THE NUMBERS
Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized. Interest Rates: Federal Reserve, Mortgage Bankers Association
MARKET HEAT MAP
The health of the economy is a key driver of long-term returns in the stock market. Below, we assess the key economic conditions that we believe are of particular importance to investors.
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US ECONOMY |
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CONSUMER HEALTH |
NEGATIVE |
GDP declined at an annualized rate of 32.9% in Q2, the fourth-largest fall in the last 100 years. Although the figure is staggering, it was in-line with economists’ expectations. |
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CORPORATE EARNINGS |
VERY NEGATIVE |
Earnings have declined by 36% thus far in Q2, the sharpest year-over-year decline since 2008. |
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EMPLOYMENT |
VERY NEGATIVE |
Non-farm payroll increased by 4.8 million jobs in June, led by the Leisure & Hospitality sector, as the unemployment rate declined to 11.1%. However, the unemployment rate remains historically high and is still 7.6% higher than it was in February. |
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INFLATION |
POSITIVE |
The deflationary environment created by COVID-19 should provide additional room for robust stimulus from both fiscal and monetary policy initiatives. However, we will be watching closely in the intermediate term for second and third order effects leading to a return of inflationary pressure. |
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FISCAL POLICY |
VERY POSITIVE |
Unemployment benefits, which have been instrumental in stabilizing the economy, expired at July’s end. Congress is working to pass another fiscal package; however, the two parties remain distant on the appropriate size of the stimulus. |
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MONETARY POLICY |
VERY POSITIVE |
The Federal Reserve has supported asset markets with unprecedented speed and magnitude in response to COVID-19. |
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GLOBAL CONSIDERATIONS |
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GEOPOLITICAL RISKS |
VERY NEGATIVE |
The relationship between the US and China, the world’s two largest economies, was already weakened by the trade war but has deteriorated further as a result of Covid-19. |
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ECONOMIC RISKS |
VERY NEGATIVE |
The impacts from COVID-19 were as swift and pronounced as any shock in modern times. Robust monetary and fiscal stimulus stabilized the system, and several measures of the economy improved in May and June. However, economic activity remains well-below that in 2019, and uncertainty remains very high. |
The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.