Saturday, December 5, 2020

THINK STRATEGICALLY: President Trump’s Cry for Help

By on August 3, 2020

Image by Alemko Coksa from Pixabay

As the United States nears reaching 5 million COVID-19 cases and 160,000 deaths, President Trump’s actions, after months of dismissing the crisis and then eroding his administration’s efforts to fight the coronavirus outbreak, may be his undoing. No sitting president has been reelected with an economy in recession since 1912. The perfect storm materialized for the president. The country is facing a gross domestic product (GDP) contraction of 32.9%, while 1.43 million Americans filed new unemployment claims, and the unemployment rate is at 11.1%; thus, his chances of reelection seem greatly diminished. 

A national Quinnipiac University Poll, conducted July 9 to 13, asked voters to choose between former Vice President Joe Biden and Trump. Voters now give Biden a slight lead when it comes to handling the economy. More respondents, or 50% vs. 45%, said Biden would do a better job handling the economy, a reversal from June when Trump held a slight lead at 51%, vs. 46% 

Percentage of respondents on other critical issues:

  • Handling a crisis, Biden leads 57% – 38%. 
  • Managing health care, Biden leads 58% – 35%; 
  • The coronavirus response, Biden leads 59% – 35%; 
  • Addressing racial inequality, Biden leads 62% – 30%. 

On honesty: 

  • Trump: 31% say yes; 66% say no 
  • Biden: 46% say yes; 42% say no

The president’s cry for help came in the form of a tweet on the day the Bureau of Economic Analysis revealed that the U.S. economy had registered a record GDP contraction. His tweet proposes that the elections be moved to a later day, something that would require congressional approval.

During its history, the United States has had everyone from farmers to movie stars serve as president. One thing we never had was a president, a leader that seems to live in a separate world. Great leaders have an authentic disposition with unquestionable devotion to lead all citizens of a nation—realizing a unity of purpose and striving for collective goals. No leader can ever achieve greatness using divisiveness.

Has President Trump risen to the challenge?

Month in Markets: U.S. GDP Contraction, Surge in COVID-19 Cases & Tech Stocks, Sway Markets

The U.S. Stock market ended the month with a bang driven by the quarterly earnings of Apple, Microsoft, Amazon and Facebook, and the expectation with the fourth coronavirus response package. The $1 trillion bill introduced by Senate Republicans, which had the blessing of President Trump and Treasury Secretary Steven Mnuchin, may be the basis for discussion with Democrats. The House, Senate and administration officials met Saturday in the White House to harmonize their differences as to what to include in the next virus-relief measure. From what our Washington sources have advised us, the big elephant in the room is that the Democrats insist on extending the $600 a week in unemployment benefits, while Republicans favor a reducing the benefit to $200 a week.

The Democrats argue that the additional $600 a week in benefits has allowed those unemployed to survive during the pandemic. Republican claim that the enhanced unemployment benefit is keeping people at home rather than finding work. The science here is to find a mutual understanding of the unemployment benefit, as the current one expired July 31.

As Washington negotiates, the GDP decline is raising fears among investors.

 Results for the month: July 31

  • The Dow Jones Industrial Average closed at 26,428.74, up 615.86 points, or 2.39%.   
  • The Standard & Poor’s 500 closed at 3,271.22, up 170.9 points, or 5.51%.  
  • The Nasdaq closed at 10,745.27 points, up 686.5, or 6.82%
  • Birling Puerto Rico Stock Index closed at 1,542.30, up 92.08 points, or 6.35%.  
  • The U.S Treasury 10-year note closed at 0.56%, down 15.15%.
  • The U.S. Treasury 2-year note closed at 0.11%, down 31.25%

A review of vital benchmarks reported last week:

  • U.S. Initial Unemployment Claims: rising again, last week there were 1.43 million claims, up from 1.42 million the previous week.
  • U.S. Unemployment Rate: fell to 11.1% from 13.3% the previous month.
  • U.S. New Single-Family Houses Sold: increased to 776,000, or 13.78%.
  • U.S. Index of Consumer Sentiment: fell in July to 72.5, down from 78.1 in June.
  • U.S. ISM Manufacturing PMI: rose to 54.2, up 1.6 percentage points from the June reading of 52.6%
  • U.S. Existing Home Sales: came in at  4.72 million, a 20.72% increase
  • U.S. Real Disposable Income: fell to $16.03 trillion, down 1.77%.
  • U.S. Disposable personal income: increased $1.53 trillion, or 42.1%,
  • U.S. Real disposable personal income: increased 44.9%, compared with an increase of 2.6%

The Final Word:  Trends that Investors Must Remain vigilant About  

To conclude our discussion this week, we have composed a list of items that investors must be vigilant about amid the pandemic, which affects the economy, markets and daily lives. Considering all the issues at play, here are some notable trends to help you navigate this scenario.  

  • The Economic Recovery: The significant rise in the price of most stocks has been based on the reopening of the U.S. economy, mixed with the timely fiscal stimulus from Congress and very aggressive monetary policy implemented by the Federal Reserve. The COVID-19 case surge is derailing economic recovery with a dramatic GDP reduction and forcing more people to file for unemployment. Investors must be quite vigilant about all developments to stay ahead. Our projection is that corporations will experience measured profitability with a return to growth by 2021. 
  • Mixed Corporate Earnings Bag: Companies are either beating estimates or delivering dismal results. We have seen companies that range from retail to food sales to manufacturing report worse than expected results. Nearly half of all S&P 500 companies have reported quarterly results and  84% have exceeded estimates. These results have exceeded the low expectations of analysts. The current earnings forecast is a 40% to 43% reduction in earnings for 2Q2020 and 20% to 25% for the full year.
  • To achieve the Corporate Growth Projections, we see:
    • An enduring economic recovery, chock-full of pitfalls. 
    • Lower than expected interest rates.
    • With the digital transformation and remote working environment proven effective, a sea change of corporate cost-cutting efforts is underway.
  • Were the July Coronavirus Case Surge to Continue, it May Kill the Economy.
  • The contiguous United States reported a 70.22% rise. 
  • Puerto Rico reported a 122% rise.
  • Florida reported a 203% rise.
  • Texas reported a 157.5% rise.

The 122% rise in Puerto Rico cases is concerning. The Aug. 1 numbers from the Puerto Rico Health Department follow:

A new COVID-19 surge in cases may result in business closures, lockdowns orders, repeating all the precautions, and potentially rolling back all the progress.

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