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The Week Ahead – Yes, We're Open

| 6/8/20 8:41 AM

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

Like many Americans, I will be heading back to the office starting next week. While working from home has some advantages, I am definitely looking forward to getting back to my normal routine. Of course, it will not be completely the way it was pre-COVID. Employees will be wearing masks and practicing social distancing while in the office. With daily coronavirus infection rates falling to their lowest levels in two months, it certainly makes sense to start lifting restrictions. In many parts of the country, more and more people are getting out. One key metric that shows the increase in activity is the Apple Mobility Index, which shows how many people are using their phones to search for destinations. This index bottomed in March, but has now doubled off the lows and is almost back to the level set in February.

American businesses are re-opening and hiring. The latest jobs report showed that after two months of steep losses, the labor market defied all expectations by adding more than 2.5 million jobs reflecting a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus. This was a stunning development as most (if not all) market participants were anticipating job losses to exceed 7 million. While it is clearly good news, the U.S. labor market will need to add at least another 19 million jobs before it recovers fully.

Clearly, the stock market has been quick to re-rate higher on the back of recent positive events. Not only has the re-opening been happening at an accelerated pace, but the massive amount of economic stimulus keeps coming:

  • European Central Bank is expected to announce another $2T stimulus package
  • Japan added another $1T in fiscal stimulus
  • The U.S. is expected to pass another $1T in relief
  • China is spending $1T to bolster its technology sector

We also need to keep in mind, interest rate cuts take 12-18 months to filter through the economy. The U.S. began cutting rates last summer; therefore, the full effect of the hundreds of simulative policy changes have yet to be felt. This unprecedented amount of stimulus continues to bode well for risk assets.

Federal Reserve policy makers will meet this week, with Fed Chairman Jerome Powell holding a press conference on Wednesday. The Fed is also expected to release its first economic forecast since the pandemic forced the economy to shut down in March. In its April policy statement, the Fed said it would hold interest rates at zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Markets are anticipating the Fed will hold rates steady for their forecast horizon, which goes through next March.

The Fed with their swift and bold response deserves a lot of credit for the rapid recovery of the markets and handling of the financial crisis. It will be highly interesting to hear their most recent assessment of the economy.

Data deck for June 8–June 12:

Date

Indicator

Period

Jun. 9

NFIB small-business index

May

Jun. 9

Job openings

Apr.

Jun. 9

Wholesale inventories

Apr.

Jun. 10

Consumer price index

May

Jun. 10

Core CPI

May

Jun. 10

Federal budget

May

Jun. 10

FOMC announcement

 

Jun. 10

Jerome Powell press conference

 

Jun. 11

Initial jobless claims (regular state program, SA)

Jun.

Jun. 11

Initial jobless claims (total, not seasonally adjusted)

Jun.

Jun. 11

Producer price index

May

Jun. 11

Quarterly services survey

Q1

Jun. 12

Import price index

May

Jun. 12

Consumer sentiment index

Jun.

 

IMPORTANT DISCLOSURE INFORMATION    

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by First Foundation Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from First Foundation Advisors. Please remember that if you are a First Foundation client, it remains your responsibility to advise First Foundation, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. First Foundation Advisors is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the First Foundation Advisors’ current written disclosure statement discussing our advisory services and fees is available for review upon request, or at firstfoundationinc.com.  Please Note: First Foundation Advisors does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to First Foundation Advisors’ web site or incorporated herein, and takes no responsibility therefore. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Brett Dulyea, CFA, CAIA
About the Author
Brett Dulyea, CFA, CAIA
Mr. Dulyea serves as a Portfolio Strategist on the investment team and is responsible for conducting manager research and executing investment strategies for clients. As a member of the investment committee, he provides market commentary and investment insights. Mr. Dulyea’s specializes in advising client portfolios, defining investment plans, and communicating the firm’s investment viewpoints. Prior to joining the firm, Mr. Dulyea was a Director, Portfolio Manager at Deutsche Bank. In addition to working directly with clients, he was a member of the Fixed Income Strategy Group and managed customized portfolios for clients. He previously worked in the Wells Fargo Wealth Management Group as a Vice President, Senior Investment Strategist and at Merrill Lynch as a Vice President, Portfolio Manager. Mr. Dulyea earned his Master’s in Business Administration (MBA) from California Polytechnic University, Pomona and holds the Chartered Financial Analyst® (CFA) designation and the Chartered Alternative Investment Analyst (CAIA) charter. He earned his Bachelor’s degree from the California Polytechnic University, Pomona. He also served as an adjunct Professor of Finance at California Polytechnic University, Pomona for two years. Read more