Markets Tumble as States Halt Reopening

June 26, 2020

Markets struggled this week amid concerns of rising Covid-19 cases across the country. Data from Johns Hopkins University shows more than 30 states are now experiencing surging case counts. The resurgence has been enough to force Texas, Arizona, New Mexico, and eight others to pause their reopening plans. Texas reported an all-time high in new cases on Thursday and on Friday announced measures to contain the outbreak, forcing all bars with more than 51% of their gross receipts from alcoholic beverages to close their doors to the public. Outdoor gatherings of 100 or more must also be approved by local governments, with certain exceptions. On the economic front, data was mixed as durable goods and new home sales surged in May, while existing home sales slumped. Meanwhile, jobless claims remained elevated with another 1.48 million people filing for unemployment benefits, marking the 14th straight week of filings above 1 million. With investors digesting the impact that a delayed reopening will have on the economy, the S&P 500 slid -2.86% for the week.

Orders for Big-Ticket Items Surge

The durable goods report showed more good news for businesses, with orders for big-ticket items rebounding strongly month-to-month. In May, orders for manufactured goods meant to last at least three years surged 15.8%, reversing a lot of their 18.1% plunge in April. Excluding the volatile transportation sector, durable goods orders rose a healthy 4.00%. Orders for nondefense capital goods excluding aircraft rose 2.30% after dropping 6.50% in April. The car industry got a shot of good news as new orders for cars and auto parts rose 27.50% from the previous month. It was a good report as the shutdown turned the spigot off, the reopening released a flood of pent up demand. With the surge in COVID cases and what looks like an emerging pattern of intermittent rollbacks or shutdowns, demand is likely to improve but still be more erratic than investors would like for some time to come.

Homebuyers Flock to Something New

As has been the case since Covid-19 emerged, homebuyers continue to flock to new homes. May’s new home sales rose 12.7% from a year ago. The report showed that demand was particularly strong for homes that had yet to be started, which is good news since it indicates a solid pipeline for construction goods and jobs. Although new homes sales rebounded strongly in May, existing homes sales struggled. Existing home sales fell 9.70% month-to-month. The decline was attributable to sales figures being based on closed sales, representing contracts signed in March and April. Considering much of the country was shut down at that time, it is no surprise existing home sales remained weak in May. Still, the existing home sales market could continue to struggle during the typically busy summer buying season as inventory remains tight, prices remain high, and homebuyers forego touring currently occupied homes amid the Covid-19 pandemic.

Delayed reopening plans across several states put the brakes on the market’s move higher this week. Although case counts had been rising for a number of weeks, investors had previously dismissed the news, opting to focus on the rebound in consumer and business spending. Unfortunately, the boost in activity underpinning the positive data, now appears to have thrown a wrench in the v-shaped recovery thesis by accelerating the virus’ trajectory and pushing state governors’ to rein activity back in. Investors have reacted to “second wave” concerns a couple of times now during this pandemic only to shake those concerns off in a matter of days. This time, those concerns are backed by states actually restoring some social distancing mandates, which is material. Markets have experienced a solid rebound this quarter, and with the quarter set to close on Tuesday, it will be interesting to see whether investors will continue to buy the dip as they have thus far or whether they will seek to lock in their gains.

The Week Ahead

With the Fourth of July falling on Saturday this year, the New York Stock Exchange will be closed on Friday, July 3rd in observance. Week in Review will also break for the holiday. We will return on July 10th with reports on services and producer prices.

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