Like other areas of the economy, the finances of states, counties, cities, and towns have been heavily impacted by efforts to contain the COVID-19 pandemic. The disruption has raised concerns for municipal bond (“muni”) investors.
It is a foregone conclusion that the US economy has entered recession, led by the consumer, which accounts for more than two-thirds of the US economy based on gross domestic product (GDP). The collapse of consumer spending was evident in March personal consumption expenditures data released on Wednesday that showed a record 7.5% month-over-month drop in consumer outlays. It would have been worse if we weren’t stocking our refrigerators and pantries.
One of the best known investment axioms is to “sell in May and go away.” This is largely because these six months have historically been some of the worst six months of the year. As you can see below, the next six months have tended to be on the weak side.
Over the past couple of weeks, we have thankfully witnessed new cases of COVID-19 in the US trending lower. Increasingly, we are also seeing governors implementing plans to re-open their state economies in phases. If the US economy continues to open up and economic growth starts to rebound, relative performance of stay-at-home growth stocks may level off or even reverse.
The Conference Board’s Consumer Confidence Index (CCI) for April came in 86.9, falling more than 30 points from the prior month. The monthly drop was the biggest for the index since 1973, reflecting the severity of the economic impact of COVID-19 containment efforts.
With 20% of S&P 500 Index companies having reported first quarter results so far, earnings season has been a mixed bag.
