Stocks flat. US stocks opened slightly lower in the midst of higher COVID-19 numbers dominating the conversation. China’s market was closed Friday, but other Asian markets were green. European markets were also comfortably higher in midday trading, as the European Union offered to limit the scope of the digital tax it had threatened with the United States.
Stress test results out. After market close Thursday, the Federal Reserve (Fed) released the 2020 bank stress tests of 33 banks. The Fed announced banks were healthy but could suffer 2008-style losses if the economy languishes. In an attempt to help banks conserve funds, the Fed also said dividends would be capped in the third quarter and there would be no buybacks. Banks sold off on the news. Our financials sector view remains neutral.
Not all bad news for banks. Bank stocks rallied Thursday as some of the Volcker Rule was rolled back, including relaxing banks’ restrictions on proprietary trading and investing in hedge funds or private equity.
When will the economy recover? Much of the recent economic data has been better than expected, but we still expect the recovery to potentially take years to get back to some previous levels of output. For example, the previous 10 recessions took 30 months on average for all the jobs lost to come back. We take a closer look at this later today on the LPL Research blog.
COVID-19 news. On Thursday, new cases exceeded 39,000, an increase of more than 40% week over week and above the previous high set April 24. The rise has been concentrated in Texas and Florida, which paused re-openings; California, which is considering pausing; and Arizona. Hospitalizations rose for the fourth straight day, but as new cases skew toward younger people, the pressure on the healthcare system may likely be more manageable than during the initial waves (Source: COVID-19 Tracking Project).
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