Hello all – we hope you had a nice June.
Stocks started the month off on a strong note, but reversed course and trended lower into July. For the month, the Dow rose 1.7%, the S&P gained 1.8%, and the Nasdaq, which has a higher concentration of tech companies, was higher by a solid 6.0%.
Stocks started the month off on a strong note, but reversed course and trended lower into July. For the month, the Dow rose 1.7%, the S&P gained 1.8%, and the Nasdaq, which has a higher concentration of tech companies, was higher by a solid 6.0%.
The month also capped the best quarter for the markets in decades as they rebounded off their Coronavirus lows. The Dow had its best quarter since 1987 with a return of nearly 18%, the S&P, its best since 1999 with a 20% gain. The Nasdaq is up an astounding 30% for its best quarter since 1999.
Volatility picked up this month as Coronavirus fears picked up, too.
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It was all about the Coronavirus this month. As the amount of cases picked up, the market took its turn lower.
It wasn’t like the sharp drop after the Coronavirus first appeared in February – this month’s decline was much less dramatic. This was likely due to the cases being largely among the younger demographic and the severity is much lower. The death rate continues to fall and the virus doesn’t look as scary as was once portrayed.
The market isn’t focusing so much on the number of cases, either – it’s the shutdowns. Economic data has been improving as economies reopen and new lockdowns throw the recovery into question. So far, the new shutdowns have been limited but have the potential to grow.
Apparently this is the culprit:
Apparently this is the culprit:
And this is not:
One activity is encouraged to continue, the other was shut down. Go figure.
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The Fed is also very important to the market. They’re printing tons of money as stimulus and this money makes its way into the markets and pushes them higher.
They held a policy meeting this month and noted they were “not even thinking about thing about” raising interest rates and pulling back on the stimulus. It looks like they’re keeping the pedal to the metal.
They’re even printing money to buy individual corporate bonds, which keeps borrowing rates low for companies. But that’s a very slippery slope – how do they decide which bonds to buy, since its essentially the government picking winners and losers?
We’re in uncharted waters when it comes to Central Bank interventions and we don’t think it will end well.
We saw this picture and thought it pretty accurately showed the Fed’s policy (the man pictured is Jay Powell, the head of the Fed):
They held a policy meeting this month and noted they were “not even thinking about thing about” raising interest rates and pulling back on the stimulus. It looks like they’re keeping the pedal to the metal.
They’re even printing money to buy individual corporate bonds, which keeps borrowing rates low for companies. But that’s a very slippery slope – how do they decide which bonds to buy, since its essentially the government picking winners and losers?
We’re in uncharted waters when it comes to Central Bank interventions and we don’t think it will end well.
We saw this picture and thought it pretty accurately showed the Fed’s policy (the man pictured is Jay Powell, the head of the Fed):
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Econ data improved significantly this month. This isn’t surprising as the economy was shut down and is now opening back up, so the data will obviously look better as a result.
Well, actually the economic data has been surprising to economists. There is an indicator we follow called the Citi Economic Surprise Index, which tracks how economic data is coming in relative to forecasts. If the data beats the forecast, it’s a positive, and vice-versa.
As you can see in the chart below, economic data has been far stronger than economists had predicted and this indicator is at a record high. This is a good leading indicator for the market.
Well, actually the economic data has been surprising to economists. There is an indicator we follow called the Citi Economic Surprise Index, which tracks how economic data is coming in relative to forecasts. If the data beats the forecast, it’s a positive, and vice-versa.
As you can see in the chart below, economic data has been far stronger than economists had predicted and this indicator is at a record high. This is a good leading indicator for the market.
Sales at businesses are getting back to normal. Retail sales saw their biggest monthly increase ever.
Durable goods sales, which are products with a longer life, like a wash machine or phone, also saw a massive jump.
The positive economic reports have raised GDP estimates for the quarter. Although it will still be a massively negative number, at least we’re trending the right direction.
One thing to keep an eye on is employment data. Employment had been improving nicely but is appearing to level off. New shutdowns are likely to see weekly unemployment figures worsen again.
Lastly, one indicator we like to look at is the ‘dining out’ statistics. The level of people dining out is a pretty good leading indicator for the economy. The data below comes from OpenTable, which is an online reservation company. As you can see, that industry is improving, too.
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Where does the market go from here?
Stocks actually look oversold (cheap) on a very short term basis and we think there’s greater odds of a rise from here. We’re cautious looking out a little longer – it feels like speculation is rising and this typically happens at tops. We aren’t selling at this time, but will likely do some hedging down the road.
Also, it will be critical to keep an eye on the Coronavirus cases. Rising cases or more shutdowns will weigh on the markets. There’s the potential for a lot of bad news out there.
Stocks actually look oversold (cheap) on a very short term basis and we think there’s greater odds of a rise from here. We’re cautious looking out a little longer – it feels like speculation is rising and this typically happens at tops. We aren’t selling at this time, but will likely do some hedging down the road.
Also, it will be critical to keep an eye on the Coronavirus cases. Rising cases or more shutdowns will weigh on the markets. There’s the potential for a lot of bad news out there.
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.
