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What's the Beef?

Bet you didn’t know that April was the best month for the stock market in the past 33 years.  You read that right.  That’s not to say we’re out of the woods.  Nor is it to suggest that we’ve recovered all of the losses from March.  The truth is that the economic data over the next couple of months is going to look very bad.  While much of that is expected, there will no doubt be surprises which send the market into a temporary tailspin.  The price of oil is still very much an issue, as is the timing of reopening the economy which remains in flux, however, earnings announcements are mostly in-line with lowered expectations and only a handful of companies have missed badly or are cutting their dividend.  More importantly, it appears a treatment for the virus is on the horizon and flattening the curve has worked.  Let’s just take a moment to enjoy April, even if it did mean we were stuck at home.
One issue that isn’t getting the attention it deserves is our food supply.  More specifically, our meat packing plants have been hit hard by COVID-19 with companies including Hormel, Tyson, and Smithfield Foods being hit hardest.  The CEO of Tyson Foods went so far as to take a full-page ad in the New York Times warning that the food supply chain is breaking.  As a result of the closures, there could be a limited supply of products available in grocery stores until the plants are able to reopen.  On average the plant closures have lasted 14 days with at least eight major U.S. meat facilities halting production in the space of a few weeks.  The President has used the Defense Production Act to force meat processing manufacturers to stay open, even going to so far as to call in the National Guard in a couple instances.  At the very least, I’d expect meat prices could climb higher.
As mentioned above, the economic data is bleak.  I won’t belabor the point other than to say the Richmond Fed Manufacturing survey cratered in April as did Consumer Confidence.  Officially, Q1 GDP contracted by 4.8% in the quarter, marking the first decline since 2008.  Some economists expect GDP to contract as much as forty percent in the second quarter.  In this case, not only is the downturn expected, but it was artificially created, which makes it different than your run-of-the-mill recession.  Since the circumstances creating the recession were self-imposed, in theory, it should be as simple as re-opening the economy to reverse course.  Along those lines, another 3.5 million people filed for unemployment last week bringing the total figure over the past six weeks to at least 30 million (or roughly 20% of the U.S. workforce).  At face value, the numbers imply a jump in the unemployment rate to above 15% and possibly as high as 25% for April which would rival numbers last seen in the Great Depression.
On the plus side, mortgage rates sank to an all-time low.  The 30-year fixed-rate mortgage averaged 3.23% in the week ending April 30.  A year ago, at this time, the 30-year rate averaged 4.14%.  These low rates are driving higher refinance activity and have modestly helped improve purchase demand.  15-year fixed-rate mortgages averaged 2.7%.
In closing, I know what a lot of you are eating these days.  No, it’s not vegetables.  I came across a story which highlighted the fact that America is running out of frozen pizza.  It appears canned tuna and toilet paper aren’t the only things people have been hoarding.  Since frozen pizza can hardly go bad and is undeniably a comfort food, it should come as no surprise that while you can still find fresh produce in the grocery store, frozen pizza is a much rarer find.  Frozen pizza sales are up 190% since the start of the pandemic with analytics indicating Americans bought $275 million worth of frozen pizza in April alone, a 92% increase compared to the same time last year.  Your secret is safe with me!  Now you know.

Bruce J. Mason, MBA