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Markets May Be Having a V-Shaped Recovery, but Economic Numbers Don't Support It
05/29/2020 10:06 am EST
Landon Whaley provides some cold hard data to those touting a V-Shaped recovery.
If you’re involved in markets right now, you reside solidly in one of two camps: The V-shapers and those that rely on data. Of course, the V-shapers are relying on current price data, but there are those that want to dig a little deeper.
The first camp is the “V-Shapers.” If you’re in this camp, then you believe that the combination of the massive amount of liquidity from the Federal Reserve and the U.S. government’s fiscal stimulus has not only staved off a Depression, but has mended all ills and propelled us into an economic recovery.
For instance, Morgan Stanley’s Mike Wilson is a “V-Shaper” as he double downs on his call for investors to load up on risk assets. “Our view is that we will see a V-shaped recovery, for two reasons – the historic steepness of the decline in activity, and the unprecedented policy response. He also writes that the firm’s models show that investors are bearishly positioned. “It’s a different kind of bearishness, one that accepts the extraordinary policy response as having done its job to stop the decline but skeptical that it can lead to a sustainable recovery.”
Also wearing the V-Shaped camp counselor t-shirt are executives from Apple (AAPL), Microsoft (MSFT), Facebook (FB), Uber Inc. (UBER), Auto Nation Inc. (AN), and CVS Health Corp. (CVS). These guys echoed what Doug Parker, CEO of American Airlines Group (AAL), told CNBC, “It certainly feels like we’re at the bottom.”
Folks, as Jimmy Dugan once said, “There’s no crying in baseball.” Well, if you want to be consistently successful, then there’s absolutely no “feeling” in investing.
Though it shouldn’t shock any of us that an airline executive, whose industry business model is to file bankruptcy every five years, believes that “feeling” is the way to assess his business and the broader economy. But I digress.
The other camp, and the one that I happily belong to, is a camp populated by people that prefer data to feelings. If you don’t believe it, then feel free to ask any of my ex-girlfriends.
If you belong to the “Data Dependent” camp, then you believe that the combo platter of Federal Reserve liquidity and government stimulus may have staved off a Depression, but it didn’t arrest economic reality. Your belief, and mine, is that the U.S. economy is still careening towards a 2020 recession.
In last week’s report, we drilled down into the latest manufacturing data from around the globe and found that 26 of 32 economies posted their worst level of growth contraction ever.
And as the following data shows, this is not just a manufacturing issue, service sector activity around the world resembles the Walking Dead.
The U.S. April Markit Services PMI hit the lowest level ever at 26.7. The average Service PMI reading in the Eurozone was 11.1 across, Germany (16.2), Italy (10.8), France (10.2), and Spain (7.2). Taking the trophy for the most cartoonish, and worst, reading of all is India. Their service sector registered a PMI reading of just 5.4!
The headline risk bottom line is that a “recovery” first requires that economic growth stops falling. The manufacturing and service PMI data (like Shakira’s hips) doesn’t lie. The data is telling you, in no uncertain terms, we are still solidly in an economic downtrend. Global (and U.S.) growth hasn’t bottomed, there is no recovery in play, and you can darn well expect more downside from here.
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