ICYMI: Weekly Market Recap: Week of June 22nd through June 26th
I read an article last week that said leading indicators such as manufacturing and other surveys seem to be lagging indicators, and anything that relates to the impact of Covid-19 is the new leading indicator.
You may recall, I explained the importance of economic indicators in last week’s recap.
Should we temporarily discard traditional leading economic indicators and replace them with COVID-related indicators for the foreseeable future?
Yes, the markets and the overall global economy indeed seem to change by the minute with every COVID-related news item, but that doesn’t mean we should neglect traditional leading indicators. While it may not seem like it, the pandemic will end. Traditional leading indicators have provided a structured way to analyze and make sense of what can look like a chaotic economy.
What should we make of all this? What are the long-term implications of pandemics? According to IMF economists, the impact will be felt for generations due to slow growth.
My clients and students know that I advocate DIY expert-guided financial plans and investment plans. I do so to help people make smart financial decisions to create life-changing generational wealth. How do you achieve that when faced with something entirely out of your control that will not only impact you but for future generations?
By educating yourself.
As you read through this week’s recap, if you come across any term or figure that is unfamiliar to you, take a minute to read about it or shoot me a message and ask.
Across the globe: as the world continues to reopen, there is good news. The global economy appears to be in recovery mode. A recent survey by IHSMarkit found that the decline in four economies (the U.S., the eurozone, Japan, and the U.K.), which serves as an indicator for the overall global economy), slowed and its leveling off.
The bad news is that some countries and states are finding that a more rigorous approach may be needed to stem the rise in Covid-19 cases. In the U.S., a spike in new cases in Texas, Florida, and other states caused the markets to pull back but end in positive territory. In Asia, the Japanese economy continues to falter as manufacturing and demand for goods decline.
Let’s take a closer look.
A surge in COVID case in 8 states led to quarantine requirements from New Jersey, New York, and Connecticut for anyone traveling from the eight states. The market responded accordingly to the uptick in cases.
In economic news, the Federal Reserve issued results of stress tests plus different recovery scenarios. The Fed performs stress tests to determine if a bank can withstand financial shocks. The most recent tests showed that banks remain very strong, and they can withstand even the “harshest shocks.”
New and existing home sales reports also came out this week.
New home sales are a lagging indicator that measures recently built homes and is indicative of demand. You can use the indicator to understand the overall direction of the economy. There was an increase in demand, up 16.6%.
Existing home sales, on the other hand, were down 9.7% in May.
The U.S. Census Bureau’s Durable Goods Orders report was also issued last week. Durable goods are tangible products that can’t be consumed in one use, like automobiles and appliances.
Reviewing the durable goods report (a leading economic indicator) will give you insight into whether or not a recovery has started and, if so, how strong it is.
The most recent report was higher than expected. New orders for manufactured durable goods were up 15.8% in May compared to the 18.1% decrease in April.
Personal income report compiled by the Bureau of Economic Analysis showed a decline in May by 4.2%. This decline in personal income was a sharp decrease from April, which was helped by the stimulus package payments. Personal income refers to income from wages, Social Security, and other government benefits. This indicator provides insight into American spending.
The European Central Bank continues to worry about deflation. The bank warns that if the inflation rate dips below zero, it could be disastrous.
Why is that a concern?
If the rate of inflation is below zero, then this leads to less spending and borrowing.
The German Ifo Business Climate index, a leading indicator of the health of the German economy today and for the next six months, was released last week. It was higher than expected (actual: 86.2 vs. forecasted: 85.0), indicating a bullish future for the Euro.
The World Economic Outlook predicts the region’s economy to decline by 9.4%.
According to the IMF, the rate of deaths and infections in Latin America accounts for 25% of the world’s total. The increase in fatalities doesn’t bode well for exports from countries such as Brazil and Chile.
Asia – Pacific:
S&P, the rating agency expects the Asian-Pacific economy to decline by 1.3% with an almost $3 trillion loss. The agency also predicts a permanent shrinkage of 2 to 3% of most economies in this region. The overall consensus is that banks will lend less, and consumers will spend less. It’s not all bad news; the agency predicts China’s economy to grow past 7% next year.
The South African government’s quest to stabilize debt within the next four years may be hard to reach, according to Fitch Ratings. The agency sees significant hurdles that the government will need to overcome to be able to reach not only its conservative revenue estimates but any debt reduction goals. As a result, the agency downgraded the country’s long-term foreign-currency issuer to negative.
Some numbers for people who like numbers:
The Dow Jones Industrial Average closed at 25,016 down 3.31% for the week
S&P 500 closed the down 2.86% ending at 3,009
Nasdaq was down 1.9% from the previous week ending at 9,757
MSCI EAFE closed at 1,780 down 1.29%.