restaurants) will still be recovering through late 2021 and into 2022.

The Week Ahead

We are hopeful that the trade relationship between the United States and China will remain peaceful. Beyond that, we are looking forward to the World Health Organization (WHO) meetings on Monday and Tuesday and to see how the member countries are addressing their pandemic response. Several blue-chip companies, such as Home Depot, Walmart, and Target, will report their second quarter earnings and provide forward-looking guidance this week. Shareholder meetings will be held by companies such as Molson Coors Beverage, United Airlines and McDonalds. We will have a lot of information headed our way this week to digest.

Finally, I have always found Sunday evenings to be a calm and reflective time, which is why I have chosen Sunday evenings during this crisis to write a few words to clients. At Gottfried & Somberg, we pride ourselves on having a very deep bench of talented people within the firm. Over the next few weeks, other members of our firm will also provide content on relevant topics. Keep an eye out for an email with a link to our blog. We look forward to connecting with you there soon.

We hope you have a great week!

 

Sincerely,

Matt Somberg

 

Matthew A. Somberg, AIF®
Accredited Investment Fiduciary®
Co- Founder and Principal