.png)
Here comes the sun. Stocks gave up early gains on Friday as the Coronavirus proved to traders that it is far from gone. Surging virus cases overshadowed optimism from China stepping up agricultural purchases.
N O T E W O R T H Y
When I get to the bottom I go back to the top of the slide… Well, here we are. Kind-of at the half way mark. Not on the calendar per se, but we did just cross the summer solstice, which is the longest day of the year, marking the official start of summer. If you have been following the markets closely lately you may be feeling a bit queasy. The dizziness is not necessarily caused by the ugly fundamentals and the utter devastation the pandemic has had on the US and global economies. That funny feeling is more likely caused by the up, down, left, right, repeat movement of interest flowing from one end of the market to the other… and back again… and again. The investment thesis seems to shift from recovery, to second wave fear, to "healthcare will solve everything", to “tech stocks will win no matter what”, and so on. Hardest hit stocks like airlines and cruise lines have been prone to double digit daily moves jumping from topping the winners list to the losers list in a single day. In case you were wondering, lots of uninformed traders are losing lots of money. How do I know? Because more and more people are starting to ask me what I think about “jumping in” to hard-hit travel stocks. And when I say “people”, I mean non-client people who have no money invested in the market with absolutely no investment experience. They are looking for a quick gain. It reminds me a lot of the Dotcom bubble where I was fielding similar questions. The difference this time is that the companies in question are most often highly-respected, long-standing companies with histories of well... making money and paying dividends. In this case it is not just irrational exuberance driving the markets, but rather hopes that the very real COVID-19 pandemic will end. When it ends those companies which are burning an eye-watering amount of cash daily, selling bonds securitized by everything possible, and operating on a mere percentage of their former capacity will return to normal. All will be good and the stocks will return to their former growth trajectories. Unfortunately there are just too many assumptions to make that a solid investment thesis. Regarding that second wave… no one knows for sure, but more and more recent evidence suggests that we are not technically out of the first one yet. New cases are surging in 21 states and some of them never experienced a first wave like the New York area. Southern California is the outlier and may be experiencing a second wave as new cases jumped over the weekend. The Federal Government appears content with the progress on increased testing and has left it up to individual states to set re-opening guidelines. States are relaxing restrictions at different paces. Some are acting with caution while others seem interested in making a political statement, but all in all things appear to be moving toward a restart. With government restrictions lifted, the burden goes to individual companies to determine their pace of reopening. On Friday, Apple announced that it would re-close stores in Florida, Arizona, and the Carolinas after new cases jumped in those states. Hard-hit cruise lines on Friday announced that they would postpone their re-emergence until at-least mid-September. The challenge from an investment standpoint is that nothing is clear yet. What is clear is that the economy is showing signs that perhaps, the worst days are behind us, but we are still in pretty bad shape. Economic forecasts from the IMF, World Bank, and OECD expect the global economy to shrink between -3% and -6% in 2020. That would make it the worst on record. Before you hit the sell button and bury your head in a pillow, you have to add in the “S-factor”. “S” for social behavior. So far this year we have experienced two different extremes: the US economy running at full bore on the one hand, and an almost total shutdown of the economy on the other. Despite the recent rise in new cases and even if there is a second wave, society may not allow another complete economic shutdown. The burden may end up being shared by governments, companies, and individuals. Under that scenario, some pockets of the economy will do better than others and not all companies will rise at the same time or the same pace. This means that investors will have to be that much more selective when picking investments. It also means that there is no easy way to quick riches, or as the old Wall Street saying goes: “There is no free lunch on Wall Street”. Happy summer.
THE MARKETS
Stocks could not hold up early gains as reports of new outbreaks hit the tapes, leaving indexes in the red for Friday’s session. The S&P500 fell by -0.56%, the Dow Jones Industrial Average traded off by -0.80%, the Russell 2000 lost -0.59%, and the Nasdaq Composite Index advanced by +0.03%. Bonds advanced in the risk off trade and 10-year treasury yields slipped by -1 basis point to 0.69%. Gold rose by +1.22% to 1743.87 approaching its recent high of 1748.18.
NXT UP
- Chicago Fed Nation Activity Index (May) is expected to be -10.0 bettering last month’s -16.74%.
- Existing Home Sales (May) is expected to have fallen by -7.9%, better than the prior month’s fall of 17.8%.
- In the week ahead we will get more regional Fed reports, more housing numbers. Durable Goods Orders, GDP, Personal Consumption, weekly employment numbers, Personal Income/Spending, IHS Markit PMI’s, PCE deflators, and University of Michigan Sentiment. Refer to the attached earnings and economic calendars for details.
service@siebert.com
Siebert Financial (800)872-0444