May 25, 2020 Weekend Market Thoughts by Matthew Somberg

Monday, May 25, 2020

 

Dear Friend,

We hope you had a terrific holiday weekend. We give great thanks to those in the military who have served and sacrificed for our country and freedom. As customary over the last three months, below are a few thoughts about what happened last week and what to look forward to this week.

Last week

  • The Dow Jones Index gained 3.3% and is now down 14.3% since January 1st
  • The S&P 500 gained 3.2% and is now down 8.35% since January 1st
  • The NASDAQ gained 3.4% on the week and is now positive 3.9% since January 1st

While the gains last week were welcomed, the Dow and the S&P have been in a up again and down again range for the last month or so, with two positive weeks and three negative weeks.  The NASDAQ, a technology- oriented index, continued its ascent as top holdings include Microsoft, Amazon, and Apple. The NASDAQ is now up 36% since its low of March 23rd

Of note from last week:

  • During an interview on 60 Minutes, Federal Reserve Chairman Jerome Powell had an optimistic view of our economy and its ability to recover.
  • On Tuesday, the pharmaceutical company Moderna revealed a Covid-19 vaccine trial had shown promise on eight patients.
  • Thursday’s weekly jobless claim numbers were approximately 2.4 million, pushing the national unemployment number above 38 million. The unemployment claims number continues to decline each week.
  • Trade relations between the US and China remain tense. The latest chapter saw the Senate pass a bill banning listings on American stock exchanges if a company does not provide three years of audited records.  With many Chinese companies submitting vague financial records in the past, the Senate clearly pointed this bill at China. The ban would in particular aid smaller American companies that often compete with their Chinese counterparts. The Russell 2000 index that tracks smaller companies gained 2.3% on the week.

The Consumer and the Face of Main Street are Changing

Walmart, Target, Lowe’s and Home Depot all recently reported earnings and the news was revealing. Lowe’s and Home Depot both saw an 80% increase from the previous quarter for online sales. Target sold 141% more online in the first quarter of 2020 than they did a year ago. Walmart’s online sales were 74% better in the most recent quarter.  The American consumer is embracing online shopping from big box retailers. With people over age 55 – those most vulnerable to the coronavirus – accounting for 40% of consumer spending, the safety and convenience of online shopping is a trend that will carry on.

A result of the gain for the big box retailers is the pain that smaller retailers will feel.  Companies like Walmart and Home Depot are national names that will withstand a prolonged recession. American small businesses, often “Mom and Pop” stores or restaurants do not have the strength to do so.  Since March, 30% of American small businesses have closed either temporarily or indefinitely. In a recent survey, 22% of small businesses said they were within two months of permanently closing.  The closing of more and more “Mom and Pop” shops means the face of Main Street American businesses continues to change.

The Week Ahead

This week we will hear the April report of pending home sales – a good indicator of the state of the housing market.  We will also receive the earnings reports from companies such as Costco, Dollar General and Salesforce.com.  We look forward to shareholder meetings from Amazon, Chevron, Facebook, and Twitter.

Finally

While it is part of our job to be fair and balanced in our observations, there is an element of Patriotism that hopefully many of us feel on Memorial Day. I leave you with the following quote from Federal Reserve Chairman Jerome Powell from his 60 Minutes interview last week.

“But I would just say this. In the long run, and even in the medium run, you wouldn't want to bet against the American economy. This economy will recover. And that means people will go back to work. Unemployment will get back down. We'll get through this. It may take a while. It may take a period of time. It could stretch through the end of next year. We really don't know. We hope that it will be shorter than that, but no one really knows. What we can do is the part of it that we can control -- is to be careful as businesses go back to work. And each of us individually and as a group, you know, take those measures that will protect ourselves and each other from the further spread of the virus.”

Have a safe and healthy week!

 

Sincerely,

Matt Somberg

 

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