This could be a very big week as we learn more about the economic damage caused by shutting down due to Covid-19. Tomorrow, the 28th, we'll get updated Consumer Confidence numbers, Wednesday we hear from the Fed, and Thursday we get our first peek at Q2 GDP. Here's what all that means, and why it's important:
Consumer Confidence fell sharply in April and May, but recovered significantly in June as we started re-opening the economy. Since then, we've seen cases spike, tremendous civil unrest, and a political divide over how to handle both situations. The estimates are for a slight decline in the Consumer Confidence number, but the data is showing significant slowing in airport traffic, restaurant traffic, daily commuters, and consumer spending, along with increasing unemployment insurance filings. Why does it matter? Consumer Confidence simply measures the willingness or confidence of the consumer to make financial decisions. When confidence is low, money flow slows down and the economy weakens, when it's high it's just the opposite. The current levels do not signify any long-term trouble, but we'll know more tomorrow.
The Federal Reserve doesn't seem to be planning for a change in rates anytime soon, but we're interested to hear about the Fed's outlook on the economy going forward. Especially pertaining to the impact of another stimulus package, which grew significant legs with the GOP's proposal last week, even though it's about 1/3 the size and scope of the Democrats' proposed package that got very little traction in the Senate. We're also interested to hear Powell, the Fed's Chairman, discuss revised economic expectations as we gather more information about Covid and how the shutdown is impacting the economy.
The Atlanta Fed released their Q2 expectation of a 52.8% decrease in quarterly GDP back in early June, but given how quickly it appeared everyone was ready to get back to normal life, they revised that to a 35% decrease just recently. We'll find out on Thursday how accurate that is...but beware, the Fed revises these numbers as more information becomes available. The thought that they're able to compute a close GDP estimate within 30 days is pretty remarkable, but new data might adjust what you see on Thursday up or down over the next couple of quarters.
We believe the market is in a wait-and-see state right now, and if expectations this week aren't met or exceeded, we could see a sharp move to the downside. That prediction comes with the caveat that positive news towards another stimulus package or a vaccine/cure for Covid could send stocks higher, even in the face of richly valued markets (currently >20x average multiple for 2021 earnings expectations).