Nov 19, 2020

Axios Markets

☀️ If this newsletter was forwarded to you, sign up here. (Today's Smart Brevity count: 1,053 words, 4 minutes.)

💬 “The world will little note, nor long remember what we say here, but it can never forget what they did here." — See who said it at the bottom.

1 big thing: Split speed of economic recovery
Reproduced from the Leuthold Group; Note: Subdivides the total U.S. unemployment rate between four sectors with the lowest average hourly earnings and the remaining nine sectors; Chart: Axios Visuals

Job recovery is arriving much faster for workers in America’s highest earning industries.

Why it matters: The bottom earning industries are nowhere near recovered — right as the economy faces another test from the pandemic.

  • Meanwhile, high earning industries have an unemployment rate that’s approaching normal.

Flashback: The unemployment rate in the highest and lowest earning industries was within a tight range, 3% and 3.5%, respectively, according to investment research firm the Leuthold Group. (Bottom earning sectors have historically seen slightly higher rates of unemployment.)

  • Then the gap exploded when COVID-19 forced the initial wave of widespread lockdowns in the spring.
  • High earning sectors’ unemployment rate rose to 12%. But it was nearly twice as bad for the lowest earning industries, with unemployment peaking at 23%.

Details: Industries like retail, leisure and hospitality, agriculture and nondurable goods are the bottom earning industries.

  • Top earning industries include finance, durable goods, and professional and business services.

Between the lines: The unemployment rate among the low earning sectors remains 6 percentage points above its pre-pandemic level.

  • Recovery is in reach for the high earning industries, with unemployment just 2.5 percentage points higher than pre-crisis levels.

Where it stands: More than half of currently unemployed Americans worked in the bottom earning industries, even though they represent only 24% of the workforce.

What they're saying: With soaring COVID-19 cases leading to restrictions across most of the country, analysts expect the lowest income industries to once again take a bigger hit to employment.

  • "Similar to the summer’s second wave, high-earner, mostly anti-social industries (three-quarters of employment and a higher proportion of total income and spending) will likely again prove largely impervious,” Jim Paulsen, chief investment strategist at the Leuthold Group, wrote in a research note on Wednesday.
  • This could explain why the U.S. might not see as big an economic drag as the coronavirus rages across the country.
  • Top earning workers “quickly and decisively entered a new [economic] expansion — even though 55% of the unemployed still struggle with extremely challenging conditions,” says Paulsen.
2. Catch up quick
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Data: The COVID Tracking Project, state health departments; Map: Andrew Witherspoon, Sara Wise/Axios

Over the past week, the number of new coronavirus infections rose in 46 states, held steady in three, and declined in only one — Hawaii. (Axios)

PG&E named Patti Poppe as its new CEO, the company’s third new chief executive in almost three years. (WSJ)

Affirm is is the latest unicorn to file to go public as the year draws to a close. (Axios)

3. Fund managers are ultra-bullish on stocks

Fund managers surveyed by Bank of America are more optimistic about the stock market now than they’ve been in more than two years.

  • The bank surveyed 216 fund managers who collectively oversee $573 billion.
  • Worth noting: The survey began as U.S. election results trickled in. It was still in progress when Pfizer and BioNTech released promising data about the efficacy of their coronavirus vaccine.

What they’re saying: “We say 'sell the vaccine' in coming weeks and months as we think we're close to 'full bull,'” Bank of America strategists wrote in a note responding to the survey’s results.

Details: A net 46% of fund managers are overweight equities — the highest share since January 2018.

  • A net 6% are taking higher than normal risk levels — another high dating back to January 2018.
  • Fund managers’ cash holdings fell below the pre-pandemic level — and are at the lowest in five years.

On the shape of the economic recovery ... 39% of investors believed there would be a “double-dip” recession, or W-shaped recovery. 24% said it would be U-shaped, while another 23% said the recovery would be V-shaped. (Notably missing: the “K-shaped” recovery.)

4. Southwest CEO: 737 MAX most scrutinized plane ever

In an “Axios on HBO” interview, Southwest Airlines CEO Gary Kelly told Axios’ Felix Salmon he believes the Boeing’s 737 MAX is safe — but will work to reassure customers of its safety.

Why it matters: Fliers may not just be wary because of COVID-19. They may also be afraid to board that MAX, after its software malfunctioned causing two crashes that killed hundreds.

  • Southwest has more 737 MAX jets than any other domestic carrier.

Driving the news: The FAA said the embattled plane could return to the skies, following the longest grounding in aviation history spurred by the two fatal crashes.

What they’re saying: “Aviation is the safest way to travel, and has been for decades. It is heavily, heavily regulated and with very skilled people involved,” says Kelly. 

More from the exchange...

Kelly: Can mistakes happen? It's a human endeavor, so yes, they can. But if you just take the MAX as an example that we talked about earlier, it has been the most heavily scrutinized airplane in the history of mankind.

Salmon: Could have used some of that scrutiny before it crashed. 

Kelly: Well, I think we all recognize that we wish we had then what we have now, there's no question. But we are where we are. And the fact of the matter is, we believe, based on very sound facts and judgment that it is a very safe airplane.

Kelly also said Southwest will do its part to reassure passengers who may be wary about the 737 MAX:

  • “We'll need to communicate. We'll need to explain. We'll need to have credible experts, like pilots who are in a position to explain. Whether people are, in turn, reassured is a different question.”

📺 Catch the full "Axios on HBO" interview with Southwest Airlines CEO Gary Kelly and much more on Monday, Nov. 23 at 11pm ET/PT on all HBO platforms.

5. Bitcoin’s surge
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Data: Coin Metrics; Chart: Sara Wise/Axios

Bitcoin's market cap — the amount of bitcoin in the world multiplied by its current price — is at an all-time high, CoinDesk’s Zack Seward writes for Axios.

Driving the news: A recent embrace by PayPal and other mainstream figureheads along with expansionist Fed policy and a weaker dollar have sent individual bitcoin prices yesterday to a 2020 high of $18,350.

By the numbers: Despite being more than a grand shy of its all-time high of $19,666 on Dec. 17, 2017, bitcoin’s recent market cap is a record $328 billion, about $10 billion less than Mastercard.

  • Bitcoin is up 145% on the year, far outperforming most stocks.

Sleeper theory: Also lurking behind Bitcoin’s recent price surge is a supply crunch from bitcoin miners in China.

  • Chinese firms that do 70% of the computational work verifying transactions on the bitcoin blockchain have had bank accounts frozen as part of a Chinese government crackdown on fraud.
  • “Currently, 74% of the miners are facing difficulty liquidating their holdings to meet electricity expenses,” CoinDesk’s Omkar Godbole writes, citing a source in China.

👋 See you back here tomorrow.

Quote: “The world will little note, nor long remember what we say here, but it can never forget what they did here.”

Who said it: The quote is from the Gettysburg Address, which Abraham Lincoln delivered on this day in 1863.

  • The historic speech — which was fewer than 275 words, or roughly the same length as the fourth item in this newsletter — was given near the site of the deadliest and most decisive battles of the Civil War.