Wednesday, July 1, 2020
Stock markets in the United States and Europe retreated last week as the number of new COVID-19 cases increased steadily in America. On Thursday, there were more than 44,000 new cases, the highest daily total to date, according to data from the Centers for Disease Control.
"The turn has created a new puzzle for investors, many of whom had started focusing on 2021 earnings expectations as the next performance-driver for stocks. The old market gauges, like manufacturing surveys, jobs tallies, and retail sales, feel like lagging indicators. The new leading indicators deal with the disease. Yet tracking its progress is tricky even for epidemiologists who have studied these issues for decades," reported Avi Salzman of Barron's.
Another piece of the investment puzzle was reshaped when the Federal Reserve (Fed) released bank stress test results last week. It found most banks were likely to remain well-capitalized if economic growth rebounds relatively quickly. However, in a worst-case economic recovery scenario, banks did not fare as well. Consequently, the Fed suspended share buybacks and capped the dividends banks can pay investors, reported Alexandra Scaggs of Barron's.
"The Fed…also said future payouts would depend on bank earnings – and bank earnings will start to look worse as pre-coronavirus quarters drop out and are replaced by COVID-impaired results. Even that decision might not have been a problem if the market believed the spread of COVID was under control. Then the numbers started coming out. Florida's seven-day average of cases grew 7.8 percent, up from the previous day's 4.1 percent. Arizona's jumped to 5.4 percent, from 2.9 percent. In Texas, the positivity rate – that is, the number of tests divided by positive results – hit 11.8 percent," reported Ben Levisohn of Barron's.
Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, dispelled the notion this is a second wave of the virus. He told The Wall Street Journal, "People keep talking about a second wave…We're still in a first wave."
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Womack Investment Advisers, Inc.
WOMACK INVESTMENT ADVISERS, INC.
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