Venturing out after hunkering down
By Kyle Tetting
Americans were expected to spend $4.2 billion going places over Memorial Day weekend, the traditional start of summer travel. That would be only about a third of what they spent a year ago, according to the U.S. Travel Association.
In 2019, some 43 million Americans traveled around Memorial Day, the AAA says. For 2020, the tourist group suspended its forecast. Instead, it posted an interactive map online showing travel restrictions by state.
It’s too soon to know how the economy fared on the first national holiday since mass shelter-in-place orders. It’s safe to say, though, that fewer consumers are venturing out so far. Until we feel more comfortable in even small clusters of people, we’re unlikely to return to pre-pandemic levels of travel.
Workers in the leisure and hospitality industries have been decimated. Unemployment in those areas reached 39.3% in April, according to the Bureau of Labor Statistics. Data from the U.S. Travel Association suggests travel-related unemployment hit 51% just ahead of Memorial Day.
Plunges in consumer spending and employment emphasize how economically devastating a pandemic can be. Yet, even as states and localities ease restrictions or reopen, there’s little evidence that consumers are ready to spend. Uncertainty about employment is part of the problem, but consumers also continue to wait for more promising news on vaccines and treatments.
The wait-and-see approach is why drifting markets resurged recently on encouraging news from a study on the front-running vaccine in America. Of course, reports were largely void of solid scientific data and were based on just eight of 45 trial participants. Nevertheless, preliminary results were encouraging and represent hope that we’ve taken another important step toward a vaccine.
Of course, that is how the stock market is supposed to work in the short run. Traders weigh the positive and negative headlines and step on the gas or pump the brakes accordingly. As the divergence between positive and negative headlines narrows along with the range of our expectations for the future, the fits and starts of a recovery begin to smooth.
With the U.S. economy driven by the consumer, the challenge that remains is overcoming a crisis of confidence. This time the crisis is not purely economic. Instead, large portions of consumer spending have been erased or repurposed over fears of exposure to this deadly and novel virus. While some of the fear was government- mandated to slow the spread, it is now evident that shoppers won’t simply return when stores reopen.
Also, there is reason to believe that the recent slowdown in transmission may not be an end to the virus. A recent paper published by the National Academies of Sciences, Engineering, and Medicine noted that each of the 10 influenza pandemics in the last 250-plus years had a second wave approximately six months after the virus emerged.
While we’ve learned much about how to monitor and treat the disease caused by the virus, concerns over a second wave will further dampen summer travel and spending in other areas.
Businesses will adapt. Scientists and health care workers will find new ways to treat and minimize the disease. Eventually, a vaccine may be found. Each of these will help to guide the path forward, but they do not happen overnight.
While stocks have recovered nicely from their lows, the continued presence of uncertainty and the potential for further impact from the virus will hang over stocks for some time. That is why the fundamentals of balance are more important now than ever.
As investors, our portfolios are driving through a difficult storm. A short-term view, speeding from one headline to the next in an attempt to navigate uncertainty, may well result in an accident. Instead, taking a more thoughtful approach, keeping our eyes on the road, buys us time to make the right decisions for the long run.
Taking the longer view isn’t exclusive to balanced investors, but it does become easier to think beyond the next six months when you know you’ve got years of cash saved up in safer investments.
So, regardless of headlines and data in the coming months, remember that we can look ahead to what lies beyond the current crisis when at last we’re comfortable to hit the roads again.
Kyle Tetting is director of research and an investment advisor at Landaas & Company.
Preparing for what comes next, by Kyle Tetting
Keeping balance in unnerving times, by Bob Landaas
From peak to bear, now seeking normalcy, by Kyle Tetting
Corrections: A normal part of investing, a Money Talk Video with Marc Amateis
Talking Money: The importance of balance, a Money Talk Video
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The Centers for Disease Control and Prevention
(initially posted May 28, 2020)
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