June 7, 2020 Weekend Market Thoughts by Matt Somberg

Sunday, June7, 2020

 

Dear Friend,

Happy Sunday evening. 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.

Last week was terrific for the markets

  • The Dow Jones Index gained 6.8% and is now down only 5% since January 1st
  • The S&P 500 gained 4.9% and is now down 1.1% since January 1st
  • The NASDAQ gained 3.4% on the week and is now positive 9.4% since January 1st

An Incredible Run since late March

  • The Dow Jones is up 46% since its bottom in late March
  • The S&P 500 and NASDAQ are both up 43% since their March lows

The most important economic news of the week came on Friday, when we learned the U.S. economy added 2.5 million jobs in May.  Analysts predicted an 8 million decline in jobs for the month, so the data was stunning.  The unexpected good news sent stocks soaring on Friday and the unemployment rate fell to 13.3%. This figure is significantly better than the 20% unemployment number forecasted by many economists. 

The stock market is a leading indicator

With over 30 million people unemployed and numerous businesses only partially open, it is easy to wonder how the stock market has performed so well as of late.  It is important to recall that the stock market is what is known as a ‘leading indicator’.  Investors tend to buy and sell stocks not based on what happened yesterday or today, but how they think a company will be performing in the future. We have a declining trend in unemployment and businesses are reopening across America. Markets are moving higher as investors anticipate and hope that the economy has healthier days ahead.

In March and April I had a few conversations with clients where they suggested that stocks could not go higher until Covid-19 went away.  Certainly, their line of thinking was sensible.  However, as I mentioned above, markets are leading indicators.  An improving market does not need all of Covid-19 to go away for gains to occur, it just need signs that circumstances are improving.

Other noteworthy economic data news from last week:

  • At our office we are now using Zoom technology to hold virtual client meetings.  We apparently are not alone.  In May, 173 million users utilized Zoom’s services.  This was up from 14 million users in April.
  • Auto Sales also exceeded expectations in May, coming in 10% higher than analysts expected.  Consumers returned to buy cars in May.

The Week Ahead

This week we look forward to earnings reports from Nvidia, Adobe and TJX Company.  We also will receive reports from the shareholder meetings of American Airlines, Caterpillar and Target. 

Finally, a few clients inquired this week as to how social unrest in our country would impact their portfolio.  It was a fair question to ask.  While I would not pretend to have the proper words to describe some of the images and unrest that we’ve seen in the last week or so, in my opinion, there is no impact to investment markets or client portfolios in the short term.  Investors certainly shrugged off the images they saw on TV and the internet last week as markets moved higher. Today, in June, we have heightened political activism in our country.  With an election five months away – should political activism remain strong - we would expect incredibly high voter turnout.  The results of the election in November will determine if our country continues the same economic platform that we currently have, or if new leadership brings a different economic agenda.  We will be paying close attention and as we get closer to November, we will make any appropriate adjustments to your portfolio.

We hope you have a good week and be kind to one another.

 

Sincerely,

Matt Somberg

 

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