Generally speaking, when people are uncertain about their future, they tend to hoard cash. The personal savings rate in the USA has increased to 33% of income. The chart below is almost unbelievable as the massive increase in savings looks like a typo. People are saving their hard-earned money and the helicopter money the US government has given them in the form of stimulus checks, expanded unemployment benefits, mortgage forbearance, student loan forbearance, and rent forbearance. Additionally, the state and local governments have forced many of the restaurants and places of gather to close. Due to these closures, people have not been able to spend as much money. Hence the increase in personal savings.
Graphic above is from CNBC
This type of savings has no historical precedence; therefore, almost all financial models are meaningless. For many individuals, this money is going to be life-changing. As the economy opens up, they are going to use this money to buy cars, migrate to different parts of the country, retire earlier, buy homes, home improvement, plan future vacations…. the uses for the money are endless. This increase in consumption will cause inflation on certain goods. For example, I was searching for a table saw and witnessed the price increase from $279 to $399 at Home Depot overnight. Fortunately, Amazon did not see the trend and didn’t increase the price. I was still able to buy one there for $279 :-) On the plus side, I don’t believe this will cause harmful long-term inflation as this increase in consumption will subside as Americans spend through there savings. In a way, the coronavirus may accomplish what the Federal Reserve Bank (Feds) could not....healthy inflation of 2%.
ETF of the Week: Invesco Nasdaq 100
Invesco’s Nasdaq 100 ETF (QQQ) was the best performing index last week and for the year. It was up 3.54% last week and 17% year-to-date. The QQQ is not a static index as the holdings may change from time to time. The index is dropping United Airlines (UL) and adding DocuSign. For the first quarter, DocuSign's revenue was up 37% year-over-year, and the company ended the quarter with more than half a million paying customers worldwide. Of the $214 million in revenue DocuSign reported in the quarter, subscriptions accounted for $201.5 million, up 36% year-over-year. The NASDAQ is already technology heavy and the addition of DocuSign is just going to increase technology’s presence in the index.