DIFFERING VIEWS OF REOPENING ABSENT OF A POLITICAL LENS

Trading was very volatile yesterday. The Dow led by the beaten down energy and financial sectors led this marquee higher by 1.5%.

Earlier in the day, the Dow fell almost 400 points, the result of weekly jobless claims that exceeded estimates by over 500,000, increasing by almost 3 million. In eights weeks more than 36 million jobs have been lost. To put things into perspective, the single worst week after the crash of 2008, claims reached just 665,000.

The week of March 27 and April 3 the economy lost 6.8 million and 6.6 million jobs, respectively.

Several bulge bracket firms have adjusted their second quarter forecasts. Goldman is now suggesting 2Q growth will slump by 39% and the unemployment rate will reach 25%. JP Morgan is now predicting a 40% annual drop in output and a 20% unemployment rate.

These numbers are unfathomable.

All are expecting a very strong rebound during the third quarter rebound.

Speaking of rebound, crude closed up almost 9% closing at the highest level in five weeks on OPEC cuts and demand optimism. The IEA stated demand is “moderately stronger than expected” while BP said consumption has surged this week as cars return to the roads.

Yesterday I read some remarks suggesting oil within the next 60-90 days could rebound back to $50/barrel or where it stood in the last week of February. Crude closed yesterday around $28/barrel up from -$38/barrel several weeks ago.

Wow!

Radically changing topics, reopening has now become a very political. I would like to phrase it differently as to where one is employed.

According to a story on Bloomberg approximately 82% of small businesses wish to reopen. Conversely about 90% of tech and government workers wish to remain closed.

[Note: According to a pool utilized in this article 92% of Democrats are in favor of maintaining the lockdown. Republican support declines to forty five percent]

This data should not surprise anyone given the ability for technology employees to work from home and a guaranteed paycheck of working for the government.

I think it is noteworthy to write approximately 48% of the country is employed by small businesses.

I ask a different question. I believe the next major crisis will be in state and local government. NJ stated its April revenues plunged by 60%. New York City had a $9 billion deficit. It is not a question if jobs will be eliminated but as to how much. Likewise, with raises and other benefits.

A case in point, late yesterday afternoon, California’s Newsome proposed a budget that’s slashing spending about 9% , cuts state workers’ pay 10% and said that most of the government can’t be spared from deeper pain unless the federal government offers considerable assistance.

The vitriol will be intense.

I cynically ask if municipal employees knew of the impending economic storm would they continue to support the lockdown or would they view the lockdown more pragmatically, similarly to the view of the small business person?

What will happen today?

Last night the foreign markets were mixed. London was up 0.62%, Paris up 0.20% and Frankfurt up 1.05%. China was down 0.07%, Japan up 0.62% and Hang Sang down 0.14%.

The Dow should open nominally lower on further signs of strained relation between America and China. Crude is headed for its third weekly gain. Italy and Germany are moving further toward allowing free movement within their societies. The 10-year is up 6/32 to yield 0.60%.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.