by Jason Norris, CFA
Executive Vice President
Economic data the past week reinforced the view that the U.S. economy continues to improve. This was highlighted by the retail sales number released by the U.S. Department of Commerce on Thursday morning. While the data was from June and doesn’t reflect some of the rollbacks we are seeing in some states, it was still very strong. June sales were up 7.5 percent from May. The strength the consumer has shown the last few months has been amazing. From February through April, sales were down almost 22 percent, and with the consumer strength in May (up 18.2 percent) and June, U.S. retail spending is 1 percent lower than it was in February. June also showed a year-over-year gain of 2.3 percent.
The caveat being that these gains will likely slow in July. The chart below highlights the past several weeks that states with close to 75 percent of the U.S. population are either increasing restrictions on or hold regarding reopening.
Source: Goldman Sachs Global Investment Research
One wildcard at the end of this month will be the expiration of enhanced unemployment benefits. The current extra benefit is $600 per week. An Evercore ISI analysis shows that if there is no additional stimulus, U.S. GDP could be reduced by 2.0 percent versus a full renewal for 2020. While there has been criticism that these enhanced benefits have resulted in people choosing not to work, in last week’s Evercore ISI weekly company survey they found that concerns about safety and childcare are the primary reasons the majority of people not returning to the workforce, rather than the availability of unemployment benefits.
Blinded by Science
A vaccine would allay safety concerns. This past week we received vaccine study data from several companies, with the most promising coming from both Moderna and Pfizer. Both of these phase one and two studies showed compelling results and they are initiating phase three this month. Also, AstraZeneca will be reporting the results of their study on Monday. While expectations are for some of these vaccines to be available by late 2020, the main issue is going to manufacturing and distribution.
Johnson & Johnson stated they believe they can manufacture at least 600 million doses by the first quarter of 2021 and ramp that capacity to over a billion throughout 2021. Currently, seven companies have disclosed potential production capacity for the end of 2020/2021. The table below shows the estimated potential vaccine production for 2021.
Source: Goldman Sachs
Our Takeaways from the Week
The rally in the S&P 500 continued with stocks rising 1 percent. However, leadership changed this week with Industrials and Basic Materials’ stocks leading the way, and Technology names lagging
Earnings season started off strong with 42 companies reporting and, on average, beating expectations by over 13 percent