On Tuesday, the New York Fed released its quarterly snapshot of consumer credit which was the last one before the effects of COVID-19 start to work their way across lenders.  As noted in Tuesday’s Closer, the data showed some initial signs of cracks in lending markets.  Credit card balances declined slightly which was the first drop since Q1 2014.  On the other hand, mortgage lending—the largest section of consumer credit—had a strong quarter with balances outstanding rising 6.5% annualized after seasonal adjustment while auto lending—the third-largest share of consumer credit—had its best quarter since Q1 2017.

Longer-term growth trends were also fairly uninterrupted in Q1 as has been the case for the past few years.  Loan growth was primarily driven by mortgages which made a new post-crisis high in Q1 while other categories of lending were pretty unremarkable.

Finally, we note that on the eve of COVID-19, consumers had ample reserves of credit available on both HELOCs and credit cards.  Even better news, the percentage of consumers under collection was at a record low, the number of bankruptcies was at a record low, and foreclosures were very low as well.  While the outbreak of COVID-19 and the related economic ramifications likely changed that, consumers were in a relatively strong position coming into the pandemic.

Not only were foreclosures and bankruptcies historically low, but the lending conditions appeared fairly tight as well.  The lending market was mostly directed towards high-quality borrowers.  That was the case for not only mortgages but auto loans as well.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

Although the S&P 500 (SPY) is down around 1% over the past week, there are two sectors that have made a push higher: Communication Services (XLC) and Technology (XLK).  While these moves have left both sectors in overbought territory, a snapshot from our Trend Analyzer tool shows that Tech’s rally has brought it into the green YTD.

Technology’s outperformance is nothing new.  As shown in the relative strength charts from our Sector Snapshot below, Technology has been a serial outperformer versus the S&P 500 for pretty much all of the past year (a rising line indicates outperformance versus the S&P 500 and vice versa). As for the other sectors, Health Care has also seen some drastic outperformance over the past few months. Communication Services and Consumer Discretionary have also seen some outperformance in recent weeks.  Contrary to Technology, Energy, Financials, Industrials, and Materials have all been consistent underperformers over the past year. Start a two-week free trial to Bespoke Institutional to access our Trend Analyzer, Sector Snapshot, and much more.

The world is a scary place right now.  10% of the US population and 20% of the labor force have filed for unemployment insurance in the last few weeks, and stock markets have seen record volatility.  For the Americans that do have more than $400 saved up, the question is where do you put it?  With interest rates at zero and with central banks flooding the market with liquidity, many are concerned that the dollar they put under the mattress today won’t be worth that much when the rainy day comes. Sure, the stock market has historically delivered superior returns, but those above average returns aren’t guaranteed to be there when you need it either.  Gold, on the other hand, has fared relatively well.  After a sharp decline in the early days of the Covid Crash, it has since broken out to five-year highs and is only about 10% from all-time highs.

In addition to gold, bitcoin has done extremely well recently, and unlike gold which is normally associated with grumpy old guys, bitcoin is cutting edge.  Just today, bitcoin received another endorsement as it was reported that hedge fund legend Paul Tudor Jones has been buying the crypto-currency saying it reminds him of gold in the 1970s.  Like gold, bitcoin is considered an inflation hedge but an extremely volatile one at that.  Not only is it something they can’t make more of, but the supply is actually shrinking.  That’s because bitcoin has to be stored in a digital wallet and if you lose your wallet, you lose your bitcoin.  Way back in 2018, the Wall Street Journal reported that up to a fifth of all bitcoin had been lost and in most cases, those losses were permanent.

Looking at the recent performance of bitcoin, the last month or so has been extremely strong with the price more than doubling off its March lows.  After today’s PTJ bounce, it’s not far from its highest levels of the year right around $10,400.

Just as bitcoin is nearing short-term resistance, it is also bumping up right against a long-term downtrend as well. Since its record high during the late 2017/early 2018 mania when bitcoin peaked just under 20,000, bitcoin has seen a series of lower highs at 14,000, then around 12,500, and earlier this year at 10,400.  It’s still below 10,000 now, but a break above 10,400 to new 2020 highs would put that downtrend line in the rearview mirror.  And while panic over pandemic has drowned out talk of just about anything else, not even COVID-19 would be able to silence the crypto crowd if that downtrend breaks.  Start a two-week free trial to Bespoke Institutional for full access to our research and interactive tools.

Initial jobless claims fell for a fifth consecutive week down from 3.839 million last week to 3.169 million this week. While that is still extremely high by historical standards, that is the lowest print since jobless claims starting printing more than a million in late March. In other words, a massive number of people are continuing to file for unemployment insurance, but the pace of increase has slowed down with the peak in the rearview for the time being.

On a non-seasonally adjusted basis, this week was only the fourth consecutive decline with claims now down to 2.849 million. As with the seasonally adjusted number, this week’s print was the smallest of the past several weeks since claims first began to print in the millions but is still very high compared to the rest of history.

The four-week moving average has also seemed to have peaked for the time being as it fell for a second straight week.  The moving average is now down to 4.174 million compared to over 5 million last week.  While it could be expected given the massive volatility of the indicator over the past couple of months, that 859.75K decline from last week is the largest single week decline on record (second chart below).

Since the March 20th print (the first one in the millions) to today, a total of 33.483 million initial jobless claims have been filed. That is more than 10% of the US population and over 20% of the labor force!. As such, continuing jobless claims (lagged by a week) came in at another record of 22.647 million this week.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.