Spending It While We Can

By Matthew Klein |  Friday, July 31

As Good As It Gets. Today’s personal income and outlays report from the Bureau of Economic Analysis was bittersweet. On the one hand, the June numbers were great. Excluding groceries, energy, and imputations, household consumption jumped 7.6% in June. Since the April bottom, consumption is up 21% on a seasonally-adjusted basis. Spending is still 9% below February levels, but the “v-shaped” recovery was real.

Unfortunately, the good news is unlikely to continue. For one thing, the recovery has been powered by government income support that has since been ended. Small businesses aren’t going to get any more Paycheck Protection Program loans. The Pandemic Unemployment Compensation payments that boosted jobless benefits by $600 a week have expired. At the same time, the rapid spread of the virus since mid-June has coincided with worsening high-frequency data. The Federal Reserve Bank of New York’s Weekly Economic Index seems to have stalled out recently, for example.

We’ll find out more next week when the Bureau of Labor Statistics publishes the hotly-anticipated jobs data for July. The number of Americans receiving unemployment insurance has been basically flat since the last jobs survey, while the Census Bureau’s experimental Household Pulse Survey implies that millions of jobs have been lost. Either way, the data so far suggest that the good news from May and June won’t last much longer.

For now, though, it’s more fun for investors to focus on the tremendous earning power of the mega-cap tech companies. Fresh from testifying before Congress about anticompetitive behaviors, Apple and Facebook rose 10.5% and 8.2%, respectively, today on the back of massive earnings beats. (Facebook's market value crossed $700 billion for the first time as a result.)

Overall, the S&P 500 index was up 0.8% by the end of the day, although the gains were relatively narrow and were confined to the last 90 minutes of the session. Only 231 components were up, while five of the 11 subsectors were down. The standouts, unsurprisingly, were tech and communication services.

The Nasdaq Composite index, which includes the biggest tech companies, was up 1.5% on Friday. So far this year, the index is up 20%, which would have been impressive even in the absence of the coronavirus. Overall, the S&P 500 is up about 1% since the start of the year, and down only 3.4% since the pre-pandemic peak in February.

But even the Nasdaq can’t compete with gold and silver. Gold hit a new record of $1,963 an ounce today—29% higher than where it was at the beginning of the year—while silver is up 36% year-to-date. The metals are moving inversely to the drop in real yields on U.S. Treasury Inflation-Protected Securities, which continue to plumb new depths below 0%.

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