May 12, 2020

Axios Markets

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ūüéô ‚ÄúThe technical man must not be lost in his own technology; he must be able to appreciate life, and life is art, drama, music and most importantly, people.‚ÄĚ - See who said it and why it matters at the bottom.

1 big thing: Americans don't trust the Fed, especially Democrats

Data: Ipsos/Axios survey; Chart: Andrew Witherspoon/Axios

The Federal Reserve's unprecedented response to the coronavirus outbreak has not helped it win the battle for public opinion.

Why it matters: As an unelected institution that has been granted the power to independently oversee monetary policy by Congress, the Fed's power "is contingent on securing as well as maintaining broad political and public support," Mark Spindel and Sarah Binder wrote in their 2017 book "The Myth of Independence: How Congress Governs the Federal Reserve."

One level deeper: Mistrust of the Fed defies age, race and even education level, as a majority of respondents across the board say they either had not very much or no trust at all in the central bank.

  • Just 7% of respondents say they trust the Fed a great deal, compared to 16% who say they do not trust the Fed at all.

The big picture: The survey comes at a time when the Fed should be at its most popular ‚ÄĒ chair Jerome Powell led an early and effective response to the pandemic that stopped a market panic and returned liquidity to the global financial system.

Between the lines: In a separate study conducted by data firm CivicScience, 42% of respondents said the Fed had done somewhat or very well in responding to the COVID-19 crisis, while 34% said the Fed had done poorly.

  • 16% said the Fed had done very poorly, compared to 14% who said very well.
  • 24% of respondents said they weren't sure or had no opinion.

Don't sleep: Politicians have long targeted the Fed for wielding undue influence over the economy and for bailing out Wall Street after the 2008 financial crisis while ordinary Americans lost their homes and life savings.

  • Powell has taken great strides to improve the Fed's recognition and standing with the public, including holding press conferences at every policy meeting, creating the "Fed Listens" town hall series, and appearing on television shows like NBC's "Today."

Flashback: The Fed's popularity is lower than it was in 2014 when a Pew Research study found 47% of Americans held a favorable view and 37% had an unfavorable view.

  • With President Obama in office and his nominee, Janet Yellen, as Fed chair, Democrats had far more positive views than Republicans, in contrast to today.

The bottom line: Despite historic job losses and a recession expected to be the worst since the Great Depression, many Americans remain optimistic about the future.

  • If that tide turns and politicians refocus their ire on the Fed, it will have built negligible public support and its independence could be in danger.
2. Catch up quick

BlackRock's largest shareholder, PNC Financial, said it is exiting its stake in the firm, allowing BlackRock to eschew certain restrictions on shareholder voting and avoid some regulatory burdens. (WSJ)

Undisclosed White House data show COVID-19 infection rates hitting new highs in cities like Des Moines, Iowa, and Amarillo, Texas, while Charlotte and Kansas City have seen 200% increases over the prior week. (NBC News)

In a best-case scenario, just half of Americans say they would participate in a voluntary coronavirus "contact tracing" program tracked with cellphones. (Axios)

3. Americans' stock market expectations hit all-time high

Data: Federal Reserve Bank of New York; Chart: Naema Ahmed/Axios

The New York Fed's April survey of consumer expectations released Monday shows a "considerable deterioration in households’ expectations about most economic outcomes," but even higher expectations for stock prices to rise than the last record high in March.

What's happening: Nearly a third of Americans expect their own household financial situation will be worse in a year, the highest level on record.

  • The survey also shows increased fear of job loss and historically low expectations for income and spending. Plus, there are expectations for more difficulty getting credit and higher debt delinquencies in the next year.
  • For the first time since the survey was launched in 2013, the median respondent did not expect home prices to increase over the next year.

Yes, but: Despite the rally since U.S. stock prices hit their cycle low on March 23, confidence that stocks will be higher a year from now was the highest it has ever been.

  • The expectation for stock prices to increase hit record highs for all ages, income levels and regions.
4. U.S. earnings could be world's hardest hit by coronavirus

Expectations for U.S. stock earnings in the first quarter are the lowest since the global financial crisis, and may suffer more than global peers this year.

What's happening: Blended estimates imply a -13.7% decline in S&P 500 earnings, while in Europe, Japan and emerging markets the fall has been much bigger, "of the order of -31 to -34%," Deutsche Bank research analysts write in a note to clients.

But, but, but: Having been hit earlier by the coronavirus outbreak, companies in Europe, Japan and emerging Asia are on pace to deliver horrific Q1 numbers but are expected to see better earnings than the U.S. as the year progresses.

  • "Since earnings season began, the bottom-up analyst consensus has downgraded earnings for Q2 and for 2020 as a whole by more for the US (-10.5%) than it has for Europe (-8.8%) and EM (-7.6%)," Deutsche's chief global strategist Binky Chadha and other top strategists note.
  • "For EM, led by China, the bottom up consensus sees earnings as having already bottomed in Q1, with a strong rebound expected in Q4 this year."

Watch this space: As earnings have tumbled, U.S. companies' price-to-earnings ratios have soared to near the highest since the dot-com bubble burst.

  • The S&P's 12-month forward P/E ratio has risen to 20.4, well above its five-, 10- and 20-year averages and the highest since 2001, but still below a peak of 23.4 touched in September 2000, according to FactSet data.
5. Freight volume hits all-time low

Data: Association of American Railroads; Table: Axios Visuals

Already facing an industry-wide recession coming into the year, the coronavirus pandemic has leveled the global transportation industry and pushed U.S. freight volume to its largest year-over-year percentage decline since the Association of American Railroads began collecting data in 1989.

By the numbers: The total number of originated carloads on U.S. railroads last month averaged 196,107 per week, "easily the lowest weekly average for any month since before January 1988, when our data began," AAR analysts wrote in the latest monthly assessment of the industry, "Real Time Indicators."

  • "In fact, the five months from December 2019 through April 2020 are the five lowest-volume months (measured by weekly average total carloads) since before 1988."
  • "In April 2020, total carloads were down 25.2%, or 329,693 carloads, from last April. That‚Äôs the biggest year-over-year monthly percentage decline since our data began."
6. Americans are doing more saving
Data: CivicScience; Table: Axios Visuals

Nearly 40% of all respondents and 47% of those who say they’re still working reported saving the government stimulus payment they received, a new survey of over 3,000 U.S. adults from CivicScience finds.

Why it matters: "This is a shift from prior studies indicating that paying down debt/bills and buying necessities were higher priority than saving for those planning to receive payments," CivicScience analysts note.

Between the lines: Their survey also finds 31% of U.S.adults who were employed before the pandemic have been laid off, furloughed or are working reduced hours.

  • This group was the most likely to say they paid off debt and/or bills.

Something to talk about: Only about 5% of respondents reported not working but still receiving regular pay. That group had radically different responses to the survey including significantly higher rates of investment.

Thanks for reading!

Quote: ‚ÄúThe technical man must not be lost in his own technology; he must be able to appreciate life, and life is art, drama, music and most importantly, people.‚ÄĚ

Why it matters: Fazlur Khan, an architect who designed the Sears Tower, the tallest building in the world from 1973 until 1998, and the 100-story John Hancock Center, ushered in a renaissance in skyscraper construction during the second half of the 20th century.

  • In his honor, the Council on Tall Buildings and Urban Habitat established the Fazlur Khan Lifetime Achievement Medal, as one of their top annual awards.
  • Khan's work was cited by President Obama in 2009 as among the great achievements of America's Muslim citizens.

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