Powell and Mnuchin Differ, Oil Stabilizes, U.S.-China Relationship
In today’s Steady Investor, we look at key factors that we believe are currently impacting the market and what could be next for the markets such as:
- A look at Powell and Mnuchin’s differing views
- Could unemployment benefits impact the labor markets?
- Signs of stability in the oil markets
- Inside the U.S. and China’s turbulent relationship
The Fed Chair and Treasury Secretary Offer Diverging Views of Economy – Online congressional hearings took place on Tuesday, with Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin taking questions. Though Chairman Powell and Secretary Mnuchin are very much working together to respond to the economic crisis at hand, Secretary Mnuchin is pursuing the Trump administration’s economic goals while Chairman Powell oversees the politically independent Federal Reserve. It follows that the two men posited diverging views of the U.S. economic recovery, and what is required to facilitate it. Secretary Mnuchin believes that the biggest risk of permanent damage to the U.S. economy comes from not reopening. Delaying reopening and leaving restrictions in place too long will prolong the recovery and inhibit a “V-shaped” recovery, in his view. Secretary Mnuchin also favors a wait-and-see approach to more fiscal and monetary stimulus. Chairman Powell offered a different perspective, stating that the biggest risk to the economic recovery was consumers and businesses’ attitudes about the risk of Covid-19 infection. Chairman Powell believes that more stimulus is needed now to buy more time for the infection to come under better control, a vaccine to hit the market, and/or both.1 In the meantime, Chairman Powell thinks that more spending is needed by Washington to prevent structural damage from high unemployment and a wave of bankruptcies.
Dividend-paying Stocks May Offer a Solution
The challenge many retirement investors are facing through this crisis is knowing where to invest. Cash won’t do. But a portfolio invested in stocks with a strong track record of dividends and dividend growth may give investors the potential for a stable and predictable source of income in retirement.
To learn more about how to use dividend-paying stocks in your strategy to potentially generate cash flow for retirement, check out our guide “A Look Beyond Bonds: There May Be a Better Option for Your Retirement Income.”
If you have $500,000 or more to invest, click on the link below to get our free guide today!
A Look Beyond Bonds: There May Be a Better Option for Your Retirement Income2
The Topsy-Turvy Economic Relationship with China – Tension between the United States and China is decisively ratcheting higher. The United States is actively questioning China’s role in the pandemic as well as lack of transparency between China and the World Health Organization, while China defends itself and its actions with an air of hostility. Overall, relations between the world’s two largest economies have chilled, to say the least. Corporations are responding somewhat differently. On the one hand, the pandemic laid bare the risks of complex supply chains with heavy exposure to China and other developing economies. Corporations are strongly considering restructuring supply chains as a result, or reshoring them altogether. On the other hand, companies with strong consumer presence appear to be doubling down on China’s projection for long-term growth potential. Companies like Walmart, Tesla, Starbucks, and even Popeye’s are increasing their local presence and unveiling plans to open more stores and sales channels into the future.3
Signs of Stability in the Oil Markets – Many readers likely remember the oil price collapse earlier in the year, when for a moment some oil futures fell into negative territory. The tables appear to be showing signs of turning now that the worst of the pandemic appears to be behind the world. In the futures markets for Brent Crude and West Texas Intermediate, traders were bidding up the price of December delivery for barrels of oil.4 It is not common for traders to actively trade in contracts so far into the future, but the bidding up of December contracts may reflect a consensus that demand is likely to rebound in the second half.
Will Unemployment Benefits Impact the Labor Market? A working paper released this week by three University of Chicago economists suggests that unemployment benefits during the Covid-19 pandemic may have some inhibitive impact on the recovery. As it stands today, more than two-thirds of unemployed Americans receiving benefits are being paid more than they were at their old jobs. These payments are in addition to the $239 billion that the IRS has paid out in stimulus checks to tide households over. While the economists argue that the payments offer a much-needed bridge to keep households liquid and consumption steady during the crisis, the thrust of the paper also suggests that receiving high benefits may “create distributional issues and may hamper efficient labor reallocation both now and during the recovery.”5 In other words, Americans may be less in a hurry to get back to their old jobs if they’re making more today than they were before.
As this crisis continues, you may be wondering what can you do in the meantime to protect your retirement. You have to invest somewhere, as cash won’t do. In times like this, I would suggest considering stocks that are growing earnings and dividends and have a track record of doing so.
To learn more about how to use dividend-paying stocks in your strategy to potentially generate cash flow for retirement, check out our guide “A Look Beyond Bonds: There May Be a Better Option for Your Retirement Income.”6
If you have $500,000 or more to invest, click on the link below to get our free guide today!
2 Zacks Investment Management reserves the right to amend the terms or rescind the free A Look Beyond Bonds: There May Be a Better Option for Your Retirement Income offer at any time and for any reason at its discretion.
3 The Wall Street Journal, May 19, 2020. https://www.wsj.com/articles/neither-coronavirus-nor-trade-tensions-can-stop-u-s-companies-push-into-china-11589880603
4 The Wall Street Journal, May 18, 2020. https://www.wsj.com/articles/the-oil-market-is-betting-people-want-crude-for-christmas-11589794202
5 Becker Friedman Institute, May 2020. https://bfi.uchicago.edu/wp-content/uploads/BFI_WP_202062-1.pdf
6 Zacks Investment Management reserves the right to amend the terms or rescind the free A Look Beyond Bonds: There May Be a Better Option for Your Retirement Income offer at any time and for any reason at its discretion.
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