May 21, 2020
DESPITE IMMENSE CHALLENGES facing many sectors of the economy, some encouraging signs suggest “green shoots” of a recovery that could begin as early as this summer, says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. As all 50 states begin to take steps toward reopening after months of coronavirus-related lockdowns and consumer spending and unemployment slowly start to stabilize, “We fully expect the economy could begin to pick up in late June and July with a strong recovery in the fourth quarter,” he notes.
Among the encouraging signs: The Dow surged more than 900 points on Monday, in response to preliminary results from human trials of a vaccine that could potentially help the body’s immune system fight the coronavirus.1 Even after trillions of dollars in economic stimulus, in an appearance before Congress on Tuesday, Federal Reserve (Fed) chair Jerome Powell emphasized the Fed’s ongoing commitment to supporting economic recovery.
There’s no doubt that many obstacles remain and economic recovery could still face setbacks, especially if coronavirus rates spike and certain states are delayed on the road to fully reopening. “Everything depends on solutions to what is, first and foremost, a devastating global health crisis,” Hyzy notes. But the following data points are evidence of economic resilience. The Chief Investment Office will be watching them closely in the weeks to come.
Unemployment. Weekly jobless claims released May 21 totaled nearly 2.4 million.2 Yet continuing claims—workers already unemployed and receiving ongoing benefits—have leveled off, Hyzy says. “That means workers coming back into the economy, whether temporary or full-time, are at the same levels as those going out. We’ll be watching this closely as economic re-openings continue.”
Consumer spending. “Those employment trends match up well, in our view, with the fact that the consumer has begun to stabilize,” Hyzy says. Despite the April sales numbers and ongoing weakness in battered areas such as travel, leisure and entertainment, “spending in the last couple of weeks hasn’t just evened out, it has risen. Even airlines have shown a modest increase in bookings recently.”
Capital spending. Companies will have to adjust and accommodate to new ways of doing business, Hyzy believes. Remote work, social distancing and other changes call for new capital investments. “This could be one of the more robust economic catalysts as we head towards the middle part of 2021 and beyond,” he says.
What can investors consider doing?
To help position themselves for the recovery, investors may want to consider stocks of large, well-established U.S. companies, Hyzy says. Promising areas include technology, healthcare and communications services, as well as companies focused on innovations for consumers, among others. With low interest rates likely to persist even during the recovery, investors may want to compensate for low yields from Treasury bonds with high-quality corporate bonds or dividend-paying stocks, he adds.
1“U.S. Stocks Surge as Hopes for Coronavirus Vaccine Build,” The Wall Street Journal, May 19, 2020
2“Jobless claims total 2.4 million, still elevated levels but a declining pace from previous weeks,” CNBC.com, May 21, 2020
Information is as of 05/21/2020
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