God Bless the U.S.A.
If you're an American, then Lee Greenwood's hit song probably stirs some strong emotions when you hear it - especially this time of year. We have a lot to be thankful for after a year of living through a pandemic. The economic data in this country continues to improve. Despite a national media that wants to sell more advertisements by stoking fear, the COVID numbers continue to improve. While cases have inched up over the past few days (no surprise as more people emerge from lockdowns), deaths and hospitalizations continue to fall or stay stable. As we break to celebrate the 4th of July with family and friends, we can take comfort in a growing economy and relatively healthy nation. Here's some of the market action we've seen this week...
Resilient Economy. After more than a year of COVID, the U.S. economy continues to improve. Weekly Jobless Claims reached a new post-pandemic low of 364,000 claims and the labor market is now within 83,000 claims of the pre-pandemic level of 281,000. This is quite the recovery from the peak of 6.7 million claims in the 2nd week of the pandemic! Consumer Confidence reached a level of 127.3 in June, the highest level since the pre-pandemic level of 132.6 in February of 2020. For the month of June, ADP Private Employment showed 692,000 new jobs added. The labor market is progressing and continuing to heal. This is bad news for the camp of investors hoping for the Fed to stay dovish. While supply chain issues still exist, as witnessed by the drop in Construction Spending for May, Pending Home Sales have improved as the real estate market continues to adjust to higher home prices. Manufacturing data was lower this week with both Chicago PMI and ISM Manufacturing indices declining month-over-month. Today, the Jobs Report showed 850,000 new jobs were added in June, higher than the 700,000 expected. It wasn't all roses as the Unemployment Rate inched up from 5.8% to 5.9%. The UE number will give the dovish camp something to hold onto. Regardless, the healing labor market shows the greatness of our economy and our country.
The Fear Factor That Keeps On Giving. I'm not sure what the media would do if there were zero risks in the world and nothing to complain about. Lately, the media has been making much of the Delta Variant of COVID. According to the CDC, the Delta Variant accounts for about 20% of all U.S. COVID cases. While cases have increased slightly (+7.4% 7-day Average), deaths continue to decline (-16.8% 7-day Average). While the Delta Variant is showing up here in the U.S., it is not causing hospitalizations or deaths to increase. In fact, J.P. Morgan strategists are not expecting any significant effect of the Delta Variant on the U.S. economy. “The delta variant should not have significant repercussions for the pandemic situation in developed markets (e.g. Europe and North America, which have [made] strong progress in vaccinations) due to the level of population immunity,” said the strategists, led by chief global markets strategist Marko Kolanovic. The same lack of effect on hospitalizations & deaths from the Delta Variant can be seen in both the U.K. and Israel. In fact, a report this week shows that the J&J vaccine is 85% effective against the Delta Variant and the Pfizer/Moderna mRNA vaccines are shown to be 88% effective against the variant. Yet, this is not stopping the media from pushing fear concerning the variant to their audiences.
Meanwhile, Back At The Ranch. The latest results from the economic indicators point to continued improvement. The National Financial Conditions Index shows continued loosening economic conditions. In fact, of the 105 contributors to the NCFI Index, none are tighter than average. The NFCI is at the lowest level (-0.72) since September of 2014. Similarly, the St. Louis Fed's Financial Stress Index declined last week and is at the 2nd lowest level (-0.98) since 2007. As long as the labor market continues to heal, the Fed has rates pegged near zero, and the overall financial conditions remain loose, equities should continue to out-perform. Happy 4th!