June 21, 2020 Weekend Market thoughts by Matt Somberg

June 21, 2020 Weekend Market thoughts by Matt Somberg

June 22, 2020

Sunday, June 21, 2020

 

Dear Friend,

Happy Father’s Day.  For those celebrating, we hope you had a nice day today with your family. As customary over the last several months, we share with you a few thoughts about the week that was and the week that lies ahead.

A good week for the markets:

  • The Dow Jones Index gained 1.04% last week and is down 9.35% January 1st
  • The S&P 500 gained 1.9% and is down 4.1% since January 1st
  • The NASDAQ gained 3.7% on the week and is positive 10.8% since January 1st

Two important economic headlines from last week were:

  1. The Federal Reserve is buying corporate bonds. The Fed announced it will purchase, on the secondary market, individual corporate bonds that have remaining maturities of five years or less. Those purchases are in addition to bond Exchange Traded Funds (ETFs) that the Fed began buying in late March. The Fed buying bonds provides a backup or stability to the bond market, and essentially increases bond prices which therefore reduces bond yields.  When yields are lower for bonds, it often pushes investors towards purchasing stocks. With the announcement on Monday, the Dow and S&P both moved 3% higher for the day.  Investors interpret this move as the Federal Reserve not only backstopping the bond market, but providing a safety net to the companies that are issuing these bonds.
     
  2. May retail sales surged. In order for the economy to get back on more solid footing, we need proof that it is improving.  On Tuesday, positive data was announced about retail sales in May which increased by 17.7%. The monthly jump in retail sales sent markets soaring as consumers showed strong demand for clothing, furniture, sporting goods, bookstores and even an increase to online sales. The Standard & Poor’s 500 index closed up 1.9 percent on Tuesday, and the tech-heavy Nasdaq composite closed up 1.75 percent.

Virus Spread

Clearly the greatest threat to a steady economic recovery is Covid-19 spread. Last week Texas, Florida, Arizona and at least 7 other states reported their highest weekly infection rate averages.  The images on TV of people in those states not practicing proper social distancing behavior is unsettling.  All 50 states are now open for business, let’s hope it stays that way.

Presidential Election

In our client meetings in January we discussed with clients the November 2020 Presidential Election and our belief that it would be the most important event of the year.  By early March we stopped talking about it completely as our focus turned to Covid-19 and its impact on our lives and economy.  With hopefully the worst of Covid-19 behind us, we can now pay more attention to the election.  Our focus is of course the financial and economic plans and agendas of the candidates.  In January we stated that the investment markets would not embrace Bernie Sanders or Elizabeth Warren as the Democratic nominee or President as their platforms included raising taxes on businesses.  Joe Biden is viewed by investors as more of an economic moderate than Sanders or Warren. At this time his economic platform as a Presidential candidate has not been announced nor has he selected his Vice-Presidential running mate. With November five months away, any current polling or data is too premature.  In our client meetings we will continue to discuss the economic agendas of both the Republican and Democratic candidates and how they might impact your portfolio. More on this in the months to come.

The week ahead

This week we will hear quarterly earnings from Nike, Darden Restaurants and Rite Aid.  We will also hear from the National Association of Realtors as to the number of homes sold in May.

Again, Happy Father’s Day and we hope you have a good week.

 

Sincerely,

Matt Somberg

 

Matthew A. Somberg, AIF®
Accredited Investment Fiduciary®
Co- Founder and Principal