You can find reports from our Investment and Research team, timely and informative financial planning topics from our Wealth Management team, and deeper dives on various important topics in our white papers from any team member. Read online, share with friends, or download for your convenience.
This month we finally received confirmation of what we already know - U.S. economic activity has declined substantially. As I mentioned a couple of months ago, we were in a very unique position where we knew economic activity was going to decline sharply way before we could see the data to confirm it. While the data is not encouraging, it is backward-looking. Our focus is on the future.
Allegiant’s Economic Dashboard for May shows four red indicators and two green indicators. After flashing three red indicators two months ago, the Dashboard now solidly suggests we are in a recession. It will take some time for the official announcement from the National Bureau of Economic Research (NBER) but make no mistake - the quick decline of economic activity is severe.
Phases of the Economic Impact
The official recession may not last long, but the total economic impact from the COVID-19 pandemic will be much longer. In order to better analyze the impact, we believe it is best to break it into three distinct phases. Phase 1 is the “Severe Decline” phase as many parts of the economy are shut down. This mitigate and contain phase is where we have been for the past 6 weeks. Now we are shifting to Phase 2, monitoring and adapting. During this “Initial Bounce Back” phase businesses begin cautiously reopening. Lastly, we will enter Phase 3, aptly named the “Road to Recovery” phase. Here growth will moderate from the initial bounce-back of Phase 2. During Phase 3 consumers and businesses will adjust to the longer-term reality of the new normal of living through a pandemic.
While there are uncertainties around timing and intensity, we largely know what Phase 1 and 2 will look like. There is much more uncertainty surrounding Phase 3. After the initial bounce back will the economy continue growing? Is it stable and gradual growth or is it lumpy? How does consumer behavior change? How do businesses adjust? Will we have additional outbreaks? What happens to all the newly issued debt? There are many questions to answer over the coming quarters. During this time, it will be more important than ever to examine the new data to identify transition points. As I explained in Quadrants of Possibilities, economic data will remain bad for a while. More important than waiting for good data releases, we are looking for the data to transition from bad and weakening to bad and improving.
Markets are Forward-Looking
By: Paul Cantor, CFA®, AIF®, CFP™
Chief Operating Officer, Principal
I was recently asked by friends why my economic and market outlook was tinged with some concern. It was a valid question from some very intelligent non-financial professionals. The financial media is filled with positive bias as they cheer Apple becoming the first company in history to reach a $1 trillion-dollar market capitalization. Additionally, we just posted the strongest GDP growth that we have seen in years of 4.1% for the quarter. The stock markets hover at near record highs. Consumer confidence is bordering on ebullient. S&P 500 earnings are estimated to grow by nearly 23% for the quarter. Corporate managements are repatriating funds from overseas and buying back stock at unprecedented rates supporting both stock prices and earnings growth. According to S&P Global Rankings, “Total cash held by U.S. nonfinancial companies, including money parked domestically and overseas, rose 9% to a record $2.07 trillion.”1 The unemployment rate ticked down to a new low of 3.9%, the lowest we’ve seen in over 17 years.
Consumer and corporate balance sheets are ostensibly in terrific condition. We are enjoying the second longest economic expansion since 1945 according to the National Bureau of Economic Research. So, why the concern? This paper will add some perspective, looking deeper into the averages to show why they could be fallacious.
Click here to read our full white paper: The Fallacy of Average.
A Review of Debt-Related Financial Crises
By Paul Cantor, CFA, AIF®, CFP®
Chief Operating Officer, Principal
The purpose of this new white paper is to present answers to the questions:
These questions are critically important to numerous stakeholders for a variety of reasons. Academics are concerned that current policies are inconsistent with sustained economic growth. Regulators and international financial institutions are concerned that current and future increasing debt levels are harbingers of future crises. Portfolio managers are concerned about preserving client assets in times of crisis while earning acceptable returns during periods of economic growth. Individuals care because their lifetime savings might be at risk. Click here to read "The Debt Albatross."
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