Hi there—here is this week's update!
TL;DR - Too Long Didn't Read
-We saw the highest daily COVID spike this week in the US
-The markets are worried, and the S&P is now negative for the month
-Already bad unemployment numbers seem to be worse than reported
-While nobody has a crystal ball, it’s looking like the markets have started to lose steam
• Thursday was the highest single-day increase of new US COVID cases ever recorded (37,000).
• Texas, Florida, North Carolina, Louisiana, and Kansas are pausing their reopening plans, while California’s Governor, Gavin Newsom, warns of another shutdown. The EU moves to potentially bar US travelers from entering.
• Dr. Fauci, the nation’s top infectious disease expert, testified to congress that the virus is not under control, as the United States sees a “disturbing surge” in new cases.
Wall Street vs. the Stock Market
• The S&P 500 is now negative for the month of June, as of Friday.
• “The equity market does seem to be a little bit ahead of my view of the future earnings performance of businesses” – David Solomon, CEO at Goldman Sachs
• “I have money on the sideline…I’m not putting it to work here” – Mohamed El-Erian, chief economic advisor at Allianz
• “Stocks have been priced for perfection, but things remain far from perfect. [They] are far from being out of the woods.” – Scott Minerd, CIO at Guggenheim Partners
Unemployment Miscalculated and Underreported
• US weekly jobless claims hit 1.5 million, higher than economist forecasts.
• The current unemployment rate is likely higher than reported due to how The Bureau of Labor Statistics (BLS) collected its data. The BLS admitted to severely undercounting workers who were unemployed on temporary layoff, which lead to May’s reported unemployment rate being 3% lower than the 16.3% actual unemployment rate.
• This statistic also does not include the nearly 6 million workers who have dropped out of the workforce since February, as their chances of finding a job in the current economy dwindled.
• Another week, another irrational bankruptcy rally. Despite the company's warning that their turnaround plan will wipe shareholders out, GNC's stock rose as much as 71% Thursday after announcing their chapter 11 bankruptcy filing.
• Thirteen US companies sought bankruptcy protection last week, which matched the peak of the global financial crisis in 2009.
It looks like market volatility is here to stay.
The rally that stocks have seen over the last three months may be losing steam. The sentiment across institutional investors seems bearish, economic data is still bleak, and we’re seeing a spike in COVID cases.
Companies are going bankrupt at an alarming rate, which is very concerning for the economy and broader markets.
While we aren’t saying that the markets will crash tomorrow—because there is still abundant liquidity provided by the Fed—we believe it’s only a matter of time before we retest March’s market lows.
We’re staying prepared on our end, and we’ll see you next week!
-The Round Team
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