Consumer Spending Up, Fed Issues Bleak Forecast, Makes Unprecedented Move
In today’s Steady Investor, we look at what is going on in the markets and our key takeaways and questions for investors to consider, such as:
- Consumer spending is bouncing back
- Powell warns of “long-term risks” to the U.S.
- The Fed takes unprecedented measures
The U.S. Consumer, Back in Action – Consumer spending is the foundation of the U.S. economy, accounting for nearly two-thirds of annual GDP. In March and April, the Covid-19 pandemic was a literal cliff for retail spending – job losses and the inability to leave home led to sharp declines across nearly all categories of spending, except for groceries and essential home goods. May saw the consumer spring back to action, with the Commerce Department reporting a +17.7% increase in retail sales from a month earlier. The push higher was driven by apparel, furniture, home improvement, entertainment, restaurants, and spending on autos (which makes up about 20% of total retail sales). In February, when there were no restrictions in the U.S., retail sales hit $527 billion. In May, retail sales totaled $485 billion – not too far behind pre-pandemic levels. Consumer spending has been boosted by loosening restrictions across all 50 states, as well as government stimulus such as IRS checks and unemployment benefits.1 Key data will come in July when the extra unemployment benefits are set to end.
Even with consumer spending bouncing back, many investors are still skeptical as to when and if the markets will recover. The volatile stock market, record unemployment, and uncertainty about the future are all driving investor fear and panic. And although most investors know that markets and portfolios have always recovered, as the bad news piles up, it’s natural to think, “maybe this time it’s different.”
While it is difficult to remain calm in this environment, in our opinion, it’s the actions you take right now that have the greatest potential to define your financial future.
That’s why we have put together a free investing playbook with insights and guidance to help you seek success when investing through these unprecedented times. If you have $500,000 or more to invest, get our free investing playbook today.
Fed Chairman Warns of “Long-Term Risks” to the U.S. Economy – Federal Reserve Chairman Jerome Powell appeared (virtually) before Congress this week, and his message was far from rosy. The Fed Chairman said the U.S. economy could potentially suffer significant long-term damage from sustained high unemployment and small business failures. He added that “until the public is confident that the disease is contained, a full recovery is unlikely.” Mr. Powell also urged Congress to consider more spending with regards to helping unemployed workers, supporting fiscal budgets for states and municipalities, and taking steps to boost consumer confidence with health measures like virus testing and contact tracing. Mr. Powell’s testimony painted a rather bleak outlook for the U.S. economy, which in our view actually helps stocks in the medium-to-long term. With the bar set fairly low on long-term economic growth, there is a higher possibility of the actual outcome being better than expectations – a positive outcome for equities, in our view. On a similar note, many economists are scrambling to re-state expectations for the “shape” of the economic recovery in the U.S. With strong retail sales in May and economic activity continuing to tick higher in June, the possibility of an “L-shaped” recovery – where economic activity remains depressed at pandemic levels – is pretty much out of play.3
The Fed Steps Up Participation in Corporate Bond Markets – The Federal Reserve has taken unprecedented measures to provide liquidity, credit, and confidence in the capital markets since February. In its latest installment of monetary accommodation, the central bank announced this week an additional $250 billion lending program to buy corporate bonds – providing additional stability and liquidity to credit markets. The Fed plans to build a diversified portfolio of corporate bonds, focused only on companies that were investment grade on March 22 and with a duration of no greater than five years. The Fed’s role here is essentially as another major institutional player in the corporate bond markets, to keep demand steady and to provide financing to corporations with the potential to earn returns on the back end. The Fed’s debt-purchase program is being backed by $25 billion from the U.S. Treasury.4
Guidelines to Seeking Investing Success in This Market Downturn – We’re living through extreme times. Aside from health fears during this pandemic, most retirement investors are concerned about their assets, and with good reason. The volatile stock market, record unemployment, and uncertainty about the future are all driving investor fear and panic. While it is difficult to remain calm in this environment, in our opinion, it’s the actions you take right now that have the greatest potential to define your financial future.
That’s why we have put together a free investing playbook5 with insights and guidance to help you seek success when investing through these unprecedented times. If you have $500,000 or more to invest, get our free investing playbook today. You’ll learn about seven time-tested guidelines to help you seek investing success through this historic “Black Swan” market downturn.
2 Zacks Investment Management reserves the right to amend the terms or rescind the free Black Swan Investing Playbook offer at any time and for any reason at its discretion.
3 The Wall Street Journal, June 16, 2020. https://www.wsj.com/articles/powell-says-despite-signs-of-stabilization-risks-of-long-term-economic-damage-are-significant-11592316029
4 The Wall Street Journal, June 15, 2020. https://www.wsj.com/articles/fed-will-amass-corporate-bond-portfolio-using-index-approach-11592246982?mod=djem10point
5 Zacks Investment Management reserves the right to amend the terms or rescind the free Black Swan Investing Playbook offer at any time and for any reason at its discretion.
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