by Louis Navellier

April 7, 2020

Unemployment Image

Last Friday, the Labor Department announced that a whopping 701,000 payroll jobs were lost in March, and the unemployment rate rose from 3.5% in February to 4.4% in March. However, that’s just the first warning shot of what is yet to come. The true unemployment rate in early April is likely closer to 10%, since new unemployment claims surged to an all-time record of 6.648 million for the week ending March 28th, following 3.28 million unemployment claims for the week ending March 21st. As a result, I expect the March payroll losses will be revised higher and the April payroll report will show record job losses.

Since the U.S. is now effectively shut down in April, with the “stay-at-home” coronavirus restrictions, I expect that unemployment rates will likely continue to rise steadily.  Virginia has a stay-at-home order until June 10th while other states and counties will likely extend their stay-at-home orders well into May.

The result of these realities is that a V-shaped recovery is looking less likely, since many folks are going to be initially reluctant to go into bars and restaurants, even after restrictions are lifted.  Travel will likely return in the summer, but the airline, cruise ship, and hotel industries will likely take a year or more to fully recover, so it will be interesting to see how President Trump tries to cheer up the American psyche.

On the positive side, I should add that the University of Washington School of Medicine model now predicts that the coronavirus U.S. death toll will peak on April 15th at 2,271 daily deaths and then steadily drop to 100 daily deaths by June 9.  Naturally, there are other prediction models and the data is subject to change, but as these prediction models increasingly agree with each other, like the hurricane models, then Americans will have more hope, and sentiment surveys can finally improve.  I also realize that there may be a coronavirus relapse in the fall, just in time to interfere with the November Presidential election!

Turning to our investment options, the recent surge of Chinese stocks, especially the on-line shopping and express shipping companies, is likely a preview of the type of U.S. stocks that will be the first to rally as coronavirus cases begin to diminish.  Hopefully, before the virus returns or mutates, there will be proven preventative procedures, like the zinc and malaria drug treatment that many healthcare professionals are now taking.  Naturally, a vaccine for coronavirus is the best solution and may be available in early 2021. Due to rapid FDA approvals, it is possible a vaccine might be approved by late 2020.  Once news breaks that the FDA has approved a vaccine, it could spark a V-shaped economic resurgence fairly rapidly!

The Other U.S. Economic News is Mixed

Beyond the jobs report, the other economic news last week was mixed with February results looking good but early March results looking terrible, as might be expected.  First, the National Association of Realtors announced that pending home sales rose 2.4% in February. Every region rose, led by the West and Midwest with 4.6% and 4.5% gains, respectively.  Naturally, some of these pending home sales may have fallen through in March due to the coronavirus and unemployment situations, but when our national crisis is over, the housing market should rebound quickly due to today’s ultralow interest rate environment.

Turning to March statistics, the situation is grimmer. The Conference Board reported on Tuesday that its consumer confidence index declined to 120 in March, down from 132.6 in February. Looking forward, the future expectations index plunged to 88.2 in March, down from 108.1 in February.  The cut off for the Conference Board survey was March 19th, so the April survey results will likely look much worse.

The Institute of Supply Management (ISM) on Wednesday announced that its manufacturing index slipped to 49.1 in March, down from 50.1 in February.  The good news is that the ISM manufacturing index was substantially better than economists’ consensus estimate of 44, however the new orders component plunged to 42.2 in March, down from 49.8 in February.  Due to weak auto sales as well as plant closures, the U.S. is expected to remain in a manufacturing recession for the next few months.

ISM reported on Friday that its service sector index plunged to 52.9 in March, down from 63.1 in February. Only five of the 17 industries surveyed reported expansion in March.  Since any reading above 50 signals an expansion, technically the service sector is still expanding. However, this survey was taken before the national shutdown order, so I expect the ISM service sector will fall well below 50 in April.

Oil prices briefly fell below $20 last week, as Saudi Arabia continues to produce more crude oil in a very aggressive attempt to steal business from Russia and other OPEC producers.  President Trump has tried to intervene and broker a truce between Vladimir Putin and Crown Price Mohammed bin Salman.  Russia reportedly made some conciliatory noises, while Saudi Arabia remains defiant.  On Thursday, President Trump reportedly got Russia and Saudi Arabia to agree to unspecified production cuts, and MarketWatch reported that Russia and Saudi Arabia are set to debate production cuts of at least six million barrels/day.

In the meantime, the U.S. is running out of places to store crude oil, so industry executives met at the White House on Friday to discuss a national crude oil strategy. Fortunately, China is now stockpiling crude oil and adding to its reserves, so there is some hope that China may add more storage capacity.

All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.

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Louis Navellier
CHIEF INVESTMENT OFFICER

Louis Navellier is Founder, Chairman of the Board, Chief Investment Officer and Chief Compliance Officer of Navellier & Associates, Inc., located in Reno, Nevada. With decades of experience translating what had been purely academic techniques into real market applications, he believes that disciplined, quantitative analysis can select stocks that will significantly outperform the overall market. All content in this “A Look Ahead” section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.

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