The popular debate by many investors has been what the recovery from the stay at home orders that devastated the markets looks like. Will it be a “V” shaped recovery, meaning pretty fast? Or will it a be a “U” shaped recovery that takes longer and seems like more of a grind?
I believe that the most critical component to which type of recovery we have is actually figuring out when the actual recovery begins economically. Things like unemployment claims starting to recede, consumer optimism beginning to trend upwards, and retail store sales starting to head higher are some of the ways we can get a glimpse into momentum shifting from decline back to growth or even just stabilization.
You might be thinking great but how do I track or measure these things to really be able to spot the economic turnaround. Well, here are 4 things you can keep an eye on to help you see the first signals of the economic recovery actually taking place.
- Unemployment Continuing Claims – Before the coronavirus 1.7 million people were collecting jobless benefits. As of the week of April 25th that number has exploded to 22.6 million claims. The first thing we need to see is people going back to work and that 22.6 number starting to recede.
- Consumer Sentiment Survey – Pessimism has taken over. Until Americans can return to work and feel safe, there won’t be a change in the plummeting Consumer Sentiment Survey. This is probably one of the bigger pieces to the pace of any recovery.
- Same-Store Sales – From big chain stores to small businesses alike, the pandemic has crushed retail sales as most have had to close during the lock down. Social distancing is likely to keep a certain percentage of people away once these stores reopen but how fast these stores can at a minimum get going again is critical.
- Weekly Change in Mortgage Applications – Nothing says recovery like a surging real estate market. If people don’t feel safe about their financial situations, they aren’t likely to make one of the biggest purchases in their financial lives. More to that, they won’t be able to get a loan if they don’t have stable employment.
Remember, the stock market is forward looking so waiting to see a sizable change in any of these 4 areas will probably make you late to the party in terms of the next phase of any market rise. You mainly want to be looking for change of direction to indicate a momentum shift. Also, keep in mind that the market is pricing in a more optimistic outcome or a “V” shaped recovery. So essentially the potential of buying into a top are certainly present if you aren’t patient. If you keep your eyes on the signs of a changing tide and have a longer term focus for your investments you will probably like what you see 5 years for now.
Jarrod Adams Investing LLC
10130 Perimeter Parkway
Charlotte, NC 28216