Before the coronavirus, the US economy was on pace to measure a 3% annualized first quarter growth rate. Analysts are now suggesting 1Q growth to contract by 4.0%.

But the second quarter is going to be worse. How much worse? No one really knows. Since 1947 the worst quarter was 1Q58 when GDP contracted by 10% on the heels of the Asian Flu.

Some are suggesting a drop of about a 30% annual rate, rivaling declines following the end of WWII and the Great Depression.

Unemployment is expected to broach 20%, eclipsing the 10.0% rate in 2009 and 10.8% in 1982.

To combat the government mandated shutdown of the economy, the current budget deficit is expected to reach $4 trillion or roughly 18% of GDP. To place this amount into perspective, in 2009 the deficit was 9.8% of GDP and in 1943 it was 29.6%.

These numbers are unfathomable.

I believe the leading indicator of the recovery will be jobs. I ask has Senator Schumer and Congresswomen Pelosi just impeded the job rebound via their insistence that the next stimulus bill not contain any corona virus liability protection to companies who hire workers back? This is absolutely nuts!!

Talk about pandering to the plaintiffs’ bar!

Some believe Schumer’s and Pelosi’s instance on the lack of liability protection is the counter argument to Senate Majority Leader McConnell’s view of not bailing out spendthrift states.

I ask a different question? How will the Democratic leaders in fiscally conservative Virginia respond to bailing out free spending Democratic New Jersey? Will this issue divide the Democratic Party?

Speaking of fatigue, according to MetLife—the largest US insurer—money was the top concern for 52% of full time US workers, compared with 44% who were most anxious about health. Four weeks ago, Pew indicated 84% of respondents top concern was health.

Moreover, 25% of people surveyed by the LA Times indicate they are at “wits end,” up from 16% on April 16. The same survey indicated by mid-June 72% would be at this point.

How will this data influence government policy, policy that I believe is draconian given real time data that has nullified earlier assumptions and conclusions?

Radically changing topics, the Dow was flat but the NASDAQ declined about 1.0%. According to Bloomberg, for the second consecutive day small caps outperformed the mega cap by margins not experienced in over 11 years.

Is this a start of a trend given that the smaller companies may reopen before the mega sized firms? Only history can answer this question.

Last night the foreign markets were mixed. London was down 0.85%, Paris down 0.17% and Frankfurt up 0.32%. China was down 0.10%, Japan down 0.06%, and Hang Sang up 0.28%.

The Dow should open nominally higher on a flood of corporate results. Little is expected form today’s Fed meeting. The 10-year is up 10/32 to yield 0.58%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. 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. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.