Somebody kicked the sleeping bear… Last week’s volatility woke up many investors, especially those that have been late in joining the bull market.
What it means— Actually, when one examines the weekly chart of the S&P-500, the net change was only a -2.31%. Technology, however, has been the realm of speculators and was the catalyst for an oversized impact on major indices. Many investors are new to the markets since the onset of the China virus and are unfamiliar with downside volatility.
We constantly monitor the positions in our portfolios and general market conditions. It is important to place market movement in context. With the S&P at nearly 3,000, a 2% change is 600 points. Mainstream media needs viewers and exaggerates the significance of any market headline available. We track data in two different ways for context.
Trends are more important than single days. The purpose of both data sets is to minimize whipsaw risk but still identify changing trends. Market advances this year have been primarily driven by investors in ten stocks ignoring fundamental benchmarks of sustainable profitability. With a long weekend to reflect, two days of selling last week have attracted buyers on Tuesday.
The U.S. Economy Created 1.37 Million Jobs in August… The unemployment rate dipped to 8.4%. Both measures beat expectations.
What it means— Unemployment fell below 10% much faster than most analysts expected. The economy definitely added a bunch of jobs. Before getting too excited, it’s worth noting that 344,000 of the new jobs are as census workers for the federal government.
When you add discouraged workers and those working part-time for economic reasons, the unemployment rate jumps to 14.2%. Adding to the difficulties, 24.2 million people said they aren’t working because their employer either closed or lost business because of the pandemic.
On the bright side, hourly earnings increased 0.4%, which puts them up 4.7% over last year. The annual gain makes sense, because many
low-wage employees lost their jobs during the pandemic, but the jump last month was unexpected. Overall, the report is good news. We need more people working.
State Initial Jobless Claims Dipped to 881,000… Fewer Americans filed for first-time unemployment benefits under state programs. The total state and federal initial jobless claims ticked up slightly, to 1.59 million.
What it means— State-funded continuing claims are also trending the right direction, falling from 14.49 million to 13.25 million, but claims in the federal program are moving the other way. The combined continuing claims number increased from 27.03 million to 29.22 million. Part of the issue is that jobless claims in state programs are seasonally adjusted to smooth out the very choppy numbers associated with retail hires before the holidays, which are followed by layoffs in January and then seasonal hires in the summer.
This year is so extraordinary that the government changed the seasonal adjustments and yet did not revise the prior data. Simply put, we can’t easily compare today’s numbers to those of previous periods. The good news is, we don’t have to. With the current numbers so large, it’s enough to note that almost 30 million workers are still claiming unemployment benefits, and that’s not good for the economy.
The Centers for Disease Control and Prevention (CDC) Issued an Eviction Moratorium… The CDC claims the action is necessary to prevent the spread of the virus that might occur as people move.
What it means— This is not a solution. The dictum simply moves a huge problem from one group to another. The CDC forbids evicting people who, because of the coronavirus, can’t pay their full rent. To be eligible, renters who are single filers must make less than $99,000, and those who are joint filers must make less than $198,000. They also must attest that they have exhausted all resources for rent relief, have tried to arrange for lower rent with their landlord, and will continue to pay what they can toward their rent.
The move doesn’t forgive the rent, it simply puts off the payments until January, at which time renters are supposed to work out terms with their landlords for paying back rent. Landlords are free to pile on charges and interest. Landlords must still pay the mortgage and other expenses related to their properties or face foreclosure and fees themselves. As for the rental payment debt that accumulates, it will become consumer debt, like credit card debt, in January.
Here’s a question for thought: How many renters who aren’t paying their full rent will suddenly make it up in January, and how many instead will choose simply to move and to dare the landlords to find them and sue for the missed payments?
Federal Debt About to Eclipse GDP… The Congressional Budget Office expects U.S. debt to reach $20.3 trillion this year, just shy of U.S. GDP, which it will exceed next year, on its way to a modern record.
What it means— As a percentage of GDP, the U.S. borrowed the most money during the waning days of World War II. By 2023, we will have exceeded that record, with no end in sight. Does it matter? While we’re borrowing more, we’re paying less for the privilege. With interest rates at record lows, the federal government is actually paying less in borrowing costs because it is rolling over older, more-expensive debt at lower rates. The crushing debt could have a consequence, such as foreign investors leaving the dollar for other currencies, but that’s not likely to happen soon.
Battery Maker QuantumScape Going Public, To Offer Batteries by 2024… The Volkswagen-backed company will reverse merge with Kensington Capital Acquisition Corp.
What it means— The reverse merger isn’t nearly as interesting as the technology. QuantumScape builds a sold-state, lithium-metal battery that has a power density 75% higher than lithium-ion batteries and can take an 80% charge in 15 minutes. This dramatically extends electric vehicle range and brings recharging times down to a tolerable level. Volkswagen has put $300 million into the project, so it seems likely that the German carmaker will use the batteries across its product line. Watch out, Tesla!
New Study Shows Being A Jerk Doesn’t Help You Get Ahead…We’ve all heard that nice guys finish last, but apparently, it’s not true.
What it means— A new study published in the journal PNAS gave personality tests to undergraduate and graduate students, and then followed up with them 14 years later. Those with “disagreeable” temperaments were no more likely to be successful than their nicer peers. The researchers verified the personality assignments by asking current coworkers about the study participants and found that, for the most part, the jerks were still jerks. Unfortunately, the study didn’t prove the opposite. While jerks weren’t more likely to get ahead, they also weren’t less likely.
Data supplied by HS Dent Research
“When the facts change, I change my mind.
What do you do, sir?” ~ John Maynard Keynes
Our plan is “the plan will change.”
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Relative strength measures the price performance of a stock against a market average, a selected universe of stocks or a single alternative holding. Relative strength improves if it rises faster in an uptrend, or falls less in a downtrend. It is easily applied to individual positions in your portfolio and to sectors and asset classes.
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