June 28, 2020 Weekend Market Thoughts by Dan Heffernan

June 29, 2020

Sunday, June 28, 2020

Dear Friend,

As we wrap up the final weekend in June and gear up for the short holiday week ahead, we would like to share with you a few thoughts - as we typically do - about the week that was and the week that lies ahead.

Market performance sputters:

  • The Dow Jones Index was down 3.31% last week and is down 12.34% since January 1st
  • The S&P 500 was down 2.86% and is now down 6.86% since January 1st
  • The NASDAQ lost 1.9% on the week but remains up 8.74% since January 1st

Dislocations arise…

…between the economy and the stock market:

While the economic data seems to be less bleak than at the outset of the pandemic, the surging stock market performance in April and May – stoked by monetary and fiscal stimulus efforts – seems to point to a disconnect between investor sentiment and the reality of economic conditions. As many Americans slowly returned to work and everyday activities in June, consumer confidence and spending rose. However, this was accompanied by a rise in Covid-19 cases in many states including Texas, California, Arizona and Florida. This recent rise in cases has stifled reopening efforts and renewed investors’ fears of a slowing economic recovery. These fears left markets limping into this weekend with losses in all three major US indices last week as investors consider the risks ahead.  

…within the stock market:

Surging 2nd quarter stock market performance has led to a significant divergence between growth and value stocks in the US. The relative outperformance of a handful of growth stocks including Apple, Microsoft, Amazon, Google and Facebook has led to the largest performance gap between the 3 major US indexes since 1983. Together these large tech companies, which account for 40% of the NASDAQ index, helped it finished last week up over 8% year to date, while the value heavy Dow Jones Industrial average remains down over 12% for 2020. The disparity in returns amongst stocks has left investors that have relied on value stock and dividend strategies feeling left out of the recovery and questioning how long the trend will continue.

…across global markets:

While international markets have also rallied off the lows of March, the global recovery remains uneven. The picture looks particularly bleak for countries in Europe where travel and tourism are crucial segments of the economy, resulting in limited opportunities for a pronounced economic recovery in the near term. The MSCI EAFE Index which tracks performance of companies in developed areas of the world such as Europe and Japan, is down 14.26% year to date. However, a bright spot has emerged within the European Union is a strong German economy who appears to be weathering the storm as German manufacturers are firing up plants in part because of its close trade ties to China. Although political tensions between the US and China also persist, China’s large population and an expanding middle class continue to point to intriguing long-term investment opportunities. Growth within China in the short term slowly improves along with economic conditions as they too emerge from lockdown. China’s tech heavy Shanghai Composite Index is down only 2.3% year to date.

The week ahead

As with past weeks, investors will be conscious of the rate of new coronavirus case and hospitalizations, and government response to this news. With regards to new data, this week on Monday we will hear numbers on pending home sales in the US and on Thursday the Labor Department’s monthly jobs report.

We wish you all a safe week ahead and a happy and healthy 4th of July weekend.

 

Sincerely,

Dan Heffernan

 

Daniel Heffernan, RICP®
Retirement Income Certified Professional
Wealth Advisor