Good Tuesday AM,
I feel I need to start with an update on equities each day as they have really been the driver for bonds of late. Stocks are basically flat. The Dow down a little, Nasdaq up a little, S& P up a little. That said, the 10-yr note is flat at .67% and mortgage bonds are flat as well. Today, existing Home Sale numbers were released and they came in as expected. Keep in mind we are still in a downward trend for bonds (risk of rates moving higher) and floating is more risky than normal.
As the weather cools and we enter autumn, fears that Covid would spread faster seemingly are being realized here and abroad. Many countries are already again limiting activity. The US case count has jumped 15%. Equity markets are going to be driven by the governmental response and subsequent economic impact. What is an acceptable balance between healthcare and economic activity? I would anticipate the next few months to be volatile with equities vulnerable.
The Congressional Budget Office reported that the U.S. economy is likely to grow more slowly in coming decades and the public debt burden will increase more than previously forecast, due in large part to the coronavirus-induced recession, The agency released new projections showing weaker growth and significantly more red ink over the next 30 years than it had previously forecast. This is no surprise and the main driver for why the Fed will keep rates near zero for a long, long time.
The agency now anticipates average annual GDP growth of 1.6% from 2020 to 2050, roughly a full quarter percentage point less than it expected in June 2019, the last time it released long-term economic projections and before the coronavirus pandemic swept across the U.S., triggering a deep recession. Growth averaged 2.5% from 1990 to 2019. Debt as a share of gross domestic product is forecast to hit 195% by 2050, 45 percentage points higher than the CBO projected in June 2019. The increase is due in large part to surging outlays to combat the pandemic, followed in later years by rising interest costs and higher spending on safety-net programs such as Social Security and Medicare.
On the positive side, The Federal Reserve on Monday reported that the net worth of U.S. households increased by $7.6 trillion, or 6.8%, in the second quarter from the first quarter, to $119 trillion. That pushed it above the previous record, set in the fourth quarter.
And finally, today is the autumnal equinox… enjoy an equal amount of day and night. Starting tomorrow, the days get shorter and the nights a bit longer each day until December 22nd (the longest night of the year). Don’t ask me why my brain is cluttered with these inane facts.
Please remain safe and healthy, make today great!