Hello all – it was a great month for the markets and we hope it was for you, too, despite the current circumstances.
Stocks rebounded swiftly from one of the worst declines on record. In April, the Dow rose 11% and the S&P gained almost 13%, both turning in their best month since 1987. The Nasdaq, which has more tech companies, was higher by 15% for its best month since 2000.
Stocks rebounded swiftly from one of the worst declines on record. In April, the Dow rose 11% and the S&P gained almost 13%, both turning in their best month since 1987. The Nasdaq, which has more tech companies, was higher by 15% for its best month since 2000.
A look at the markets so far this year:
Volatility has also subsided. It’s still at a high level because we’re still seeing some big moves in the markets, but it’s well below the levels we saw last month.
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There were many reasons for the rally.
One reason was that the market simply fell too hard, too fast. Drops like these tend to have quick rebounds. Sometimes the rebounds last…sometimes they don’t. For now, though, the rebound has held up. We’ll have more of our outlook later in this commentary.
Another reason for the rally was the gradual reopening – or potential reopening’s – of many regions of the country. The entire country was virtually shut down at the worst of this crisis, with many companies ceasing operations. Now the markets are reacting to a reawakened America where businesses and employees are slowly getting back to work.
The final reason for the rally is the stimulus from the government and the Fed. We’ve seen an unprecedented amount of spending. In just the last six weeks, the federal government has spent or appropriated nearly $3 trillion.
The Fed is also printing trillions. Estimates for their various stimulus programs could reach $10 trillion and they show no signs of backing off any time soon. They say much of this amount is loans, but much of those loans are to the federal government – so they’re printing money to loan to themselves.
We throw words like ‘billions’ and ‘trillions’ around like they’re nothing – but think about how big they are. Counting to a ‘trillion’ by seconds will take almost 32,000 years. These are massive numbers!
With all that spending in mind, realize that the government only collects just over $3 trillion in revenue from our taxes. Our debt was big before, but it’s overwhelming at this point. This will have a drag on economic growth in the future.
It also begs the question, if the government can print all this money to fund their spending, why do we pay taxes at all? If there are no adverse consequences from printing all this money, why not run the government on printed money? It’s a rhetorical question, but it shows how absurd this whole situation is.
With so much debt around the world, we expect to hear more about debt forgiveness and debt jubilee’s in the coming years. We believe there are legitimate odds of this happening, as insane as it sounds.
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Economic data released this month was bad – this shouldn’t be a surprise. It also won’t be a surprise that data released next month will be even worse.
The data released this month covered March and the first quarter. However, the bulk of the shutdown occurred in April, so data including April will be far worse.
We won’t get into many of the reports released this month – they were all terrible. We will highlight two main reports though, showing the strength of the overall economy and employment.
The big report was GDP, showing the strength of the economy in the first quarter. Again, it was no surprise that it was a negative number. A 4.8% drop is the worst since the financial crisis. However, this is tame compared to forecasts for second quarter GDP, which economists have estimated a drop of anywhere between 30-50%!
The other report we’ll highlight is the weekly jobless claims data, which counts the amount of people who filed for unemployment (it’s seen as a barometer for the job market).
As you can see in the image below, we’ve seen a sharp spike in people filing for unemployment. This isn’t surprising when the government forces businesses to close and people to not work.
However, you can see that the situation is improving. Though still high, fewer people are filing for unemployment than at the beginning of the month.
As you can see in the image below, we’ve seen a sharp spike in people filing for unemployment. This isn’t surprising when the government forces businesses to close and people to not work.
However, you can see that the situation is improving. Though still high, fewer people are filing for unemployment than at the beginning of the month.
While the data from this month is bad and next month will be worse, remember that this is likely the bottom, unless the virus reemerges. The market is forward looking and the economic data will improve as the country gets back to work.
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Corporate earnings for the first quarter began rolling in this month, too.
About half the companies in the S&P 500 have reported results so far and earnings are on pace to decline about 15%, but there is a wide disparity in the results as some companies did very well and others very poor.
Companies that benefit from people staying home have fared the best. A lot of computer-related companies are profiting as people stay home and use their computers more. Plus, entertainment companies like Netflix have found a captive audience. Amazon benefits, too, as people buy things online.
You also have stores like Wal-Mart, who have remained open and benefitted as people stock up (or horde) items. Grocery stores, too, have done particularly well as they remained open.
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Corporate earnings for the first quarter began rolling in this month, too.
About half the companies in the S&P 500 have reported results so far and earnings are on pace to decline about 15%, but there is a wide disparity in the results as some companies did very well and others very poor.
Companies that benefit from people staying home have fared the best. A lot of computer-related companies are profiting as people stay home and use their computers more. Plus, entertainment companies like Netflix have found a captive audience. Amazon benefits, too, as people buy things online.
You also have stores like Wal-Mart, who have remained open and benefitted as people stock up (or horde) items. Grocery stores, too, have done particularly well as they remained open.
On the other hand, many industries did extremely poorly. Energy companies have been the hardest hit as fewer people travel and need gas for their cars. Plus, the places people travel to or on have been hit, like casinos, cruise lines, airlines, etc.
Remember, though, we appear to be on the rebound from this crisis. We may see bad data for a while, but the market will continue to rebound as the country gets back to work
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Where does the market go from here?
We don’t expect to see the returns of this month happen again, but we think the market will continue higher, though at a slower pace. Several market indicators even show stocks being overbought (or expensive) on a very short-term basis, so we may even see more of a stall.
The main thing to keep an eye on is the number of virus cases.
Remember, though, we appear to be on the rebound from this crisis. We may see bad data for a while, but the market will continue to rebound as the country gets back to work
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Where does the market go from here?
We don’t expect to see the returns of this month happen again, but we think the market will continue higher, though at a slower pace. Several market indicators even show stocks being overbought (or expensive) on a very short-term basis, so we may even see more of a stall.
The main thing to keep an eye on is the number of virus cases.
Right now, the amount of new cases seems to have stalled and is slightly receding. It will be important to keep an eye on this as more states open up. We’re bound to see the amount of cases tick higher and it will be interesting to see if the states stay open or shut back down. New shutdowns will send stocks lower.
There will still be tough times ahead, too. A wave of bankruptcies is likely and economic data will probably be the worst we’ve ever seen. There will be plenty of negative headlines that could send the market lower.
All that said, no one knows where the market will go from here. The question is, do you see things being better in six months, one year, five years? We do. Again, that doesn’t mean it can’t go lower, but we think it’s a good time to be a buyer.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
There will still be tough times ahead, too. A wave of bankruptcies is likely and economic data will probably be the worst we’ve ever seen. There will be plenty of negative headlines that could send the market lower.
All that said, no one knows where the market will go from here. The question is, do you see things being better in six months, one year, five years? We do. Again, that doesn’t mean it can’t go lower, but we think it’s a good time to be a buyer.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
