Again, two viewpoints here. I am negative and “Davidson” more optimistc. I have long said I viewed the “V” recovery in much of the data simply due to suppressed demand for fundamental/essential items and inventory restocking post spring/summer lockdowns.
We’ve just had two consecutive weeks of new claims for unemployment exceeding expectations and growing to near 1MM people. We’ve also had a significant retail sales miss as the numbers turned south despite the holiday season. Nearly 1/2 of the 22M who lost their jobs due to covid are still unemployed today and I think we start to see that number grow again
As relief funds run out, forebearances end and life starts to “return to normal”, albeit painfullly slow, we are coming to the realization many of the jobs that existed before COVID and lockdowns are simply now gone. In Boston, 47% of all small buisnesses have closed, not temporarily, they are gone. Across the state of MA, 35% have disappeared. These do not “magically” open back up once politicians decide to reopen our economy. Typically by the time a small buisness closes the finances of the owners are in shambles, now, extend what is happening in MA nationwide.
I think equity investors by in large are of the opinion “once the lockdowns end, things go back to normal”. Please drive around, look at our malls, look at the strip malls in your area that have rarely ever had a vacancy and are now 1/2 empty. There are serious ramifications for this.
They will end lockdowns eventually, what we have to “go back to”, however, will be nothing like what we had in Jan-March of 2020. The longer they last, the worse it is going to be as small business closings are accelerating.
“Davidson” submits:
Retail Sales fall a little and the media declares an “…end to the US recovery.” This is a little exaggeration but not far off the mark as the media comments on the drop in the today’s Retail Sales report. Three charts are shown: Retail Sales vs Personal Income, Retail Sales vs Chemical Activity Barometer & Retail Sales vs Intermodal Rail traffic.
“…U.S. railroads…originated 1,136,695 containers and trailers in November 2020, up 11.5 percent, or 116,915 units, from the same month last year.”
There is no mixed message in this data. The Chemical Activity Barometer(CAB) and Intermodal Rail are strong indicators of broad economic activity and their trends reflect a sharp recovery. Retail Sales remain well above the trend since 2009 due to a period of home-stocking, a result of the COVID-19 lockdown. We should expect slippage in Retail Sales to bring this abnormal period back to longer-term trend. Note that the Federal Govt supplied income enhancement early on which drove Personal Income well above trend and this is also reversing towards the longer-term trend. That Intermodal Rail representing goods transport and the CAB which represents basic industrial production remain in good uptrends and still normalizing makes them the better indicators to watch.
Economic recovery continues. Buy equities, avoid fixed income, avoid FAANG-type issues which are extremely over-valued considering how rapidly the stay-at-home theme is falling by the wayside.
