China dominated the financial headlines this week, with threats of a renewed trade war coming from the US administration, and all eyes on the release of retail sales and Chinese factory output. Factory output increased 3.9% in April, while retail sales were down 7.9% year over year for the month. Both numbers beat expectations.

I was frankly relieved to see the headlines return to the trade war, and get out of the COVID-19 domination we’ve faced for the last 90 days. After 60 days of quarantine, I’m ready for it to be over.

So is the rest of the world, looking at travel stocks starting to rebound. Even Carnival Cruise Lines rebounded, up 8.3% this week. I wouldn’t get too cozy with travel stocks yet, when government stimulus wears off many of these stocks will realize they don’t have the cash to keep going. I don’t think we’ve even begun to see the wave of bankruptcies that will flood the global system.

Barron’s had an interesting headline this morning that caught my eye. It talked about Wall Street playing the game of “the worst price since-“ It’s not a fun game for investors or companies to be playing. For example, GE has the lowest price since the 1990s. The game ends when investors can say the prices are the worst ever. I don’t know about you, but that’s not a game I want to play.

Al has said many times over the last several weeks that the market has stopped what I would call “beta selling” – which is where the entire market sells off evenly, good and bad stocks alike – and started picking winners and losers again. Well, the downward push on all stocks (beta selling) might be back, as consumer confidence backs off. Commercial air travel is down over 90%. And initial jobless claims are above 36 million, which is the highest level in history.

I have been wondering how lockdown restrictions being lifted is affecting the states that have reopened. OpenTable says restaurant bookings are still down 80-90%. The question over the next few years will be how the pandemic affects not just the economy and health but human behavior. We have mused in the office whether handshakes are a thing of the past. Will we no longer hug our friends. Will restaurants without outdoor seating be shut down? Workers in the restaurant business say that as they wait tables, the server will need to change rubber gloves before going to each table, and show patrons that they have done it. A practice that is less about sanitation than about making customers comfortable. Cruise lines, while they may be allowed to operate at some point, are unlikely to be able to fill a boat. Stories of being trapped for months linger and will affect buying choices for years to come.

Returning to the beginning, watch out for continued tension with China and how that will affect markets. With COVID-19 it’s been almost forgettable that it’s an election year, and both sides will be trying to gain attention in the headlines as we get closer to November. President Trump needs his constituency to see that he is tough on China, but he also needs the stock market to recover – it’s a tough tightrope to walk.

All in all, we continue to watch the markets. We think that market movement and downward pressure will continue. And we are continuing to keep an eye on the bond market to see a good place to gain income when bonds are expected to return 1-2% in a long-term low interest rate environment.

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