CYMI: Week of July 27th through July 31st: The Second Act?
This week came second-quarter economic reports from several countries, including the U.S. The impact of the pandemic has caused record-breaking declines across the globe. From Japan to Mexico, GDP figures highlighted how deep and widespread the virus is.
Here’s a look across the globe.
You probably heard by now the terrible economic news out of the U.S. The economy shrank 32.9% in the second quarter, the most significant decline ever recorded.
What does this mean?
Gross Domestic Product of a country is a measure of economic activity. The value of all goods and services produced in a country over a specific timeframe. As expected, the pandemic has wreaked havoc on economic activity. While most places within the U.S. have loosened restrictions, the resurgence of Covid-19 in many parts of the country doesn’t bode well for a quick economic rebound.
You may recall our previous discussions on the two types of economic indicators, leading and lagging. GDP is a lagging indicator, which is an economic factor that takes a historical look at how the economy performed.
So, what to make of the most significant decline on record?
First, it wasn’t unexpected, so take small confidence in that. Second, economists were expecting a decline of over 34%, which means that it was as bad as the predictions.
That being said, it’s worth noting that things were pretty bad in the second quarter, and we’re not entirely out of the woods yet.
In other economic news, Apple announced a 4-for-1 stock split. If you’re not familiar with stock splits, you can watch a brief primer I did by clicking here.
The 4-for-1 split means that for every share that you own, you’ll get 3 more shares. The split will take place on August 31st, and the goal is to make the stock (currently trading at a little over $425 a bit more affordable (read attractive) to investors. If you’ve been on the sidelines waiting for the opportunity to own shares, now may be it.
Speaking of Apple, its CEO, Tim Cook, and other tech executives were called to Capitol Hill this week to testify as part of the antitrust hearing. Cook, Facebook CEO Mark Zuckerberg, and the CEOs of Amazon and Alphabet were peppered with questions about competition, user data and other business practices. The outcome of Congress’ 13-month antitrust investigation has yet to be seen, and the odds of the tech giants being broken up are slim to nil that doesn’t mean that regulation efforts will also come up short. Keep an eye on the investigation to gauge how you should respond with your investments.
The Federal Open Market Committee announced that interest rates would remain near zero for the time being. Some key things to note int the statement were:
“economic activity picked up as the economy began to reopen,” and “employment rose strongly in May and June as many people returned to work from temporary layoffs.”
That leads us to this week’s unemployment news. The additional $600 weekly unemployment benefit expired without a replacement. Congress is working on a deal to replace it, but in the interim, millions of people will be without this needed benefit.
The Eurozone released GDP numbers as well. The 19 countries that use the euro as their currency declined by 12.1% in the second quarter. The country with the biggest decline was Spain, which had a GDP decline of 18.5%. Overall, the European Union saw a drop of almost 12%.
Unexpected earnings results from Nokia and BNP Paribas helped bolster the pan-European STOXX 600 index.
In Latin America, the economic news was not better. Mexico’s economy shrank by 17.3% in the second quarter, a sign that things will probably get worse before it gets better. President Andrés Manuel López Obrador tried to assure the public that this was the bottom, but I’m not so sure especially considering the resurgence of COVID in so many countries.
Brazil’s Economy Ministry lowered the deficit outlook causing the Brazilian real, the country’s currency to go up by .3%.
Japan is experience resurgence in COVID cases after successfully containing the virus. The pandemic continues to hammer the jobs market. A report that highlights job availability had declined to its lowest level in six years.
The Japanese economy shrank by 26.% in the second quarter according to economist’s projections.
The Nikkei was done over 4.5% for the week ending at 21,710.
In China, focus turned to post-pandemic recovery with a strong focus on infrastructure. The country has double-down on projects to build roads and construction-heavy projects as a means of digging itself out of a declining economy.
The Organisation for Economic Co-operation and Development said the South African economy could shrink by 8.2% if another wave of Covid-19 hits the country. The organization offered recommendations for growing the economy post-coved, including cutting the salary of civil servants to below inflation and easing regulatory restrictions.
Some numbers for people who like numbers:
The Dow Jones Industrial Average closed at 26,429 down 0.2% for the week
S&P 500 closed the week up 1.8% ending at 3,271
Nasdaq was up 3.7% from the previous week ending at 10,745
MSCI EAFE closed at 1,820 down 2.1%.