WEEKLY MARKET COMMENTARY JULY 2020 V1
As the number of new infections and deaths reported each week was trending downward through early June, the S&P 500 continued a bull market run that started in late March. When states began to reopen, investors seized on the optimism that our worst pandemic days were behind us. But a recent surge in reported infections in the heavily populated states of Texas and Florida forced the hand of their governors, causing stock investors to take notice. With just 2 trading days remaining in the first half of 2020, the S&P 500 is down 6% YTD (total return). Stock valuations, at least for last week, seemed to reflect the economic reality faced by many Americans nationwide (source: BTN Research).
Millions of US homeowners got in over their heads financially during the global real estate crisis that began in 2008. Too much mortgage debt and not enough cash flow for distressed homeowners resulted in lenders repossessing 1.1 million homes in 2010 alone. The pandemic has caused 15.2 million Americans to lose their jobs in the last 3 months. Not surprisingly, the number of Americans more than 30 days behind on their monthly mortgage payments as of May 2020 is at its highest level since November 2011 (source: Black Knight Inc.).
The response of the US Federal Reserve to the economic impact of the COVID-19 pandemic has been historic. By the end of 2020, the Federal Reserve is forecasted to inject $5 trillion into the US money supply, largely in the form of low-cost loans for businesses, individuals, states and municipalities (source: BTN Research).
Notable Numbers for the Week:
MASSIVE JOB LOSSES - First-time applications for unemployment benefits in the last 3 months through 6/20/20 (47.2 million) were more than 15 times the number of first-time applications for jobless benefits filed (3.1 million) in the 3 months before the pandemic struck the United States (source: Department of Labor).
HE SAID IT - Scott Pelley of “60 Minutes” asked Fed Chair Jay Powell on 5/17/20 “where does it (the money flooding our system) come from?” Powell responded “We print it digitally. So as a central bank, we have the ability to create money digitally. And that actually increases the money supply” (source: 60 Minutes).
MONEY MULTIPLIER - When the Fed acquires assets from banks, e.g., Treasury securities, the Fed issues electronic credits to the banks in exchange for the assets. Banks use the money from the asset sale to make loans of 10 times the amount of money digitally created by the Fed (source: Federal Reserve).
A LOT BIGGER - The Fed’s balance sheet reached $6.14 trillion as of 6/24/20, up from $3.89 trillion as of 3/11/20, largely the result of purchases of Treasury securities (source: Federal Reserve).
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