What will the recovery look like? Right now, the great investing debate is about shapes.

Jacob Manoukian
Global Market Strategist

Joe Warsh
Global Market Strategist

Andreas van den Hombergh
Global Market Strategist

Our Top Market Takeaways for June 19, 2020.

Markets try to find their footing


Following a steep drop last week, markets quickly bounced back early this week. Investors are digesting both good and bad news, but are having a tough time finding a clear direction. Going into Friday, the S&P 500 is up +2.4%, with all sectors in the green. The Stoxx Europe 600 was +2.6% higher.

Looking closer at the underlying U.S. sectors, the “COVID-19 impacted laggards” are beginning to lag once again due to second wave fears (think energy, +0.7%, utilities, +0.7%, and financials, +1.3%, this week), while the ”social distancing winners” continued their outperformance (think info technology, +3.6%, consumer discretionary, +2.8%, and healthcare, +2.2%). WTI crude quietly entered Friday up over +7% on the week, and safe havens such as gold (at ~$1,730 per ounce) and U.S. 10-year Treasuries (+2 basis points sitting around 0.72%) remain relatively flat.

Here’s what you should know from the week.

Bad news first:

1. Fear of a second wave hit headlines in the United States. With record new cases in Florida this week, the highest number of hospitalized coronavirus patients in Texas, and former FDA Commissioner Scott Gottlieb highlighting concerns that certain states are now “on the cusp of losing control,” there are no shortage of headlines. However, President Trump reiterated that the United States will not undergo lockdown again—remember, it is the policy response to the virus that has the largest impact on the economy and markets.

2. Outside of the United States, there were record new cases in Brazil, as well as reimposed lockdown measures in Beijing. Following a pop higher in cases over the last week, Beijing tightened restrictions—banning cabs from leaving the city, closing entertainment venues, closing schools, and ordering travelers leaving the city to undergo a two-week quarantine.

Our take: The market seems to have a high pain tolerance for a second wave, at least for now. With ICU utilization in most U.S. states remaining low, it seems as though the threshold for another economic shutdown is still a ways away. Further, in China, so far, most of the cases seem confined to Beijing, and the city has reacted swiftly to halt its spread. Bottom line: The virus is still the number-one risk, and we’re monitoring it closely.

Now for the good:

1. The Citi Economic Surprise Index hit an all-time high. The Citi Economic Surprise Index shows how economic data is progressing relative to what consensus is forecasting—in other words, how surprising the data is. As such, it can be used as a way to visualize an inflection point in the data. What the latest move means in English: Actual data releases have never exceeded economists’ expectations by a wider margin.

The line chart shows the Citi Economic Surprise Index from 2003 through June 18, 2020. It shows that the index hit an all-time high this year.
2. U.S. retail sales had their biggest sequential increase on record. In order to recover from their dismal 15% fall in April, May retail sales levels would have needed to rally more than 17.5% to get back to March levels. That’s exactly what happened. However, we’d note that levels are still below where they were in January and February.

The bar chart shows U.S. retail sales in billions from January 2020 through May 2020. It shows that there was a 14.7% drop in sales from March to April, and a 17.7% rebound in May.

3. The Fed began to buy individual corporate bonds on Tuesday. As part of its Secondary Market Corporate Credit Facility (SMCCF), the Fed will buy bonds that satisfy the facility’s minimum rating, maximum maturity and other criteria. Until now, the facility has only purchased exchange-traded funds (ETFs) (to the tune of about $5.5 billion, sitting far below the facility’s capacity of $250 billion). Word came as a surprise to markets, given the Fed is below its ETF concentration limits and private demand is at record highs. As we’ve noted before, the power of words is important: While the Fed has only leveraged a very small part of this facility, net inflows into corporate bond ETFs have exceeded $46 billion just since the end of March—greater than any previous full year.

Our take: It’s still a long road ahead, but the data continues to show the recovery is taking shape. Not only do we see inflections in some key macroeconomic indicators, but the swift and unprecedented monetary and fiscal policy response is also giving a helping hand.

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The shape debate


Right now, the great investing debate is about shapes. Is the recovery going to be a V, a U, a W or an L? Maybe a cursive J or a “swoosh,” or maybe something from Cyrillic?

Economists have some very specific ideas and parameters of what shape constitutes what letter, but we decided to have a little fun with it and show that different pieces of markets and the economy are currently exhibiting V’s and L’s, and everything in between. To illustrate, we have grouped some indicators into letters based on what proportion of their 2020 peak-to-trough declines they have already recovered (through Thursday night).

Some high fliers have already fully recovered. A true V-shape:

  • NASDAQ Composite Index (104%)
  • The S&P 500 Information Technology Sector (101%)
  • Philadelphia Stock Exchange Semiconductor Index (100%)
  • iShares iBoxx Dollar Investment Grade Corporate Bond ETF (U.S.) (99%)
  • The MSCI World Growth Index (95%)

The line chart shows four lines: the NASDAQ Composite Index, the Philadelphia Semiconductor Index, the iShares Investment Grade Corporate Bond Index and the S&P 500 Information Technology Sector Index, from January 2020 through June 18, 2020. It shows all indices indexed to January 1, 2020, as 100. The chart shows that all indices have followed a V-shaped recovery.

