Markets Wake Up to Coronavirus Risks and No Pre-Election Stimulus Deal

October 30, 2020

After weeks of ignoring growing coronavirus risks, markets finally awoke to the reality that a second surge is taking hold across the globe. Europe, having avoided the worst of the first wave in March, is now approaching death rates approximating those in the U.S., prompting some countries to enact stricter social distancing measures to contain the outbreak. France announced a strict 30-day lockdown which calls for people to stay home and for nonessential businesses to close. Meanwhile, Germany announced a more limited shutdown with nonessential businesses such as restaurants, bars, gyms, and shops ordered closed, starting Nov. 2 and lasting through month-end. The stricter measures announced in Europe spooked investors who fear Europe’s lockdown may foretell a similar fate for the U.S. just as the economy appeared to be regaining its footing. This week, the Commerce department released a stellar Q3 GDP report which showed the U.S. economy grew at a 33.1% annualized pace from July to September. Personal spending figures from September were also strong, notching their fifth consecutive monthly increase. These numbers meant little to markets given the pandemic’s resurgence and the uncertainty over the election just a few days away. For the week, the S&P 500 fell -5.64% while closing out October by declining nearly -2.00% – its worst monthly performance since March. 
U.S. GDP Rebounds in Q3 
The U.S. economy staged a sharp rebound in Q3 as GDP rose at an annualized rate of 33.10%. A surge in business and residential investment, along with strong consumer activity, helped the economy reverse its -31.4% plunge in the second quarter. All things considered; the rebound is incredibly impressive. GDP now stands just -3.50% below year-end 2019.  A decline of -3.5% in GDP in any other context other than a pandemic is considerable, but the fact is that demand remains significantly constrained due to social distancing behavior and to have gained back so much ground is certainly notable. Breaking the annualized number down to a quarterly rate, Q3 GDP grew 7.40%, which helped offset Q2’s record -9.0% decline. Investors, for the most part, shrugged off the news for the reasons noted above, but also due to the increasing chance that Washington may not be able to get a stimulus deal done until perhaps as late as 2021.
Spending Up for Fifth Straight Month
Consumers boosted their spending 1.40% in September. That was the fifth straight month of increases, driven by higher pay and remaining pandemic aid. Personal income, which measures what households receive from wages and salaries, government aid and investments, rose 0.90%. The rise reflected an increase in employee compensation and the federal supplement to state unemployment benefits that provides recipients an extra $300/week. With more money in their pockets, consumers boosted their spending on a broad basket of goods and services including autos, clothing, healthcare, fitness and entertainment. The spending figures continue to show that consumers are remaining resilient despite the months-long pandemic. 
This week’s selloff comes as no surprise and frankly in many respects, it was welcomed. The data this week shows that the economy is entirely capable of snapping back once the path is cleared, and while we get the fact that every lockdown runs the risk that we continue to dig a deeper hole, we also remain steadfast in the belief that considerable demand will be released once the pandemic abates. Whether that happens by mid-2021 or late 2021 is somewhat academic when you talk about it from a long-term investing point of view. The point is that it will happen, and we will use volatility like we saw this week to build positions thinking about a post-pandemic world.

The Week Ahead

Voters flock to the polls on Nov. 3rd for their last chance to vote in this year’s hotly contested race for President of the United States. It will also be a big week for economic data with market moving reports on nonfarm payrolls, manufacturing, and services. The Federal Reserve will also hold its Federal Open Market Committee meeting.

Daylight Saving Coronatime

Today is Blursday, the fortytenth of Septober if you were confused. And, how is it already the end of Daylight Saving Time (DST)? DST began in March and oddly, roughly coincides with when the coronavirus was beginning to profoundly impact our daily lives. Here we are nearly eight months later and some would say that these past few months have flown by while others might say that time seems to have dragged on. And on. And on. And on.
Most of us can agree that time simply feels different nowadays. The New Yorker published a cartoon a few months ago that depicts a man on his couch who is haunted by a ghost of himself with the caption, “I’m you from the future! Or the past. I’ve completely lost track of time.” When every day can feel the same, that seems like an easy thing to do. 
A researcher in the U.K. has been studying time and our perceptions of it. Ruth Ogden, a psychologist at Liverpool John Moores University, wanted to understand how people experience time and why it seems to pass quickly or slowly. COVID and its lockdowns provided her with a rare opportunity to do a large study on our perception of time when our days are confused for long periods. Ogden asked people if they were experiencing coronavirus time as moving faster or more slowly than normal. More than 80% of participants reported a distorted sense of time with half of those respondents saying it’s going quickly and half saying it is going slowly. 
Prior research has shown that one’s perception of how quickly time passes can vary according to one’s emotions. Time can seem fleeting when we are deeply immersed in something we enjoy, such as reading a book, baking, or spending time with friends. This explains why vacations seem to go by so quickly and why “time flies when you are having fun.” Introverts who love the new work-from-home life may feel time whizzing by. Others who are overworked, stressed, and worried about their finances or their family’s health may experience the passage of time very slowly. Ogden’s research also suggests that significant changes to life’s daily routine distort perceptions of time: social distancing, quarantining, virtual school, and working from home have upended our normal schedules. Without our daily routines, we become disoriented on how time is passing because there’s not the usual event markers. Additionally, new experiences and adventures provide new memories that help mark the passage of time. 
Experts say it’s perfectly okay to let this passing of time feel different, and maybe even strange until we resume our normal routines. Journalist Arielle Pardes writes that our experience of time has changed because we don’t yet know what to measure it against. Coronatime has no scale, but there is definitely a clear line of “pre-COVID” and “post-COVID” time, which up until this Sunday was closely correlated with Daylight Saving Time. Just remember to set your clock back one hour on Sunday, November 1st, and it’s also a good reminder for a twice-yearly smoke alarm check, too.
Stay safe and well. 

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