June 26, 2020 - Stocks lost ground this week.
Wednesday and Friday were big down days, with the exception of the last hour of trading Thursday, the market generally felt heavy, like it just wanted to go down more than it wanted to go up.
Rising coronavirus cases in a number of states, including what seem to be massive outbreaks in Texas, Arizona and Florida, helped contribute to the negative sentiment.
The market only cares about sick people indirectly though, so it isn't the number of cases that caused the market to slide, it is what the rebound in cases means for the rest of us, and our spending habits.
Traditional economic data continues to be pretty noisy, and is oftentimes outdated by the time it gets compiled and released. We've started looking at some alternative sources of economic data that while not as detailed as the traditional reports, are much closer to real-time. We talked about some of these sources and dug into them in detail in our workshop on Wednesday.
One of those data sources is the number of passengers screened each day by the Transportation Security Administration. That data shows the number of passengers is still rising, but the growth rate is slowing. With air travel still nearly 80% below where it was a year ago, that slowing growth rate means it will take even longer to get back to "normal" passenger levels.
Meanwhile, JP Morgan Chase, which publishes data about credit card usage, reported today that spending at restaurants is highly correlated with a jump in coronavirus cases three weeks later.
We discussed some of this data in more detail on Wednesday, in particular, parts of the report show very little variation in card spending between states that had strict quarantines, those had opened early, and those that never put such measures into place.
This is where new outbreaks start to really hit home for the economy. If people cut back on spending regardless of stay-at-home orders, then outbreaks in some places will have economic effects in others.
The governors of Texas and Florida both announced rollbacks of some of their re-openings Friday, but Texas and Florida aren't the only states where these new outbreaks are likely to constrain consumer spending.
The damage to corporate earnings, which is the basis for stock prices, is starting to show up in earnings reports. KB Homes (KBH) reported big misses on the top and bottom lines, while also providing weaker-than-expected guidance for its current quarter. Nike (NKE) also reported a big miss, reporting a large, unexpected, loss for the quarter.
These companies aren't on the more-standard calendar quarter, which ends with June next week. It will take another week or two for earnings reports to start to roll out, but expect some big surprises. A very large number of companies declined to provide guidance after the first quarter, and as we mentioned above, economic data has been very noisy during this period. This makes analyst estimates potentially less reliable than usual.
The best thing for the economy and the market would be for these current outbreaks to be quickly controlled and for no new ones to pop up. This means one of the best things investors can do for their portfolios is to avoid large gatherings, particularly indoors, and wear a mask when in public.
All told this week, the S&P 500 lost 2.86%, the Nasdaq fell 1.9% and the Dow Jones Industrial Average fell 3.31%.