Pent-up. Stocks raced higher yesterday as investors sense that a cure is nigh. Economic data remains unclear but investors are looking beyond.
N O T E W O R T H Y
Cracking on. When will things get back to normal? That is surely question #1 on all of our minds these days. For most of us, it is in our nature to look ahead in order to focus on where we are headed. Haven’t we all thought of Friday on a Monday morning while sitting in traffic or while ploughing through piles of paperwork? Looking ahead doesn’t necessarily mean that we are not focused on the present, we are simply contemplating the future in order to ensure that we are on course and, in some cases, to justify our current tribulation. Tribulation is the G-rated version used to describe the present situation. The globe is still in the grips of a pandemic and the economy, once burgeoning, is now limping. Folks are out of work, furloughs are turning into permanent layoffs, companies struggle to stay liquid, lack of childcare is preventing workers from returning to the workforce, Congress is unable to come to agreement on a much-needed follow-on stimulus package… people are still getting sick and dying. OK, OK that is the bleak version of where we are, but I am stating facts. Focusing on those facts alone is enough to paralyze an investor. However, if we just turn our gaze a bit down the road, the picture begins to change, brighten up a bit. Ignoring all of the rhetoric and politics, there are other facts suggesting that progress is being made in the fight against COVID, which is the root cause of the current predicament. There are many promising treatment and vaccine trials in various stages. Doctors are learning how to better treat infected patients, lowering the death rate. Many experts anticipate to have a first wave of tangible clinical trial results in the fourth quarter. Back in March, the fourth quarter seemed a long way away, but now we are getting closer. To be clear, even if a vaccine becomes available within the next 6 months, it will take far longer for the economy to get back to where it was at the end of 2019. It will however, be a big step forward. Looking beyond that first critical step, there are additional hurdles, but those are ones we have endured before. What am I getting at here? Stocks had a banner day yesterday with the S&P500 making its 22nd new high of the year and the Nasdaq crossing 12,000 for the first time. Many of us are wondering how this could happen when the economy is in such a tough place. This is where I have to remind you that stock prices factor in the future, next year and beyond…. and beyond. Economic numbers reflect the current situation but do not contemplate the future. Investors buy stocks because they believe that companies will excel in the years to come. I am not talking about speculators who are looking for a quick potential profit, but rather investors who are planning for the future. Is the current market pricey and overbought? It is hard to tell, but if we bring ourselves to look beyond the current situation and ponder the future, the latest stock rally may not look so unbelievable. One thing we can count on though is near term volatility. In the markets, as in life, there are no direct paths. There will be more unexpected twists and turns as we go forward, but most importantly, we continue to go forward. Friday will come, as it always has. Stay positive, stay focused.
THE MARKETS
Stocks rallied in big way yesterday as pent-up optimism led investors to look beyond weak unemployment numbers to rally the indexes. The S&P500 rose by +1.54%, the Dow Jones Industrial Average climbed by +1.59%, the Russell 2000 Index traded up by +0.87%, and the Nasdaq Composite Index rallied by +0.98%. Bonds rallied and 10-year treasury yields gave up -2 basis points to 0.64%.
NXT UP
- Initial Jobless Claims (Aug 29) are expected to come in at 950k, down slightly from last week’s 1.006 million.
- Continuing Jobless Claims (Aug 22) are expected to be 1.4 million, down from the prior week’s 1.4535 million.
- Markit Services PMI (Aug) is expected to be 54.7, down from the prior 54.6 estimate.
- ISM Services Index (Aug) may have slipped to 57.0 from 58.1.
- Chicago Fed President Charles Evans will speak today.
- This morning Campbell Soup, Michaels, and Ciena beat estimates. We will hear from Broadcom, DocuSign, and Smith & Wesson after the close.