Buffett said “I like buying it as it goes down, and the more it goes down, the more I like to buy. Though he wouldn’t specify which companies he bought, he claimed they were “names you’d recognize.” He also told that “If you don’t invest in things you know, you’re just gambling basically,” Find out if Buffet owns the same stock.
Many Americans Put Their Stimulus Checks Into The Stock Market
The government sent $1200 stimulus checks to help Americans pay their bills. However, it turns out that many people turned around and put most of that money into the stock market. This is according to research done by Envestnet Yodlee, a data aggregation company.
Bill Parsons, Group President, Data Analytics at Envestnet Yodlee said during a recent CNBC interview, “Covid is causing conversations among family members and family members with their advisors about what to do with their money and were seeing that in the data… Securities trading did see significant lift week-over-week and I suspect that that’s in part due to big changes in the market.”
People Investing in Stocks
In most income brackets, data shows that buying stocks was the second or third most common use for the funds. Fortunately, the most common uses of the stimulus money were increasing savings and cash withdrawals.
The company started tracking the spending habits of 2.5 million Americans in early March. It noticed a divergence in behavior in mid-April when the checks started to arrive in mailboxes. Those that received their check increased their spending by 81% compared to the prior week. Some of that spending went into the stock market.
In the $35,000 – $75,000 income bracket, stock trading increased by 90% in the week the check was received compared to the prior week.
In the $100,000 – $150,000 income bracket, trading increased 82% in the week the stimulus check arrived. Meanwhile, in the $150,000 or higher income bracket, stock trading only increased by 50%. The $150,000 or higher bracket would not have been eligible for a stimulus check. Therefore, it acts as a good baseline.
New Online Trading Accounts
All of this stock buying meant a whole lot of new online trading accounts were opened in the last month or so. However, the brokerage houses aren’t sure if that is due to the stimulus checks, or the opportunity to buy stocks cheaply as the market fell.
Charles Schwab reported “monumental volumes” as it opened 609,000 new accounts in the first quarter. Additionally, the stock trading app Robinhood reported daily trade volume was up 300% in March compared to the previous year. The company co-CEO also said during an interview with CNBC that over 50% of its customers are first-time investors.
You may believe the brand new investors were wise enough to buy stocks because they recognized they were cheap and the markets would rebound. Either way, it seems they have very good timing.
Since the market bottomed in late-March, stocks have staged a tremendous rally in the last two months, with the Dow Jones Industrial Average and S&P 500 climbing nearly 35% from their March lows, and the Nasdaq gaining more than 40% over the same time period.
It’s better than spending the money on weed, sneakers and video games.
Unemployment Rate Soars Despite States, Economy Reopening
The slow reopening of the economy has done little to boost the job market and stall the unemployment rate.
Another 2.4 million Americans filed initial jobless claims for the week ending May 16. This brings the total since late March to an incredible 38.6 million.
Continuing unemployment claims, those who file to receive ongoing benefits, added another 2.5 million through May 9. This brings the total to 25.1 million.
Observers were hoping that they would see the number of continuing claims to begin to decrease. This comes after last week’s report only showed an increase of 500,000 claims, the smallest increase since March.
With that figure jumping by 2.5 million, it dashed those hopes.
“It is looking like May is shaping up to be worse for the labor market than we had initially thought,” economists at Jefferies said in a recent note. “We noted in our response to the April employment data that we expected that we would see another drop in payrolls in May of about 1 million, followed by a strong rebound in June. However, the stubbornly high levels of both initial and continuing claims suggest that we are actually in store for another historic drop in payrolls in May.”
Hoping for a Drop
Diane Swonk, chief economist at Grant Thornton, was also hoping to see a decrease in continuing claims. However, she says we may see some improvement soon. It’s possible as companies use money from the Payroll Protection Program to bring back workers.
