Everyone’s a winner. Stocks snapped a 3-day losing streak yesterday reversing early losses to close in the green. It was a tech-led rally yesterday and good news about virus treatments outweighed bad news about growing virus cases.
N O T E W O R T H Y
Follow the directions carefully. Do you find yourself confused about the markets lately? Well, don’t worry because you are not alone. Investors these days have to rummage through a pile of sensational news (some of it not even real), deal with conflicting messages from the Government, sift through pages of financial reports, brush up on epidemiology, be an expert in both stocks and bonds, decide which economic releases are relevant, and have nerves of steel. Did I mention that they have to compete with robots as well? Investing has never been simple, but this recent chapter in investing history puts a fine point on the challenge. It seems like every other day I write about the back-and-forth rush between recovery euphoria and second wave fear. Yesterday’s market action was somewhat different but certainly no less confounding. It is clear that some states are experiencing a rise in new cases of the virus. It is not just in the US. Cases are also on the rise in Europe and Asia. Yesterday we learned that South Korea has officially declared a “second wave”. Side note reminder: markets are all about expectations. As lockdowns continue to ease we can expect cases to rise. The market accepts and expects that fact with the hopes that things won’t get out of control. We also learned yesterday that Gilead will trial their antiviral Remdesivir in an inhaler format making it easier to dose. Currently, it can only be delivered intravenously as it is can be harmful to the liver if taken orally. Ok, good news considering Remdesivir is, to date, the only proven viable treatment for COVID. On the economic front, the Chicago Fed announced that in May its National Activity Index rose to 2.61 from -17.89 in April (it beat expectations). Good news. In contrast, Existing Home Sales for May fell by -9.7% after falling -17.8% in the prior month. It missed economists’ expectations and the annual decline of -26.6% from a year earlier makes it the biggest yearly pullback since early in 2008. But don’t fret, economists expect a V-shaped recovery in housing now that restrictions are easing, summer is upon us, and rates are low, low, low. Speaking of low rates, cash-strapped companies continue to tap into the bond markets to keep themselves buoyant. Corporate bond issuance for the first half of 2020 has already exceeded issuance for the entire 2019 (and last year was a big year). Notable sales this week include American Airlines and United Airlines. American plans to sell $1.5 billion bonds and United plans to raise $5 billion in the credit markets. In its raise, United plans to borrow $2 billion backed by its frequent-flier program. Yep, you read that right… tough times, indeed. The end result was another head scratcher with Gap (retail) topping the winners columns, up +8.26% and American Airlines (travel) leading the losers, down -6.75%. By the way, I heard at least 3 airplanes fly overhead as I have been writing this, which is a good sign that things are slowly returning to… well you know. The pandemic has wrought havoc on the world's financial markets but not so long ago it was a trade war with China that was our biggest concern. Oh, speaking of that, the markets had a bit of a run-in with Administration, WHILE YOU SLEPT. Peter Navarro told a Fox News reporter that the trade deal with China was over… markets didn’t like that (they fell almost -2%). Thankfully, his boss, the President came out with a Tweet saying that the trade deal is still on. Markets recovered and futures are now in the green pointing to a positive open. Maybe things are getting back to normal after all. Still confused? Don’t be. History shows us that the long game wins and that diversification gives us the best chance of succeeding. Stick to the long game, stick to your core investment strategy… it is working.
THE MARKETS
Stocks overcame an early deficit to close in the green yesterday. The S&P500 rose by +0.59%, the Dow Jones Industrial Average climbed by +0.59%, the Russell 2000 added +1.05%, and the Nasdaq Composite Index jumped by +1.11%. Bonds slipped and 10-year treasuries added +1 basis point to 0.70%. WTI crude rose by +2.62%, gushing over the $40 mark which has eluded it since early March.
NXT UP
- Markit Manufacturing PMI (June) may have risen to 50.0 from 29.8 in May.
- Markit Services PMI (June) is expected to be 48.0 compared to last month’s 37.5.
- New Home Sales (May) are expected to have risen by +2.7% after climbing by +0.6% in the prior month.
- Richmond Fed Manufacturing Index (June) is expected to have risen to -2 from -27 in May.
- St. Louis Fed President James Bullard will speak today.
- Dr. Fauci and other experts will address lawmakers today.