Tim Hoyle, CFA, Co-Chief Investment Officer
thoyle@haverfordquality.com
Retail Therapy and The Great Lockdown
During last week’s trading, the S&P 500 recovered half its losses following Chairman Jerome Powell’s June 10th press conference. This market’s resiliency is beyond compare relative to anything we have seen in our investment careers. Following the quickest bear market and subsequent recovery in financial history, we highlighted the high probability that markets would revisit the lows, or at least suffer some major setbacks during the road to recovery. This has not yet occurred, and June 11th’s 7% decline hardly counts since the losses were so quickly erased. Why has our short-term forecast proved incorrect? Massive Stimulus.
The U.S. Bureau of Economic Analysis (BEA) has reported that April Personal Income was higher than pre-pandemic levels due to the $300 billion in direct support to individuals provided by the CARES Act, exclusive of emergency Federal unemployment insurance. On Friday, my colleagues detailed how consumer spending has evolved year-over-year. They highlighted evidence that consumers have cash in the bank and are willing to spend it where they are able and allowed.
As the Northeast is now re-opening in earnest, we will receive more data on how consumers are reengaging with the economy. Just this weekend, we saw lines at our local Marshalls and TJ Maxx stores. TJX Companies was the subject of a June 22nd Wall Street Journal article. The company’s CEO has stated that nothing has strategically changed at the discount retailer. They will continue to focus on their in-store shopping experience. According to company reports, shoppers are flooding reopened stores, pushing sales higher than they were a year ago.
John Kernan, an analyst with Cowen Inc. calls it Revenge Spending. “People have been cooped up for so long they want to shop in stores.” TJX is charting a different course than most other retailers, and is not frantically boosting their online presence. The company’s treasure hunt model may be just what the doctor ordered for consumers suffering from cabin fever.
Despite the optimism of moving to the green phase of re-opening, companies, politicians, and consumers will continue to watch the health data. An uptick in cases across the South and West led Apple to close several of its retail locations this weekend. If we see an increase in hospitalization rates, there will be significant pressure to shut down. We believe that any future shutdowns will be administered at the local level, as leaders now look to prioritize the economy while managing the health crisis.
S&P 500 Recovers Half Its Losses
Source: FactSet Research Systems
Source: CDC (https://gis.cdc.gov/grasp/COVIDNet/COVID19_3.html)
Consumers Queue Outside of Marshalls / Home Goods, Glen Mills PA, Saturday June 20, 2020
