Hello all – we hope you had a nice May.
Stocks continued to rebound off the lows from the Coronavirus shutdown. For the month, the Dow rose 4.3%, the S&P gained 4.5%, and the Nasdaq, which has more tech companies, was higher by 6.8%.
The S&P has now rebounded 35% off the March lows and is about 11% below its all-time high.
Stocks continued to rebound off the lows from the Coronavirus shutdown. For the month, the Dow rose 4.3%, the S&P gained 4.5%, and the Nasdaq, which has more tech companies, was higher by 6.8%.
The S&P has now rebounded 35% off the March lows and is about 11% below its all-time high.
Volatility is also continuing to trend lower.
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The month was fairly quiet, especially compared to the last few months.
Most importantly, there weren’t any new developments with the Coronavirus that would cause us to worry – in fact, things appear to be moving in the right direction.
The amount of cases continues to decline:
Most importantly, there weren’t any new developments with the Coronavirus that would cause us to worry – in fact, things appear to be moving in the right direction.
The amount of cases continues to decline:
And the decline comes amid an increase in testing, which could lead to an increase in cases. In fact, the amount of positive tests is declining, which is a great sign.
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The Fed continues to be a major factor in the market rise with their aggressive stimulus.
We’ve seen over the last decade how the Fed’s stimulus can push markets higher, regardless of the underlying conditions of the economy or corporate earnings. They’ve taken their stimulus to an aggressive new level now, which is bound to have at least some impact on the market.
Comments from Fed Chairman Jay Powell on 60 Minutes earlier this month showed how aggressive they are willing to be:
We’re not out of ammunition by a long shot. No, there’s, there’s really no limit to what we can do with these lending programs that we have…there’s a lot more we can do. We’ve done what we can as we go. But I will say that we’re not out of ammunition by a long shot. No, there’s really no limit to what we can do with these lending programs that we have. So there’s a lot more we can do to support the economy, and we’re committed to doing everything we can as long as we need to.
These comments show the Fed will continue to prop up the markets and sent stocks higher as a result.
We believe the printing of trillions and trillions of dollars now will cause a massive hangover later. When that will come remains anyone’s guess, so it looks like the party will continue in the meantime.
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Economic data released this month was bad – and not surprising.
Forecasts for GDP this quarter, which shows the strength of the economy, continue to decline.
We have to keep in mind that these economic reports are all backwards-looking. We know the economy came to a standstill and this will cause the data to look terrible.
However, the economy is gradually reopening and the data will improve.
Data coming in now shows that people are getting back to work. Weekly jobless claims (which counts the amount of new people who filed for unemployment) continues to improve.
However, the economy is gradually reopening and the data will improve.
Data coming in now shows that people are getting back to work. Weekly jobless claims (which counts the amount of new people who filed for unemployment) continues to improve.
And the amount of people who continue to be on unemployment is also turning the right direction.
The vast majority of layoffs were only temporary, according to the Labor Department. Their analysis can be seen in the chart below.
Finally, this last chart shows how people are spending again. First Data Merchant Services is a payment technology company that processes over $2 trillion every year. Their data shows a clear uptick in spending as we emerge from this self-induced coma.
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Where does the market go from here?
We think the market will continue higher as we emerge from the shutdown. However, a reemergence of the virus will obviously be a negative.
In the short-term, most of the indicators we follow show the market being on the overvalued side (or expensive). We wouldn’t be surprised to see the market take a pause here, or at least climb a little bit slower. We’d be very surprised to see a large, fast rise or fall at this time.
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, so caution is always warranted.
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.
