Monday Morning Wrap Up – June 8, 2020

Big surprise!

The U.S. unemployment rate fell last month as more workers returned to work as the economy began to reopen! No doubt, the jobless rate remains exceedingly high historically. We are still in the double digits. In May, the jobless rate stood at 13.3%, down from 14.7% in April.

6 Key Takeaways as We Head into June

  1. The worst of the job losses may be behind us. Yet, it could take years for the unemployment rate to fully recover.
  1. The economy is reopening, with many people eager to return to normalcy. Others remain hesitant about returning to normal activities like air travel and large sporting or entertainment events, which could take time.
  1. Stocks rebounded strongly off the March low. Future gains could slow as many companies balance sheets were wrecked by the economic shutdown and some firms closed and will never reopen.
  1. A second Covid wave could hit this summer or in the fall. The thousands of Americans protesting could lead to a summer resurgence of the virus.
  1. S. – China tensions are bubbling high. This remains an issue that could topple the stock market’s recent exuberance if trade war woes hit high gear again. The stock market remains extremely vulnerable to negative trade related news.
  1. The U.S. Presidential Election remains a flash point. Social unrest in our country is at the highest level in decades. The U.S. presidential election remains a flashpoint for our country, the economy and the financial markets in a few short months. While the election has taken a backseat to the Covid pandemic, expect this to begin to take over headlines soon.

Digging into the Data

Some U.S. workers returned to work in May as the economy began its cautious reopening last month. Does this mean the worst is behind us? Some say yes. Some say no. We’ll explore the facts here. What do you think?

For perspective, the 13.3% number is still worse than the peak unemployment rate of 10% during the 2008 Great Recession. But, a falling unemployment rate is certainly better than a rising one. This report suggests the economy may be turning a corner.

On Friday, the Labor Department reported that 2.5 million new nonfarm jobs were added to the economy in May. Economists explain that part of that hiring was due to the funds from the Paycheck Protection Program, which requires businesses to rehire their workers in order to convert the loans into grants that don’t need to be repaid.

Market Response

Stocks soared on Friday on the unexpected sliver of good news. Gold and silver fell back modestly. Nonetheless, gold continues to trade at its best levels in eight years, around the $1,680 per ounce level.

The Long Road to Recovery

Does this mean the U.S. economy will storm higher in a “V” shaped recovery? Many are doubtful.

“The country has turned the corner from the pandemic and the recession it created for now, but all the workers who lost their paychecks will find it difficult to regain their place in society as many of these jobs are gone forever,” said Chris Rupkey, Chief Financial Economist at MUFG, a global financial group this week.

“It took years for the economy to grow enough to find jobs for those unemployed in the last recession, and it will take years again this time to do the same. The country is opening up, but the jobs will be slow to return,” Rupkey added.

He’s not alone in this view.

From a cover story of The Wall Street Journal on June 2, headlined “Economy Setback Seen Taking 10 Years to End” – the non-partisan Congressional Budget Office (CBO) predicted that U.S. GDP isn’t expected to return to the previously growth levels until the fourth quarter of 2029.

Stock Surge – Fear of Missing Out

The stock market has taken investors on a wild roller coaster ride in 2020, swinging over 35% lower into the March low.

From the March low, the S&P 500 recouped much of its losses in recent weeks, although the market remains in negative territory for the year. The S&P 500 now stands about 10% below its February all-time high.

Have you been surprised by the stock market’s actions? You aren’t alone.

The recent recovery in the stock market has surprised and perplexed even the most seasoned stock market traders.

The stock market rebound appears to be divorced from the realities of the double digit unemployment rate that means millions of Americans still have no paycheck each week.

Investors drove stocks higher amid expectations that the current economic downturn, while dramatically deep, will be short-lived.

FOMO – or the fear of missing out – helped the market recoup some of its losses in recent weeks as momentum traders and investors jumped on board, regardless of the actual economic fundamental situation in our country.

Many economists warn the “short-lived recession” is an overly optimistic view, as no vaccine has been found yet for the Covid virus and a secondary wave of mass infections could emerge this summer or this fall.  There still remain many portions of the population who are hesitant to return to pre-pandemic activities in full force.

Where do you stand? Many are eager to get back to normal, while others remain cautious. We’d love to hear from you in a comment below.

China Tensions Bubbling Up – No More Flights

Last week, stock investors shrugged off the White House’s ban on Chinese airlines, which prevents them from flying into and out of the U.S. The White House retaliated with this restriction following a similar ban issued by the Chinese government. Expect things to get worse, not better.

In May, President Trump contemplated “cutting off the whole relationship,” between the U.S. and China, according to the Wall Street Journal.

The tensions between the world’s two largest economies remain a major issue for the global economy, the markets and our citizens.

Gold Investment Demand Hits Record High

Gold demand hit record high levels in the first five months of 2020, as investors turned to gold as a safe-haven, a hedge and portfolio diversifier in these uncertain times.

Gold backed ETFs added 154 tonnes of gold inflows in May to their coffers. That took global gold ETF holdings to a new all-time high at 3510 t. In just five months, investors bought more than any annual inflow seen before, ever.

The Fed and Gold

  • The Federal Reserve meets this week to discuss its monetary policy options. Stay tuned for the latest from the central bank, we will send you an email alert on Wednesday.

Looking back, the Fed’s extraordinary response – major money printing – since the pandemic broke out is one of the major reasons the stock market recovered so quickly. The massive liquidity flow…are there consequences for that ahead? Many say yes…

Indeed, the Fed’s ability to create money is essentially unlimited.

What’s the risk? If “buyers of U.S. government IOUs decide our promises of repayment are worthless, that the creation of so much money removes the trust in the buying power of the dollar. If the world turns against the dollar, which is the key measure of global trade, the Fed’s game is over,” wrote Terry Savage, a registered investment advisor and best-selling author in her The Savage Truth column last month.

The Fed’s blatant disregard for the value of the U.S. dollar is why many investors are turning to the safety and security of gold in these extraordinary times.

Gold remains in the midst of a historic bullish run as investors rush into the safety of physical precious metals.

These are extraordinarily difficult and uncertain times. Our sincere hope is that we will all work together toward a better future. In the midst of this all, we take pride in offering individual investors, just like you, the opportunity to preserve, protect and grow your wealth with tangible assets.

Thank you for your trust.

Best,

David

1 thought on “Monday Morning Wrap Up – June 8, 2020

  1. I think this is not over. I live in Florida, unfortunately, in an old City that is a favorite to tourists. We are In phase 2 opening and there is hardly a mask to be seen on the tourists That have returned In Force to downtown. I am on leave of absence from the Spa I work for because I am 66 and an aesthetician (skin care technician) , like massage therapists we work Hands on your body, doesn’t seem very intelligent Or safe to me And certainly there is NO social distancing in my job.
    I pulled all my investments to a cash position and my metals are in a safe. I was lucky to do this a few days before the lock down. I feel uncomfortable sitting on my investment capital but it is safe and if I’m over cautious so be it. There are too many unknowns at present to be cavalier with health or finances. Thanks for asking!

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