A handful of others are well on their way to making a V-shape:

  • U.S. Monthly Retail Sales excluding Food Services (79%)
  • The S&P 500 Index (77%)
  • U.S. Investment Grade Corporate Bond Spreads (76%)
  • The MSCI World Index (74%)
  • China Passenger Automobile Sales (73%)
  • CBOE Volatility Index (VIX) (70%)
  • Spread between U.S. 10- and 2-Year Treasury Yields (70%)

The line chart shows three lines: U.S. Retail Sales, the VIX Index and the MSCI World Index, from January 2020 through June 18, 2020. It shows all indices indexed to January 1, 2020, as 100. The chart shows that all indices have started to follow a V-shaped recovery, but have not fully recovered as of yet.

As you get closer to the economy that you can see and feel, the more downtrodden you get. These items are still suggesting something like a U:

  • Euro High Yield Corporate Bonds Spreads (66%)
  • U.S. High Yield Corporate Bonds Spreads (64%)
  • U.S. Homebuilder Sentiment Index (61%)
  • Emerging Market Sovereign Bond Spreads (60%)
  • Bank of America Card Spending ex-Autos (~60%)
  • Corporate Emerging Market Bond Spreads (57%)
  • The STOXX Europe 600 Index (54%)
  • The MSCI World Value Index (53%)
  • U.S. Google Workplace Mobility Index (i.e. people going back to the office) (~48%)
  • MSCI ACWI Energy Sector Index (41%)
  • JPM Global Composite Purchasing Managers Index (39%)
  • KBW Nasdaq Global Bank Index (38%)

The line chart shows four lines: the KBW Global Bank Index, the MSCI ACWI Energy Sector Index, the JPM Global Composite PMI and the U.S. Homebuilder Sentiment Index, from January 2020 through June 18, 2020. It shows all indices indexed to January 1, 2020, as 100. The chart shows that all indices have followed a U-shaped recovery.

Finally, a large portion of markets and the economy are really pricing in something more like an “L”: more or less permanent changes to the landscape:

  • European Union New Passenger Car Registrations (33%)
  • NFIB Small Business Optimism Index (26%)
  • Bloomberg Commodity Index (21%)
  • The MSCI ACWI Airlines Sector Index (20%)
  • U.S. Continuing Jobless Claims Seasonally Adjusted (19%)
  • U.S. 10-year Treasury yield (12%)
  • U.S. 2-year Treasury yield (4%)

The line chart shows four lines: the BCOM Index, the U.S. 10-year Treasury yield, the MSCI ACWI Airlines Index and the Individual U.S. Continuing Jobless Claims Index, from January 2020 through June 18, 2020. It shows all indices indexed to January 1, 2020, as 100. The chart shows that all indices have followed an L-shaped recovery thus far.

The shape of the recovery is important, but it is helpful to look underneath the surface to observe shifts happening between sectors that are still growing and those that are feeling the brunt of the pain.

Overall, the recovery so far has been more rapid than we had anticipated. A continuation of the trend would be a welcome surprise.

For more on where we stand, don’t miss our Mid-Year Outlook: Our view of the damage and the road ahead.

Recognizing Juneteenth


In 1863, President Abraham Lincoln’s Emancipation Proclamation declared “that all persons held as slaves…are, and henceforward shall be free.” Yet it wasn’t until two-and-a-half years later on June 19, 1865, when Union Major General Gordon Granger arrived in Galveston, Texas, to announce the war had ended and that all enslaved persons were now free. There are many tales of why there was such a delay, but the event marked June 19, or “Juneteenth,” as the oldest celebrated commemoration of the ending of slavery in the United States.

We echo the words of our CEO Jamie Dimon, who said that J.P. Morgan recognizes Juneteenth, June 19, 2020, “out of deep respect for the suffering that the Black community has endured over hundreds of years and in recognition of the high esteem in which we hold our Black community at JPMorgan Chase.”

In recognizing Juneteenth, we want to continue our dialogue about race and equality. Juneteenth should be a time to reflect on our nation’s history, recognize its progress and learn from its mistakes, and commit to taking action to bring positive change to our communities. These past few weeks have been extremely difficult. However, through these challenging times, there is optimism that we are starting on a path to real, lasting change that will bring a more equal and fair society for all. This week has been a momentous week for civil rights: from the Supreme Court decision to support workplace protections for LGBT+ people to protecting Dreamers, to many states and companies recognizing Juneteenth as an official holiday. We ask that everyone do their part to drive that change to make the world we live in a better place.

All market and economic data as of June 2020 and sourced from Bloomberg and FactSet unless otherwise stated.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.


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