Opening Statement from the September 2020 Intelligent Investor (part 1)

Opening Statement from the September 2020 Intelligent Investor (part 1)

Originally published on September 2, 2020

Overview

Investors continue to express what we believe is an overly excessive level of optimism regarding expectations of a so-called “V-shaped” economic recovery. Much of this upbeat sentiment has been boosted further in recent weeks due to rising progress in the race to develop an efficacious COVID-19 vaccine. But even with the unprecedented level of monetary and economic stimulus provided thus far, global growth is sitting at record lows with very little clarity in sight.  

If we assume a best-case scenario for...

U.S. Economy

Although the pace of job losses has declined significantly from record-highs made in April, jobs continue to be shed at record pace. As of August 2, more than 50 million jobs have been lost as a result of the hysteria surrounding the coronavirus pandemic. As COVID-19 cases have resurfaced, many states and cities have once again shut down restaurants, bars, churches and other public venues. As long as officials prevent normal economic activity, more jobs will continue to be lost. Once again this underscores the importance of developing an effective vaccine.

As a reminder, Q1 GDP growth came in at -5.0% (final revision). But we stated since March that Q2 would be the big number to watch for. Recently, Q2 GDP data were released. Not far from our estimates, Q2 GDP growth came in at a record low of -32.9 percent marked by a huge drop in consumption. The collapse in consumption was largely expected due to the shuttering of much of the service economy.

As bad as the collapse in Q2 GDP was, it was better than consensus estimates from the street of 34.9 percent. As a reminder, our upper end estimate for Q2 GDP growth from May was -35 percent. We raised our estimates ...