Economy-Recovering-Accelerating – August 2020

Certainly, the most frequently asked question I get is, how can the stock market be doing so well when things appear to be so bad? There is 170,000 plus dead from the COVID, millions unemployed, riots in the large cities, millions of businesses shut down. To say that the American public is frazzled would be an understatement. Let us just focus on the stock market and this newsletter for now…
Here is why I believe not only is the economy not just recovering but accelerating.

  • We have recovered 40% of jobs lost during the pandemic by the end of July.  
  • White House economic advisor Larry Kudlow says, “There about 140 million people employed. There about 14 million people unemployed, there’s still a lot of hardship out there”. (2)
  • Unemployment claims continue to ratchet down.
  • Homebuilder confidence is an all-time high. Unlike most recessions, the housing market not only did not take a long-term hit, but the housing market is ramping up. For example, housing starting just in July alone is up 22% (3). See graph below :

https://www.advisorperspectives.com/dshort/updates/2020/08/17/nahb-housing-market-index-builder-confidence-matches-all-time-high-on-record-traffic  (4)

While the stock market has been led the last 4-5 months by what many advisors, including myself, refer to as the digital economy (Amazon, Microsoft, Netflix, Facebook, Google, Zoom). We are starting to see a shift into what I call the real economy.  I am seeing railroad stocks, trucking companies, housing companies, manufacturing stocks ratchet up. Companies like Boeing, Caterpillar, Lockheed-Martin, Home Depot, Tesla, Toll Brothers, 3M Company, John Deere, General Dynamics, United Rental -these stocks are moving up significantly. These companies, unlike the digital economy companies, hire and have millions of employees. Normally, these jobs are fairly well paying. And since inventories are way down due to the COVID-19 shut down, they must not only hire, but they also must increase the work week. You can read more here: https://www.ftportfolios.com/blogs/EconBlog/2020/8/10/a-healing-econom (5)

Is the COVID Nightmare Over?
Nope.  However, the American people have adapted by social distancing and wearing masks.  People are just trying to be safe until the vaccine can deliver a knockout blow to this disease.  
An interesting website to follow is the Atlanta Fed. They are forecasting record breaking numbers for the GDP in the third quarter.  As of now, their prediction is north of 20% – type in your internet search engine “GDPNow – Federal Reserve Bank of Atlanta” to get the latest update.  The best GDP number was in the year 1950, at about 16%.  Whatever the final number is, it will officially signal the end of the recession. Obviously, we will not be back to normal until the COVID   is brought under control. 
The stock market is forecasting two things in my opinion – The vaccines are coming, and the economy is accelerating. The best thing you can do is stay safe and stay invested. 

Sincerely, 
John Romano, CFP®
Email: John@romanojohn.com

John Romano, CERTIFIED FINANCIAL PLANNER™, has over 30 years’ experience in the financial field. John is a Registered Representative with Securities America, Inc. (a member of the FINRA and SIPC), and an Investment Advisor Representative with Securities America Advisors. He has prepared hundreds of reports for retirees to assist in their retirement income planning needs. He is dedicated to providing portfolio analysis, dividend and income information, and investment management services to retirees (and those preparing to retire) in The Villages, Florida, and throughout the United States.

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References: 
(1)   https://www.marketwatch.com/story/sp-500-logs-its-first-record-close-in-6-months-and-marks-fastest-recovery-from-a-bear-market-in-history-2020-08-18
(2)   https://www.cnbc.com/2020/08/19/first-on-cnbc-cnbc-transcript-national-economic-council-director-larry-kudlow-speaks-with-cnbcs-closing-bell-today.html
(3)   https://www.bloomberg.com/news/articles/2020-08-18/housing-starts-in-u-s-surged-in-july-by-most-since-2016
(4)   https://www.advisorperspectives.com/dshort/updates/2020/08/17/nahb-housing-market-index-builder-confidence-matches-all-time-high-on-record-traffic
(5)   https://www.ftportfolios.com/blogs/EconBlog/2020/8/10/a-healing-economy

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