Dow Falls Short of All-Time High as Relief Talks Stall

After sending the Nasdaq Composite Index to an all-time high last week, bulls set their sights on doing the same for the Dow Jones Industrial Average. The goal was within striking distance, supported by the hopes for a coronavirus relief package and a rotation into economically sensitive consumer discretionary, industrial, and financial stocks. Strong retail sales coupled with firmer price levels added fuel to the bullish sentiment, indicating that the U.S. economy continues to rebound from its Q2 low. Unfortunately, moods moderated by week’s end once lawmakers threw in the towel on striking a deal prior to going on recess. With lawmakers packing their bags to head to their respective party conventions in order to consolidate their base in support of their presidential nominee, millions are left waiting until after Labor Day for any hope of additional relief. Despite the stalled talks, strong economic data coupled with the gains earned earlier in the week were enough to push the Dow up 1.81% for the week.

The Stay at Home Lifestyle Lifts Retail Sales

Life under lockdown may have slowed consumers in April, but they’ve come roaring back since. Retail sales increased for the third consecutive month, up 1.20% in July. Excluding autos, sales were up a healthy 1.90%. In a sign of changing consumer behavior amid the ongoing pandemic, electronics and appliance sales led the gains, increasing 22.90% as consumers purchased items that better suit their stay at home lifestyles. The work from home crowd also gave clothing sales a boost, rising 5.70% for the month, as they must have finally grown tired of wearing the same outfit day after day for the past six months. A -1.20% drop in auto sales pressured the headline figure. The decline wasn’t due to a drop in demand. Rather, it was due to a shortage of vehicles on the lot and higher prices as consumers have flocked to the used car market in a bid to avoid mass transit. More encouraging news for the economy came from a revision of June’s retail sales, which was restated to 8.50% from a previously reported 7.50% gain. Early indications from August suggest that the retail spending surge is softening, both as a function of the first round of stimulus reaching depletion and as consumers have grown more tentative not knowing when or what a replacement package might look like. Fortunately, salaries are starting to replace some of the stimulus need with the jobs picture continuing to reflect a rebound. For the first time since March, initial jobless claims fell below 1 million for the week, and continuing claims, those collecting benefits for at least two weeks, fell 604,000 from the prior week. With the unemployment rate still north of 10%, the consumer expenditure component of GDP remains pressured, but the silver lining is that the most recent data continues to reflect a favorable trend.

Prices Firm on Economic Rebound

Consumer prices rose 0.60% in July, driven by a rise in gasoline prices as travelers embarked on their summer road trips. Gasoline prices were up 5.60%, helping give oil producers a lift after a sharp drop in spring demand. The demand for travel and transportation was evident at the car lot as well. Prices for used vehicles rose 2.30% as consumers purchased cars to avoid mass transit during the pandemic. Year-over-year (yoy), inflation was still very modest — rising only 1.00%. Core prices, which exclude the often-volatile categories of food and energy, rose 0.60% in July and 1.60% from a year ago. The prices producers pay also rose 0.60% in July on rising gasoline prices. This was the biggest gain since October 2018, reversing June’s -0.20% decline. Presently, there is little need to worry that the producer’s increase will be passed to consumers. Producer prices are still down -0.40% yoy. Core producer prices, which exclude food, energy, and trade services, rose 0.30% in July but increased only a meager 0.10% yoy. Overall, the increase in prices is a reflection of the timing of demand and not a scarcity of capacity that could lead to inflation. Inflation remains well below the Fed’s 2.00% target level, suggesting this round of strong pricing data will have little impact at the Fed’s next FOMC meeting.

Last week, we laid out the case that the next big juncture for markets would arrive in late September or early October based on the potential for numerous factors to converge during that time frame, including the fallout from slack having been thrown in the stimulus lifeline, the potential of a strong resurgence in COVID following Labor Day gatherings and school reopenings, and as the initial demand surge from reopening moderates. The two positive externalities for markets not baked into this base case were: 1) a vaccine coming to market faster than expected and 2) a bigger than anticipated and timely fiscal or monetary stimulus package being announced. Nothing material changed on the vaccine front this week, and when Congress went into recess not having agreed upon a package, markets understandably could not mount the enthusiasm to push the Dow to new highs. There is little in the way of major economic reports for the next couple of weeks and, traditionally, mid to late August tends to be a little slower as traders take their summer’s end vacations. There doesn’t seem to be much of a catalyst for markets in the near term, and with Congress now in recess until September, the odds are increasing that the recovery’s durability will be tested in the Fall.

The Week Ahead

Real estate has been one of the more resilient sectors of the economy since the Covid-19 shutdowns were lifted in the Spring. We’ll see if the momentum can continue with the latest reports on housing starts and existing home sales.

Here, There, and Everywhere: Countries Court Digital Nomads

Digital nomads are workers who telecommute to perform their job. While that term may describe millions of people who have converted their dining room table into their desk amidst the pandemic, digital nomads are those who work remotely from foreign countries and travel extensively, adopting a nomadic lifestyle.

According to research by MBO Partners, 4.8 million workers currently describe themselves as digital nomads, and many more — 17 million — aspire to someday become nomadic, according to the consulting firm. The pandemic is impacting the digital nomad lifestyle because individuals can’t travel as freely due to border restrictions, mandatory quarantining, and other measures that have been implemented to curb the spread of the virus, yet some individuals are still pursuing their digital nomad dream. Countries all over the world are creating programs to lure these travelers and give a boost to struggling economies hit hard by the massive decline in the international tourism due to COVID. The U.N.’s Conference on Trade and Development has reported that the world’s tourism industry has lost at least $1.2 trillion in the first four months of travel bans and restrictions, and the number is expected to climb.

Before coronavirus took hold, only around 7% of employees in the U.S. regularly worked remotely. These days, at least two-thirds of Americans are working from home, according to Gallup research-and many others are realizing they can perform their jobs from nearly anywhere.

Forbes magazine recently published a list of countries opening their arms to nomads who want to relocate and live and work abroad. These include the following:

Barbados: The “Barbados Welcome Stamp” allows people to stay in the country and work for up to a year as long as they can certify that they earn an annual income of at least $50,000 or have the means to support themselves while they’re in the country. The stamp requires an online application fee of $2,000 for an individual and $3,000 for a family. The country imposes strict travel protocols that include COVID-19 testing or a quarantine.