Aug 7, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

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🎙“Death is nothing, nor life either, for that matter. To die, to sleep, to pass into nothingness, what does it matter? Everything is an illusion.” - See who said it and why it matters at the bottom.

1 big thing: The buy-anything market

Illustration: Aïda Amer/Axios

The Nasdaq closed above 11,000 for the first time on Thursday, ending the session higher for the seventh time in a row and eighth session in nine. It has gained nearly 10% since July 1.

Why it matters: It's not just tech stocks that have rallied recently. Just about every asset class has jumped in the third quarter, including many that typically have negative or inverse correlations to each other.

What's happening: Big Tech stocks on the Nasdaq have surged, but small-cap stocks also have gained with the Russell 2000 up nearly 8% during the quarter.

  • So-called reopening stocks — companies like airlines and cruise ships that benefit from consumers returning to normal activity — have gained but so have stay-at-home stocks.
  • Oil is up more than 7% since the start of Q3 and emerging market stocks and currencies have both jumped in value.

The intrigue: Stocks, oil and EM are typically favored when investors are in risk-on mode, but safe-haven plays generally sought in times of market stress also have delivered strong returns this quarter.

  • The benchmark U.S. 10-year Treasury yield has declined 15 basis points from its July 1 level and 30-year bond yields have fallen by 23 points.
  • The German 10-year yield, considered the benchmark for safety in Europe, has fallen 14 basis points.
  • Precious metals, like gold and silver, have boomed, with gold rising to a fifth straight record high on Thursday, well above $2,000 per troy ounce.

Between the lines: The rally is happening as news about the U.S. and global economy worsens with the coronavirus pandemic claiming more lives and threatening more businesses across the globe.

  • Tensions in the U.S.-China trade war also have increased, and tariffs continue to weigh on company margins.
  • In the U.S., earnings are on pace for the worst quarter since 2009, according to FactSet.

The state of play: Many active investors are stumped by the market and are resigned to simply sit on the sidelines in cash while others are jumping into new products like so-called buffer ETFs, which function almost like annuities.

  • The buffer ETFs limit investors' losses but also cap their gains, making them a sort of "defined-outcome" fund, targeted toward retail investors and financial advisers, Karen Hube of Barron's writes.
  • Bloomberg's Katherine Greifeld notes that investors have poured more than $2.2 billion into buffer ETFs this year.
Bonus chart: The silver surge continues
Data: FactSet; Chart: Axios Visuals

Silver futures on the New York Mercantile Exchange rose 8.3% Thursday. Year to date the precious metal has risen by 59%, and is up 56% in the third quarter.

2. Catch up quick

President Trump signed an executive order prohibiting U.S. residents from doing any business with ByteDance's TikTok or Tencent's WeChat, beginning 45 days from now. (Bloomberg)

The number of coronavirus infections across the U.S. is showing signs of slowing, with an average of 50,000 new cases, down from the 70,000 seen during the mid- and late-July peak. (The Hill)

The average estimate for July nonfarm payrolls is for a gain of 1.48 million jobs, according to Bloomberg, but analysts' predictions run the gamut from 3 million jobs gained to 1 million jobs lost. In the last three months the closest estimate missed by 1.4 million jobs in May, according to DRW Trading rates strategist Lou Brien.

3. Jobless claims show unemployment shifting, not falling
Data: Department of Labor; Chart: Andrew Witherspoon/Axios

Thursday's jobless claims report showed U.S. unemployment appears to be turning a corner, but it may not be the one those anxious for an economic recovery are hoping for.

What happened: Unadjusted initial jobless claims for the week ending Aug. 1 fell below 1 million for the first time in 20 weeks, while the number of people receiving traditional unemployment benefits fell below 16 million for the first time in 17 weeks for the week ending July 25. (Continued claims are reported with a two week lag.)

  • The number of Americans receiving benefits through the Pandemic Unemployment Assistance program dropped to 13 million as of July 18, the lowest since June 13.

Yes, but: The number of people receiving some form of unemployment insurance from the government as of July 18 rose to 32.1 million, up by 1.3 million from the previous week.

  • That's because fewer people are applying for traditional unemployment benefits, and more are moving to extended unemployment programs like the Pandemic Emergency Unemployment Compensation program and the Short-Term Compensation program.
  • While less than 90,000 people had qualified for these extended programs as of the week ending April 11, there were 1.5 million recipients for the week ending July 18.
  • That number nearly matched the total number of people claiming benefits in all unemployment programs during the comparable week in 2019.

Why you'll hear about this again: "There are 14 million more unemployed workers than job openings," EPI senior economist Heidi Shierholz says.

Watch this space: The coronavirus pandemic has caused a "reallocation shock," economists at the Chicago Fed write in a new blog, and that could increase unemployment by up to 4 percentage points and keep it elevated for two to three years.

  • "Because the pandemic has had disproportionate effects on different industries, it may lead to a reshuffling of workers across those industries."
  • "Because inter-industry reallocation is more difficult and time-consuming than within-industry reallocation (due, e.g., to necessary retraining and relocation), the reallocation induced by the pandemic may lead to a higher level of unemployment for a more extended period."
4. Jobless claims boost New York Fed's economic index
Data: New York Fed; Chart: Axios Visuals

The New York Fed's Weekly Economic Index was adjusted higher for the week ending Aug. 1 driven by a decline in initial jobless claims below 1 million and "increases in rail traffic and tax withholding, which more than offset decreases in fuel sales and electricity output."

5. Household debt, credit delinquencies dropped during Q2 recession

Reproduced from New York Fed Consumer Credit Panel; Chart: Axios Visuals

Americans cut back on credit cards and increased savings during the worst three-month economic period in U.S. history, as household debt fell for the first time in six years, data from the New York Fed showed.

By the numbers: Total debt declined 0.2% to $14.27 trillion in the second quarter, led by a $76 billion drop in outstanding credit-card balances.

  • Mortgage borrowing rose by $63 billion in the quarter to $9.78 trillion. Almost 70% of mortgage originations were among borrowers with a credit score of at least 760, the highest percentage since record keeping began in 2003.

Between the lines: The number of borrowers in distress fell significantly in the second quarter, but that was largely due to government relief efforts, including $1,200 one-time payments, enhanced unemployment benefits and loan forbearance programs included in the $2.2 trillion CARES Act.

  • The serious delinquency rate on consumer debt fell by half between the end of March and the end of July, to 0.7%, data from Equifax show.

What they're saying: “Protections afforded to American consumers through the CARES Act have prevented large scale delinquency,” said Joelle Scally, senior data analyst at the New York Fed.

  • “However, these temporary relief measures may also mask the very real financial challenges that Americans may be experiencing.”

Of note: The largest decrease in delinquencies of at least 90 days was in student loan debt, which was paused by the CARES Act. It fell to 7% compared with almost 11% in the first quarter.

  • Delinquencies of at least 90 days on credit cards, which were not paused by the CARES Act, rose to nearly 10%, the highest level since the second quarter of 2013.
Dion Rabouin

Thanks for reading!

Quote: “Death is nothing, nor life either, for that matter. To die, to sleep, to pass into nothingness, what does it matter? Everything is an illusion.”

Why it matters: On Aug. 7, 1876, famed Dutch exotic dancer and German spy Mata Hari was born in the Netherlands.

  • Mata Hari's life as a dancer moonlighting as a lethal double agent who used her powers of seduction to extract military secrets made her an enduring archetype of the femme fatale for years after her death by firing squad.
  • Her life inspired films, books, plays and at least one ballet.