On the Economy. The August jobs report showed solid gains, with 1.37 million jobs added, while the unemployment rate dropped to 8.4%. Progress thus far in the job market has moved the US into recession and out from the depths of depression. Much damage to the unemployment picture remains, with about ½ of the 22 million jobs lost in March and April reclaimed through the latest report.
The increase in permanent job losses continues to deepen. There is long-term damage being done within the economy which will remain even after a vaccine is broadly available. The number of permanent job losers increased sharply last month, from 2.877 million to 3.411 million. You can compare 2020 with permanent job losses from past recessions here.
Also on the economic front this week, the ISM Manufacturing Index rose to 56 with New Orders measuring the highest level since January 2004. Economist Nancy Lazar told TD Network on Friday “we are in an investment led economic recovery” which is key as it contributes to a virtuous cycle necessary for a sustainable recovery. “It is a good thing housing and manufacturing are leading this recovery. They are the sectors with the biggest job multipliers. That means the labor market can heal relatively quickly, lifting employment and incomes.”
The K-Shaped Recovery continues to define stark differences in financial outcomes due to Covid, across businesses and households. Ben Eisen noted in a WSJ article this week, “The stock market…has returned to record levels. Sellers of boats, pools and other high-end goods are reporting blockbuster demand.” Meanwhile, “almost 11% of U.S. households didn’t have enough to eat in the previous seven days.”
Chairman Powell told NPR "We think that the economy's going to need low interest rates, which support economic activity, for an extended period of time," he said. "It will be measured in years." Considering the positive economic news this week, little immediate pressure is being added to the stalemate in Washington and additional fiscal stimulus seems unlikely for now. Larry Kudlow told Bloomberg on Friday “we can live with not getting a deal on coronavirus relief.” Without additional stimulus, Merrill noted this week they see the economic impact of existing stimulus fading into year-end and “turning sharply negative in 2021.”
Rising Angst. No sooner did AAPL stock eclipse the entire value of 2,000 companies in the Russell Index, Granite shares launch a levered 3x exposure to Tesla (extra disclaimer: NOT an investment recommendation), and call option volumes on top Nasdaq stocks reach epic levels, did markets quickly reverse course and head south for the week.
The potential for a contested outcome to the Presidential election is also now working its way into financial markets. The VIX index, used to measure expected volatility in the S&P 500, is rising as investors brace for the uncertainty of November 3rd and the risks a contested outcome would create. From Bloomberg Macro Strategist Cameron Crise, “We’ve never had an event risk command this sort of premium into forward-dated vol at a specific tenor. That obviously suggests that markets anticipate some pretty incredible fireworks.”