Thursday, March 5, 2020
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A 12-month high before coronavirus
On February 21, the Morning Brief wrote that recession odds were at a 15-month low, according to data from JPMorgan.
A week later, the stock market had declined more than 10%. Fears over how much COVID-19 would slow down the global economy had rocked investor confidence like few things since the financial crisis.
On Tuesday, these fears resulted in the Federal Reserve announcing an emergency rate cut of 0.5%, its first inter-meeting cut since October 2008.
But in a press conference following this move, Fed Chair Jay Powell turned some heads in his discussion of the state of the U.S. economy.
Powell said the U.S. economy is “strong” and that it would “get to the other side of [the coronavirus slowdown].”
“And I fully expect that [the U.S. economy] will return to solid growth and a solid labor market as well,” Powell added.
Economic data released Wednesday, however, shows how solid the U.S. economy really was as the year’s second month drew to a close.
Private payroll data from ADP published Wednesday showed that 183,000 private sector jobs were created last month. Wall Street was looking for this report to show 170,000 jobs were added last month.
The Institute for Supply Management’s report on service sector activity in February was also a positive surprise on Wednesday, with the index hitting 57.3, its highest level in a year.
“Most respondents are concerned about the coronavirus and its supply chain impact,” said Anthony Nieves, chair of the ISM’s survey committee. “They also continue to have difficulty with labor resources. They do remain positive about business conditions and the overall economy.”
Michael Pearce, senior U.S. economist at Capital Economics, said Wednesday that while ISM’s data was “old news” this report “does underline that economic growth was gathering momentum before the coronavirus outbreak began in earnest.”
A small consolation, perhaps. But a reminder of why markets were so optimistic just a few weeks ago.
Certainly, Powell’s statements on the economy are standouts because of the backdrop against which his Tuesday press conference took place — the Fed had just used an emergency action last seen during the depths of the financial crisis.
The signal from the Fed to markets is that the central bank is now on war-time footing, bracing for as-yet-unknown negative consequences from the outbreak of a deadly virus spreading quickly around the globe.
And while incoming economic data aren’t likely to capture ongoing impacts from the spread of COVID-19, this data might at least reassure investors the economy did indeed enter this uncertain period on sound footing.
What to watch today
7:30 a.m. ET: Challenger Job Cuts year-on-year, February (27.8% in January)
8:30 a.m. ET: Initial Jobless Claims, week ended Feb. 29 (215,000 expected, 219,000 prior); Continuing Claims, week ended Feb. 22 (1.724 million prior)
9:45 a.m. ET: Bloomberg Consumer Comfort, week ended March 1 (63.5 prior)
10 .m. ET: Factory Orders, January (-0.2% expected, 1.8% in December); Durable Goods Orders, January final (-0.2% prior); Durable Goods excluding Transportation, January final (0.9% prior)
8:30 a.m. ET: Kroger (KR) is expected to report adjusted earnings of 55 cents per share on $28.82 billion in revenue
Other notable reports: Burlington Stores (BURL)
4:15 p.m. ET: Costco (COST) is expected to report adjusted earnings of $2.06 per share on $38.18 billion in revenue
[Take our quick poll: Do you think the stock market has bottomed?]
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