You’ll recall from recent comments that four mile-markers of progress will anchor our economic forecast during the coronavirus crisis. So far, we’ve passed mile-marker one, which was a swift response from policymakers to cushion economic fallout from social distancing measures. And last week we saw signs of progress on all three of our remaining mile-markers, which was an encouraging sign for us and markets.
A few highlights:
Marker 2: Getting resources where they’re needed. Stimulus checks reached many Americans’ bank accounts last week. PPP loans are getting out to businesses (more on that below). GM delivered its first batch of ventilators. Yes, there have been hiccups, but money and supplies are getting to people and places in need.
Marker 3: Scientists get a win. Gilead’s potential COVID-19 treatment, Remdesivir, provided a lift for markets late last week after anecdotal data showed quick recoveries for a small group patients. Scientists around the country are making headway developing new ways to test people for the virus, as well as test people who develop antibodies.
Marker 4: A plan to reopen. Last week, focus notably shifted to this final marker. President Trump released the White House’s “Opening Up America” plan, aiming for many states to be back in business on May 1 — some even before then. Still, Trump said governors would largely steer that process in each state. California Gov. Gavin Newsom outlined 6 steps that must be achieved to end stay-at-home orders, while Texas Gov. Greg Abbott announced initial steps to restart parts of Lone Star State economy.
These generally positive developments buoyed stocks for the week, and major indexes notched a second consecutive week of gains. With that, let’s dive deeper into last week’s news and numbers, and get you ready for the week ahead.
WALL STREET WRAP
The Coronavirus, By the Numbers: Unprecedented limits on businesses are going to have an unprecedented impact on business conditions. That’s exactly what we saw last week as many gauges of economic activity posted record declines in March. Nominal U.S. retail sales declined 8.7 percent in March, driven by a 25.6 percent decline in vehicle and parts sales, a 50.5 percent decline in clothing sales and a 26.5 percent decline in restaurant sales. In contrast, grocery sales jumped 26.9 percent, a record.
Industrial production fell 5.4 percent in March, the largest decline since 1946 — again driven by a 28 percent decline in autos. Housing, which was building momentum for several months, wasn’t spared either. Housing starts posted one of the largest declines since the 1980s, while the NAHB (a measure of builder confidence) dropped from 72 to 30 in March — the all-time low is 8, set back on Jan. 31, 2009.
The market likely looked past these figures last week for two reasons: Expectations were already low, but markets are also paying closer attention for progress on the three markers we’ve outlined above. Sure, we’re seeing bad economic data, but that’s because Americans are successfully taking our recommended treatment — we’re social distancing effectively and it’s flattening the curve in many places. All this bad economic data is being balanced by those flattening curves, which ultimately improves the outlook and lifts markets.
Big Banks Brace for Stormy Weather: Bank of America, Citigroup, Goldman Sachs and the nation’s other biggest banks are bracing for fallout from the coronavirus. Profits at major banks fell in the first quarter as they added billions to reserves to cover potential defaults. Despite these rapid build-ups in reserves, the largest banks are largely coming into the crisis in a position of strength.
“This isn’t a financial crisis. It’s a public health crisis with severe economic ramifications,” Citigroup CEO Michael Corbat said during an earnings call Wednesday. “We entered this crisis in a very strong position from a capital, liquidity and balance sheet perspective. We have the resources to serve our clients without jeopardizing our safety and soundness.”
Fed’s Bullard Pushes for Mass Testing: St. Louis Federal Reserve President James Bullard, in comments throughout the week, cautioned that quarantine measures were costing the U.S. economy an estimated $25 billion a day in output and couldn’t go on indefinitely. Another 5.2 million Americans filed unemployment claims last week, bringing total claims over the past four weeks to 22 million.
Rather than quarantine, Bullard reiterated his call for universal coronavirus testing to manage contagion in a post-COVID-19 world, and he encouraged subsidizing all costs for companies that develop such a test. Bullard believes widespread testing is the key to restarting the economy, as it would allow us to track the virus and calm fears about interacting with one another.
“We are going to have to get innovative on how to provide a safe work environment knowing this disease is out there and we are not going to have a vaccine in the short term,” Bullard said during a webcast with the St. Louis Regional Chamber last week.
PPP Loan Funding Dries Up: The government’s $350 billion Paycheck Protection Program (PPP) for small businesses officially ran out of funds on April 16 after the Small Business Administration received more than 1.6 million applications. Negotiations are already underway to send a second, $250 billion wave of funds to the program. Democratic leaders and Treasury Secretary Steven Mnuchin said on Sunday they were close to striking a deal to replenish those funds and could have something to vote on this week. The process certainly has had its challenges, from delays to confusion about the applications process, but crucial funds are trickling into the economy.
THE WEEK AHEAD
Key Earnings Reports Coming This Week: The first batch of post-coronavirus earnings reports will continue rolling out this week, and there are a few companies that may get a lot of attention. Keep an eye on consumer lenders, such as Capital One and American Express, for comments on loan charge-offs, their views on consumer credit card debt and projections for the months ahead. Delta and Southwest airlines, both deeply stung by the coronavirus, will also report in the same week as Netflix, a company thought to be thriving as people shelter in place.
Other Things to Watch For: Stay tuned for signs that policymakers are making progress on the next wave of PPP funds and, more broadly, other stimulus measures that may be needed. We’ll be looking for more evidence of progress on those three markers we’ve outlined. Weekly unemployment claims will again be in focus, along with housing sales.
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