“I’d love to see a big drop in continuing claims because that would really be a sign of rehiring,” she said, but also cautions that May is shaping up to be a terrible month for workers, who may find that their temporary unemployment may not be so temporary. “This is the week of the survey. … It tells us May is going to be another bloody month, with a lot of downward revisions for an even worse month of April,” said Swonk. “May will be a much worse unemployment rate because people will be looking for jobs again and their layoffs weren’t as temporary as they had hoped.”
Very real concerns exist that the unemployment figures fare worse than the actually reported ones. These concerns come as states are still overwhelmed by the sheer number of claims and still haven’t processed the backlog.
It’s hard to imagine what the real unemployment rate would be if a backlog of initial filings does exist.
Chris Rupkey, chief financial economist at MUFG Union Bank, said if you add in the initial claims from last week’s report, “That would put the unemployment rate at about 25.4%”
Some states are seeing relatively little impact on employment due to the pandemic. Utah and South Dakota are seeing unemployment rates remain below 10%, while other states have been crippled by job losses.
Georgia and Kentucky have the highest unemployment rates in the country, where the jobless rates are approaching 40 percent. Other states seeing unemployment rates at or near 30 percent include Washington and Louisiana. Also included are Michigan, Rhode Island, Nevada and Pennsylvania, as per Deutsche Bank Research.
FOMC Minutes Reveal Uncertainty, Fear Over Second Wave of Outbreak
Minutes from the April meeting of the Federal Open Market Committee show that Fed officials are happy with their recent actions. The said actions aims to keep the economy afloat during the coronavirus pandemic. However, they are also deeply worried about the likelihood of further outbreaks. They also expressed concern about how the pandemic will harm lower-income families the most.
The April meeting concluded with the committee talking about the steps they took during the initial outbreak. They said those actions were were “essential in helping reduce downside risks to the economic outlook” of the country. They also decided to keep interest rates at their current level of 0% – 0.25%.
The committee said that the pandemic created both near and medium-term economic uncertainty. Also, “participants commented that, in addition to weighing heavily on economic activity in the near term, the economic effects of the pandemic created an extraordinary amount of uncertainty and considerable risks to economic activity in the medium term.”
The group expressed worry about the negative effects on unemployment and GDP growth of another outbreak of coronavirus cases later in the year. The minutes also say the group views this as a “substantial likelihood.”
“In this scenario, a second wave of the coronavirus outbreak, with another round of strict restrictions on social interactions and business operations, was assumed to begin around year-end, inducing a decrease in real GDP, a jump in the unemployment rate, and renewed downward pressure on inflation next year,” the summary said.
The minutes also mentioned that this “more pessimistic” outlook was just as likely as the baseline forecast for improvement.
Baseline For Improvement
There was discussion amongst the members to provide more explicit assurances that rates wouldn’t move higher until a recovery was “firmly in place.” This is defined by the country meeting certain unemployment or inflation rates before the committee would consider raising interest rates. Another idea was announcing a specific date which would be the soonest that the FOMC would consider raising interest rates.
They call this type of forward guidance the Evans Rule. The Fed used this in 2012 when it openly broadcast that it would hold rates steady until unemployment rates started to fall. It also used this to broadcast that there were signs of rising inflation.
The notes also reveal that the committee is very concerned that while the 30+ million jobs lost since the outbreak began also hit all socioeconomic levels. The brunt of losses “would fall disproportionately on the most vulnerable and financially constrained households in the economy.”
Some are concerned that many small businesses, the backbone of our country, simply won’t survive in the “new normal” of social distancing. Meanwhile, other businesses are going to hold off on hiring or growing. Owners say this may last until the threat of a second outbreak passes.
The minutes state “a large number of small businesses may not be able to endure a shock that had long-lasting financial effects. Participants were further concerned that even after social-distancing requirements were eased, some business models may no longer be economically viable, which could occur, for example, if consumers voluntarily continued to avoid participating in particular forms of economic activity.”
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