Lies, Damn Lies, and Statistics
Mark Lazar’s July 2020 Newsletter
Who are you going to believe; me or your own eyes? Groucho Marx
Mark Twain popularized the saying, “There are three kinds of lies; lies, damn lies, and statistics.” This month’s commentary will have little in the way of … well, commentary, and will instead be heavy on data; truthful data, of course.
Active COVID cases peaked at 1.195M on May 21, then dipped immediately thereafter. This coincided with the time most states were beginning to reopen. However, since then, the number of cases has risen dramatically, and now stands at over 2.1M. Why then has the stock market, and bond market, for that matter, continued to recover in spite of what should be dour news? While the case number is rising, the mortality rate is moving the other direction; deaths per day fell from a peak of nearly 3,700 on April 18, to just under 300 on July 7. This may be attributed to a combination of a much younger age of infected combined with vastly increased knowledge of the virus and a commensurate improvement in treatment. Regardless of the reason, this is good news.
The markets, at least as of today, appear to be pricing in continued economic recovery, and it’s not difficult to find data that supports that thesis. Below is a sample of high frequency weekly data, such as jobless claims, rail car traffic, hotel occupancy, and TSA checkpoint counts. Virtually all of the headline data that’s being reported isn’t just getting better—it’s better than what had been forecast. And as you already know, it’s the numbers relative to expectations that tends to move the markets higher or lower.
The table below illustrates how much economists underestimated improving sales, manufacturing, and employment. For example, initial jobless claims declined for the fourteenth consecutive week, down 99,000 from the week before. Continuing claims, which lag initial claims by a week, declined nearly 700,000. These figures suggest the rebound in the labor market continues in July.
|Pending Home Sales
|CS Home Price Index
|ISM Manufacturing Index
|Non-Farm Payrolls Added
|ISM Manufacturing PMI
|June Unemployment Rate
On a different note, considering the varied national policy response to the virus, I wondered if there was a correlation between a country’s mortality rate and its stock market returns. Below is a table illustrating nineteen countries, ranked from best to worst, in terms of mortality rate, and their corresponding stock market performance, year-to-date. If there is a correlation, I’m unable to see it.
*All data as of 7/5/2020. Mortality = Deaths/1M population
Lastly, you’ll find a one-page COVID data tracker from our friends at First Trust, which provides an at-a-glance summary of the data and associated trends. To quote Joe Friday from the old Dragnet series, “Just the facts, ma’am.”
Mark Lazar, MBA
Certified Financial Planner®