Hi there—here is this week's update!

TL;DR - Too Long Didn't Read

-GDP had a historic drop
-US consumers are losing confidence
-There is a negative feedback loop happening with consumption behavior

COVID-19

New cases accelerated for the sixth week in a row.

This week alone, there were four straight days of 1000+ deaths, with 1400 deaths on Wednesday surpassing the highest single day tally in more than two months.

GDP

The GDP is the total value of the goods and services in America.

2^nd Quarter GDP figures were released, showing the largest drop on record since quarterly data started being tracked in 1947. GDP provides important insights into the general health and growth of our economy.

About 2/3^rds of GDP is derived from consumer spending alone, a metric which also slumped the most on record, by 34.6% to be exact.

Consumer Confidence

The US consumer is losing confidence.

July’s Consumer Confidence Index decreased, with the largest detractors coming from Michigan, Florida, Texas, and California. The same states with surges in COVID-19 cases.

Only 31.6% of consumers expect business conditions to improve over the next six months.

Labor Market

After consistently decreasing for the last three months, the number of Americans filing for unemployment benefits increased for the second straight week.

For perspective, the 1.43 million claims equates to more than double the amount of claims filed during the worst week of the 2007-2009 financial crisis.

As touched on in prior updates, this does not include the 900,000 applications for Pandemic Unemployment Assistance, which extends aid to those who do not qualify for unemployment benefits. This ultimately makes the labor market situation worse than what is being reported on paper.

Summary

There is a negative feedback loop happening right now:

1. COVID-19 resurgence affecting consumer confidence and consumption behavior.
2. Rising unemployment from states reversing their reopening plans and companies downsizing or going out of business.
3. Consumers are facing an income squeeze from pay cuts, layoffs spreading to larger corporations, and soon to be expiring government aid as we covered back on July 18^th. With less to spend, consumer confidence and consumption behavior is affected and the whole loop starts over again.

We may see some volatility this month, as August is a notoriously bad month for the markets. The risk of congress not agreeing on a stimulus bill is looming, and may initiate a market sell-off.

Fitch just downgraded the US outlook from Stable to Negative, and some of the biggest names in tech didn’t offer the most encouraging outlooks. Big Tech’s earnings weren’t great, just better than their already lowered projections.

The sugar high from government stimulus may be wearing off, and we need to rely on our government to act in order to avert continued economic disaster.

Simply put, we maintain our view that we are in a bear market rally as economic data continues to stall-out.

See you next week,
-Saul & The Round Team

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