By Judy Loy, Registered Investment Advisor, ChFC® and CEO of Nestlerode & Loy, Inc.
Thursday brought the latest U.S. GDP number. GDP stands for gross domestic product and is the total value of goods and services produced in a country. Consumption, government spending, investment and net exports all contribute to a country’s GDP.
Due to COVID-19, the United States posted a negative 32.9% annualized rate of GDP for the second quarter of 2020. To put this in perspective, this is the largest drop in U.S. GDP since 1945 (the year World War II ended). In the 2008 “Great Recession,” GDP only dropped 8.4%. Of course, this GDP is looking backward at April through June 2020.
The extra $600 in federal unemployment benefits ended on Friday. This helped many who were out of work continue to pay expenses while laid off. In a new proposed plan, the extra benefit could continue but at a lower rate of $200 a week. Unemployment claims peaked in May at nearly 25 million. However, first-time claims rose the last two weeks as many states reclosed or limited businesses again as the virus spread.
The CEOs of four big tech firms appeared in front of Congress last week to answer questions regarding antitrust. Mark Zuckerburg of Facebook (FB), Jeff Bezos of Amazon (AMZN), Sundar Pichai of Alphabet (GOOG), the company formerly known as Google, and Tim Cook of Apple (AAPL) were asked many questions but it didn’t reveal any surprises. A few worrisome antitrust actions: Amazon’s venture capital fund created to invest in start-ups copied the start-ups’ ideas instead; Facebook either buys you or copies your product if you are not for sale; Google threatening to delist Yelp (YELP) if it did not comply with demands. The four CEOs denied any knowledge. Due to their evasive answers and actions, are the big technology companies looking at regulation that could squelch their growth?
After a rough March, the markets have roared back. As of Thursday’s close, the S&P 500, a U.S. index that tracks the stock performance of 500 large companies listed on stock exchanges, returned a positive .41%. The Nasdaq Composite, an index that follows common stock listed on the Nasdaq stock market and is heavily weighted in technology, is up 17.07% for the year-to-date time frame. Finally, the Dow Jones Industrial Average (DJIA), which is nicknamed just ‘the Dow’ and only holds 30 large companies listed on stock exchanges in the U.S, is still down 6.61% for the year. The Nasdaq outperformed for the year because technology has led the way in the market recovery.
The Federal Reserve has kept rates at 0-.25% as our economy sputters and it is committed to aggressive stimulus. Yet, even Federal Reserve Chairman Jerome Powell says, “The path of the economy is going to depend to a very high extent on the course of the virus…” With the pandemic, there are plenty of unknowns. Will further mask mandates slow the spread? When will a vaccine be created? Will people take the vaccine? Until these questions are answered, many activities are off limits. U.S. citizens are limited as to travel until restrictions are lifted. Even traveling interstate has issues, Pennsylvania mandates people returning from 20 other states (North Carolina, Florida, etc.) quarantine for 14 days before returning to normal activity. This limits economic activity within the country and around the world. Movies and concerts are still restricted.
So far in 2020, we had the acquittal of Donald Trump on impeachment charges, the death of Kobe Bryant, a pandemic, Prince Harry and Meghan Markle stepping down as royals, the UK leaving the European Union, the 2020 Summer Olympics in Tokyo postponed, and now mystery seeds from China showing up in U.S. mailboxes. Truly one of the strangest years on record.
Nothing contained in this article should be interpreted as a promise or guarantee of earnings or investment results nor a recommendation for the purchase or sale of any security or sector.