Millions of People Have Lost Their Jobs. Why Are Consumer-Discretionary Stocks Soaring?
This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.
Monthly Equity Monitor
National Bank of Canada Financial Markets
July: Consumer-discretionary stocks are trading at a new high, with a forward price/earnings ratio close to 40. Why are investors bidding up a sector so closely linked to a still-uncertain recovery of labor markets?
This is where government programs come in. Despite recession and the deepest job losses in generations, labor income is surging and consumer spending is rebounding. This unprecedented development is due to the enhanced generosity of government social benefits.…[But] it is important to keep in mind that a divided U.S. Congress has yet to commit to a second round of direct payments to households after the first round expires at the end of July. Failure to do so when employment is still well off its prerecession peak is likely to shake equity markets, now trading at hefty valuations.
Wells Fargo Securities
July 9: With containment measures being relaxed around the country, economic activity is slowly starting to pick up from the virtual standstill in April. How quickly the economy is able to return to its pre-Covid-19 level of output will depend primarily on the coronavirus, but also on how willing consumers and businesses are to spend and invest.
Our Animal Spirits Index, or ASI, a five-variable-dynamic-factor model, attempts to capture how people feel about the economy. The inputs are 1) the S&P 500 index, 2) the ...
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