A Long Road Ahead for the U.S. Economy

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The Dow, Nasdaq, and S&P experienced a choppy week. After an initial rout and slight upward trend afterwards, they each ended up at least 2% lower. Clearly, there is a rift between optimistic investors that believe the reopening US economy can rebound sharply and data indicating a slow and bumpy recovery. This is supported by the VIX – a commonly used measure of stock market volatility – gaining 47% this past week. The potential for a second wave of COVID-19 looms overhead. Jerome Powell, Chairman of the Federal Reserve, warned that the economy faced a long road to recovery and that the labor market will likely experience many more hardships. 

Surprisingly, many of the initially hardest-hit sectors in the market were able to post gains this week. Real Estate was one of these key areas, and experienced a surge of 9.3% in mortgage applications, following a 3.9% drop the previous week. Applications to buy homes rose 5.3% and refinance applications jumped up 11.4%. 

Carnival and American Airlines, some of the worst performing stocks since the virus brought the tourism industry to its knees, both rallied over 14% this week. Boeing was able to post an 11% gain and the car rental company, Hertz, showed an upward boost to $2.83 (37%) following its bankruptcy in late May. 

The University of Michigan consumer sentiment rose to 78.9 from 72.3 the previous month. This shows that households are adjusting their outlook on personal finances and are finding more favorable prospects for the national economy. It should be made clear, however, that they don’t expect economic conditions to return back to normal any time soon. The amount of jobless applications eased a bit to 1.542 million, beating expectations and reaching the lowest level it has since the pandemic began. 

Oil prices slipped further with US crude futures falling 0.2%. This is their first decline in seven weeks. The yield on the 10-year Treasury note incremented up to 0.698%, from 0.651% on Thursday. As prices fall, bond yields rise. 

Jonathan Su

Jonathan Su