This week started with a bang! Many equity markets were up +3% on Monday. Investors seem comfortable for a “risk-on trade” adding to stocks. This came after very positive, yet cautious, comments Sunday evening from Jerome Powell (Chairman of the Federal Reserve) as well as promising COVID vaccine advances.
Specifically, Moderna’s vaccine efforts were advanced to FDA Phase II trials. If a vaccine proves effective, it is game-set-match against COVID-19. Vaccine expectations may be considered high. Should development fall short, a stock market pullback will likely follow.
The stock market is experiencing a V-shaped rebound. The bond market is a little more cautious with a U-shaped upturn. The general economy is likely to see a U-shaped recovery. Although the financial markets and the economy are interconnected, they don’t move in lockstep.
In addition to vaccine development, the stock market is focusing on pent-up demand and the green shoots that point to individuals’ desire resume their lifestyles. A recent National Restaurant Association survey indicates a high desire to consume meals outside the home.
Further, home search website Zillow has recognized a significant uptick in home searches over 2019. Home searches are a precursor to homes sales. Homes sales are often an indicator of consumer confidence and future economic activity. Early green shoots? Very likely.
Other early indicators are TSA passenger daily throughout and energy demand. Throughput is up almost 200% from a month ago, while demand for gasoline and diesel fuels are trending higher. Near-term evidence suggests normal routines are returning.
At the same time, COVID-19 communicability has not been forgotten. Many regional surveys have noted an apprehension to pre-COVID-19 normalcy with small progressive steps. Life’s first lesson, learning to walk before running, seems to be the wisest course of action to replicate. In aggregate, the economic revival is pointing towards a U-shaped recovery mostly due to cautious consumers.
With the unofficial start to summer upon us, have a wonderful Memorial Day weekend!