Early summer saw widespread concern about a spike in COVID-19 cases in the Sun Belt states. As we argued at the time, this was not a “second wave” but the continued east-to-west movement of the pandemic’s first wave. Premature reopening certainly didn’t help, but lack of adherence to social distancing and other preventive measures were likely the bigger culprit. Throughout the year, we’ve made note of the “reaction function” – the time it takes for a region to experience the illness firsthand, take it seriously, and react accordingly. Southern and western hotspots in the US finally seem to have progressed through these stages.

As of late August, cases in the Sun Belt states are decreasing. Meanwhile, we continue to see more evidence of normalization in economic activity – including regional restaurant activity (takeout or outdoor seating, please) and travel data. Despite repeated delays and an apparent standstill in negotiations for further fiscal support, consumer spending and financial markets on the whole have proven resilient. While fears of the market attempting to force the hand of Congress persist, elevated personal savings in the US could be helping to provide an economic buffer while negotiations for further federal COVID-19 aid spending fail to yield results.

While we expect the recovery to continue, it is likely to follow a slower and more cautious path. Importantly, there remains a massive global effort under way to find a vaccine. Never before has the global scientific and medical community been as singularly focused. The potential for a vaccine sooner rather than later must be factored into one’s outlook.

Here are some further thoughts on questions we’ve been asked often of late:

Why did the market reach an all-time high in August?

Remember that the global fiscal and monetary response to the COVID-19 pandemic has been extraordinary. In the US, it has helped keep consumers “whole” – with many earning more income from aid spending than they were in the pre-pandemic environment. This has helped keep US consumer spending buoyant. Additionally, the sectors that have been most negatively affected by the pandemic – hospitality, entertainment, food service, retail – represent just 7% of the total operating income of the S&P 500®. Headlines about bankruptcies can make one believe that the damage is deeper and more widespread. While the economic damage has by no means been healed, economic activity has improved and the crisis has accelerated trends that actually benefit a significant portion of the market. The old adage “Tthe market is not the economy” rings true.

Should I be concerned about a tech bubble?

In our view, no. As we have written previously, the tech sector is tailor-made for lockdown conditions – think remote work, online shopping, and streaming entertainment. Large tech companies have been key beneficiaries of the “stay-at-home economy.” In our view, the current weight of tech stocks is amply justified by their earnings and business fundamentals.

What are the potential market effects of the November 3rd US elections?

Historically, US presidential elections cause an uptick of market volatility. We believe this November will be no different, although volatility risk is largely already priced -in as of late August. Obviously, volatility risk would be elevated in the event of a contested presidential election or any contested down- ballot contest of major significance – for example, a result that determines which party holds the majority in the Senate. While increased volatility may feel uneasy, we would expect knee-jerk reactions to be short- lived.

How might the results of the US presidential election influence markets?

As always, political dramatics and partisan rancor will intensify as the election approaches. Nevertheless, investors should remain mindful that many policy proposals are products of the pre-COVID-19 world. We believe that the economic and public health challenges pertaining to the COVID-19 pandemic will remain the foremost priority of federal, state, and local governments through early 2021 regardless of the election outcome. Economically disruptive agenda items are likely to be watered down or tabled altogether to prevent derailing the nascent recovery.

Would President Biden be bad for markets?

For our analysis on a potential Biden presidential victory please read our latest insights Would President Biden Be Bad for Markets?

How important is further federal aid spending to the health of the economic recovery?

Crucial – particularly for state and local governments. As of late August, there are signs that Congress may agree to temporary measures designed to shore up some additional fiscal aid in advance of the elections while taking up a more comprehensive bill at a later date. Either way, we believe that continued fiscal support is a key component to the health of the economic recovery into 2021.

The Checklist

Issue Comment
Is the economy restarting?
  • The worst appears to be behind us. It’s not about good or bad. It’s about less bad.
  • The ability and effectiveness to social distance is creating a bifurcated restart.
  • Seeing several indicators plateauing. Plateauing doesn’t mean rolling over however.
    • Is the pause the result of pent-up demand effect waning, or virus-related uncertainty?
    • Watching to see impact of unemployment benefit expiration on spending.
Business Activity Highlights
  • Strong relationship between increased mobility and improving economic activity.
  • Most states across US showing a leveling off in economic activity. Sunbelt states showing improvement after seeing case counts peak and rolling over.
  • Japan and Europe showing softening in business activity. Europe weakness more broad based with case counts on the rise again
Consumer Spending Highlights
  • Consumer spending remains slow but steady in its recovery.
  • Note the relationship between sectors benefiting from increased spending and the ability to actively manage social distancing norms.
  • Notable: Housing mkt/mortgage applications are strong.
  • Spending still holding up - data beginning to cover time period when unemployment benefit expiration hit.
What is the Market Telling Us?
  • Reopen names moving in fits and starts. Prospects for vaccine continue to improve.
  • The New Economy names showing strength – on-line shopping, internet-related names, etc.
  • Market Narrative: If we can have hot spots and deal with them without derailing the country, the reopen will continue, albeit uneven and choppy.

Are Consumers Spending?

MBA Weekly Mortgage Purchase Applications (5/12/17–8/14/20)
MBA Weekly Mortgage Purchase Applications
Source: Natixis PRCG, FactSet, Bloomberg,

Restaurant YoY Revenue, Dine In (2/17/20–8/17/20)
Restaurant YoY Revenue
Source: Natixis PRCG, FactSet, Bloomberg,

Redbook Retail Sales (5/15/17–8/14/20)
Redbook Retail Sales
Source: Natixis PRCG, FactSet, Bloomberg,

Retail Sales (5/15/17–8/17/20)
Retail Sales
Source: Natixis PRCG, FactSet, Bloomberg,

Is the Economy Restarting?

NY Fed's Real Activity in Real Time
Weekly Economic Index (1/5/08–8/15/20)
NY Fed's Real Activity in Real Time, Weekly Economic Index (1/5/08–8/15/20)
Source: Natixis PRCG, New York Federal Reserve, Oxford COVID-19 Goverment Response Tracker

NY Fed's Real Activity in Real Time
Weekly Economic Index (1/5/18–8/15/20)
NY Fed's Real Activity in Real Time, Weekly Economic Index (1/5/18–8/15/20)
Source: Natixis PRCG, New York Federal Reserve, Oxford COVID-19 Goverment Response Tracker

Oxford Lockdown Index: United States (2/1/20–8/17/20)
Oxford Lockdown Index: United States
Source: Natixis PRCG, New York Federal Reserve, Oxford COVID-19 Goverment Response Tracker

Business Applications (1/4/20–8/8/20)
Business Applications
Source: Natixis PRCG, New York Federal Reserve, Oxford COVID-19 Goverment Response Tracker

What Is the Market Telling Us?

Stay Home vs. Reopen Composites (12/31/19–8/18/20)
Stay Home vs. Reopen Composites
Source: Natixis PRCG, FactSet

Reopen/Stay Home (12/31/19–8/18/20)
Reopen/Stay Home
Source: Natixis PRCG, FactSet

Reopen Composite (12/31/19–8/18/20)
Reopen Composite
Source: Natixis PRCG, FactSet

Stay Home Composite (12/31/19–8/18/20)
Stay Home Composite
Source: Natixis PRCG, FactSet

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed may change based on market and other conditions.

Natixis Distribution, L.P. is a limited purpose broker-dealer and the distributor of various registered investment companies for which advisory services are provided by affiliates of Natixis Investment Managers.


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