Stocks opened lower on big news day. Futures were already lower ahead of the historic gross domestic product (GDP) report and jobless claims data and those data points didn’t change the picture much. Asian markets were modestly lower overnight. Markets in Europe are down more than 2% in midday trading. Today is the busiest day this earnings season and includes reports from Apple, Alphabet, Amazon, and Facebook.
Historic decline in GDP now behind us. The US economy contracted an annualized 32.9% in the second quarter, the largest decline on record. Not surprisingly, a sharp decline in consumer spending on services was one of the main contributors to the decline, but weakness was widespread across economic sectors. Non-defense spending by the federal government was an important exception, growing at an annualized 40%. If there’s a silver lining, it’s that GDP is backward looking. Data suggests the decline is behind us; the economy actually expanded in May and June, and the Bloomberg-surveyed economists’ consensus for third quarter growth sits at an annualized 18%. More on GDP later today on the LPL Research blog.
Claims remain stubbornly high, continuing claims jumped. Filings for initial jobless claims came in lower than expected at 1.43 million for the week ending July 25, but edged higher on a week-over-week basis. Continuing claims increased to 17 million for the week ending July 18 from 16.2 million the week prior (source: Bloomberg/US Bureau of Labor Statistics). The plateau in claims in recent weeks and uptick in continuing claims underscore the long road ahead for the job market recovery.
The harder they fall, the faster they rise? Economists are seeing much larger declines in GDP in Europe this year than in the US, Japan, or China. Consensus GDP contraction in the EU of -8.1% in 2020 reflects economies that were weaker coming into the pandemic and strict lockdown measures early on. Given the sharper declines, and Europe’s relative success in containing COVID-19, European economies may see a stronger recovery later this year and in 2021. We still favor the United States and Japan over Europe, but the gap has started to close.
Fed says we’ve got your back. There was not a lot new to share at the conclusion of Wednesday’s Federal Reserve policy meeting. Rates were held near zero, bond buying will continue, and in a separate action, the Fed extended several of its special lending programs. But the tone was clear: The Fed has not exhausted its policy tools and will be very patient before raising rates or withdrawing support. For more discussion of the latest Fed meeting, see today’s LPL Research blog.
COVID-19 news. New cases were basically flat Wednesday on a week-over-week basis at 70,800. The seven-day average of new daily cases fell 3% week-over-week, down from 6.2% the previous week (source: Johns Hopkins). Tragically, the US death count surpassed 150,000 following new daily highs in California, Florida, and Texas. Cases in Japan are rising, sparking discussion of renewed restrictions, while Australia, India, Spain, and the UK continue to try to flatten their curves.
Technology maintenance. We will be updating several LPL sites, including lpl-research.com, this Friday, July 31, beginning at 8 p.m. ET/5 p.m. PT. There may be intermittent outages of 5 to 15 minutes during the approximately two-hour update period.
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