Coronavirus Crisis Enters a New Stage 

We’ve seen the Federal Reserve and Congress come together in unprecedented fashion. We’ve got our plan. Now, we think the focus shifts to outcomes and more data.  

In the coming weeks, we need clarity on how the stimulus relief plan and Fed interventions are impacting the real world. We need to feel comfortable and confident that critical resources, both medical and financial, are getting to the right people, in right places and at the right time. Are small businesses getting loans? Are consumer budgets holding up after the first round of monthly bills? A plan is one thing. Now we need to see it work.  

We also think data gathering will be critical in the weeks ahead. We need to pin down how widely the virus has spread. When is it safe and practical for people to return to work? Is social distancing alleviating burdens on the medical system? An accurate survey of on-the-ground conditions will be critical information as policymakers decide when, and how, to restart the economy.  

With that as the backdrop, let’s dig into what happened on Wall Street and get you ready for the week ahead.  

WALL STREET WRAP 

Consumer Confidence, More Than Meets the Eye: Last week the Conference Board’s Consumer Confidence Index, according to some headlines, “nosedived” in March. But the headlines don’t necessarily tell the entire story.  

Indeed, people’s expectations (looking out over six months) for business and the job market dipped from 108.1 last month to 88.2. Given data was collected before the brunt of social distancing layoffs hit, the next read will likely be even lower. But let’s go a little deeper.  

In the same survey, Americans’ views on current business and labor market conditions (not their expectations for the next six months) remained at a historically elevated 167.7, down slightly from 169.3. It’s a reminder that conditions were pretty good for people several weeks ago. The economy was in solid shape before the virus hit. If the relief package successfully bolsters consumer and business balance sheets, it could help us climb the economic valley a little quicker and get to the other side a little easier.  

Unemployment Figures Steal Headlines, Again: Unemployment claim filings exceeded 6 million for the week ended March 28, exceeding expectations and blowing past the previous record of 3.3 million set the week prior. That means roughly 10 million Americans have filed for unemployment insurance in the past two weeks.  

The Department of Labor’s unemployment report for March also reflected initial signs of coronavirus pain. Payrolls decreased by 701,000 jobs in March, with roughly two-thirds of those job losses coming from leisure and hospitality services. By comparison, in February employers added 273,000 jobs. That shows just how quickly this shift occurred, and Friday’s report likely still doesn’t reflect the full extent of job losses.  

These are historic totals, but we’ve seen entire sectors of the economy halted and in rapid fashion. We knew unemployment would inevitably rise. That’s why the efficacy of fiscal and monetary policies, and policymakers’ reactions to a river of incoming data, will be so closely watched.  

Central Banks Are Pulling Out the Stops: The Fed established a repo operation for central banks around the world to convert Treasury securities into dollars. The moves helped stabilize the foreign currencies market. It’s one of several out-of-the-box measures taken by the Fed during this crisis, leaving those who argue the Fed is “out of ammo” lacking evidence to support such a claim.  

The Bank of England has recently revived its bond-buying program, while the European Central Bank has announced a new, $750 billion euro Emergency Purchase Programme. And in China, the People’s Bank carved out $56 billion for small businesses in the country by again reducing the amount of reserves banks are required to hold.  

Chinese Factory Activity Picks Up: Chinese factory activity expanded in March, following deep contractions in January and February, when lockdowns to contain the coronavirus were most severe. Reflecting Chinese activity coming back online after lockdown, the Caixin China manufacturing purchasing managers index, rose to 50.1 in March from 40.3 in February (above 50 indicates expansion).  

Our Spending Is Adapting…Will It Be Permanent? Social distancing measures drastically altered people’s lives, particularly how they shop for everyday items. As people limit trips to the store, they’re growing more comfortable clicking “buy” for purchases traditionally made in-person, such as groceries and beauty products. Online shopping was gaining market share before the coronavirus, but that’s sharply accelerated since. U.S. e-commerce sales rose 24 percent March 1-17, compared to the same period a year ago, according to Rakuten Intelligence.  

Similar evidence appeared in the Adobe Digital Economy Index, which noted a 100 percent increase in daily, online grocery sales from March 13-15. Online sales surged 800 percent for hand sanitizer, gloves, masks and anti-bacterial sprays, 217 percent for over-the-counter drugs, 231 percent for toilet paper and 87 percent for canned goods. Many of these sales are to first-time online shoppers.  

It’s too soon to say what lasting impact the coronavirus will leave on society. But there’s little doubt it’s rapidly pushing consumers to broaden the range of goods they buy online, and that could prove to be a rather sticky trend.  

THE WEEK AHEAD  

Focus on Signs of Progress: President Trump and other leaders are warning that the next few weeks are likely to be even more challenging as cases grow and people seek treatment. We’re likely to see confirmed cases, hospitalizations and death tolls accelerate. But amidst these challenging headlines, keep an eye out for silver linings. Will we see some positive impacts from social distancing in the data? Are the loan programs for businesses rolling out smoothly? Will we see more signs of a return to relative normalcy in China? Is testing expanding? What’s in the works for a next round of aid?  

A Glimpse Inside the Fed: The Fed has been busy lately (perhaps the understatement of the year). This week we’ll read through the minutes of the Fed’s March 15 policy meeting to get some deeper insights into their strategy to stabilize markets through the coronavirus crisis. 

Commentary is written to give you an overview of recent market and economic conditions, but it is only our opinion at a point in time and shouldn’t be used as a source to make investment decisions or to try to predict future market performance. To learn more, click here. 

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