Week Ending 7/2/2020


Stocks were up by 1.09% in the US and 1.99% outside the US. Bonds were up by 0.33%. The market was helped by expectations that the Fed may inject more liquidity into the economy.

For the first half of the year, US equities were down only 3.42%, a remarkable result given the damage to the economy, while international stocks fell by 11%. Bonds were up by 6.27% for the first half as the yield on the 10-year Treasury fell from 1.83% to 0.64%.

As of today, the market is selling at about 25x this year’s expected earnings, 19x next year, and 17x the 2022 estimate. These are high ratios, but on the other hand, interest rates are crazy low. The 2-year yields 0.16%, the 10-year is at 0.68%, and the 30-year is at 1.43%.

Investors have written off 2020 and are focused on the beginnings of a rebound now and further acceleration in 2021 with a return to normalcy in 2022. That might be an optimistic take, but coupled with unprecedented help from the Fed and the government, markets are not far from even for the year.

There was good news on the jobs front. Unemployment fell to 11.1% fro 13.3% as the US added 4.8 million jobs in June. However, the survey was conducted before the recent surge in coronavirus cases. 40% of the job gains were in leisure and hospitality, industries that would be hit harder if the reopening process slows down or is rolled back.

The virus continues to expand, the US has reported record numbers of new cases in recent days. But progress is being made on the vaccine front. Pfizer reported positive early results of its vaccine and says it can be available beginning in the fall and widely available in 2021. Other companies are not far behind.




Week Ending 6/26/2020


Stocks fell for the week by 2.78% in the US and 0.61% outside the US. Bonds rallied by 0.18%, oil fell by 3.36%.

A big reason for the US selloff was the dramatic ramp-up in Covid cases as a record number of infections have been recorded. Infections across the US are up by 65% over the past two weeks.

The stress test results on banks, released by the Fed on Thursday, did not help. Buybacks were suspended and dividends were capped for the third quarter. The Fed also said that future dividends would be dependent upon earnings, couple that with an expanding virus, and financial stocks lost investors’ interest as the week closed. Investors also have to start or have started to price in the chance of a Democratic sweep in November.

Raw material prices have been increasing, a sign that the supply/demand curve is shifting in favor of producers. Raw material prices tend to move in real-time based on supply and demand and increasing prices indicate that the recovery might be ahead of what was anticipated. The raw material prices reflect increased economic activity around the globe, but the surge in the virus might slow down those gains.

The increase in raw material prices might be reflective of the improved purchasing managers index scores as reported by IHS Markit. The US composite measure came in at 46.8, the highest score in four months. A score of less than 50 is contractionary, but the trend is positive. In the eurozone, the composite score was 47.5 in June compared to 31.9 in May.

Gold prices are nearing all-time highs. There are several factors at work. Given ultra low-interest rates, it is more attractive to now hold gold given it does not pay interest. In addition, new fears about the rising virus count might indicate more government spending, which could devalue global currencies.


Week Ending 6/19/2020


Stocks rallied by about 2% in the US and 0.88% outside the US. An improving US economy, from a historically low base, is helping markets. Added stimulus from central banks in the last few weeks is also providing lots of help. And then there is the fear of missing out, with a rally that does not seem to want to stop, investors who missed out are tempted to pile in.

Retail sales were up by 17.7% in May, a record increase. That follows the largest monthly drop ever, 14.7%, in April. However, spending is still lower than the pre-pandemic levels.

The Fed said on Monday that it has $250 billion ready to buy corporate bonds. The central bank said it would begin making those purchases this past Tuesday. The bonds would consist of a broad index that meets certain criteria.

Jobless claims seem to be leveling off. 1.5 million applied for benefits last week, down by 58,000. And the number of Americans receiving benefits fell by 62,000 to 20.5 million in the week ending June 6.

Not all the news is good, markets were spooked on Friday when Apple said they would temporarily close 11 stores in states where the virus is spiking. Case counts are starting to rise quickly in Florida, Texas, Arizona, and California. But these states seem intent on not closing. Meanwhile, in China, a flare-up in Covid cases led to a lock-down in Beijing. Chinese officials canceled flights in and out of the city, closed business, schools, and limited movement in an attempt to stop the next wave of cases.

Many Americans have stopped paying off loans. More than 100 million student loans, auto loans, and other debts have not been paid since the virus started, according to credit reporting firm TransUnion. About 80% of that number is for student loans.


Week Ending 6/12/2020


Stocks fell hard, dropping 4.90% in the US and 3.62% outside the US. On Thursday, stocks fell by 5.90% and the Dow dropped by 7%, on a surge in virus cases and comments by the Fed indicating a long recovery in the job market.

Meanwhile, Hertz (HTZ) advanced by 100% for the week, breaking $6 at one point, even though the company had previously filed for bankruptcy. It would be normal for a bankrupt company to sell at or very close to $0, but this indicative of the new wave of day traders that speculate on anything that might move in price regardless of the fundamentals.

The Fed announced that they would keep interest rates at very low levels for years and were studying ways to help the economy.

The National Bureau of Economic Research made it official, stating that the US entered a recession in February, ending a 128-month expansion. While the announcement was no surprise, when it might end is still up in the air. So far Congress has spent $3.3 trillion to support the economy. The Congressional Budget Office said it would take a good part of the decade to recover and they are looking for a $3.7 trillion dollar deficit this year. The World Bank said that they expect the global economy to shrink by 5.2% this year.




Week Ending 6/6/2020


American’s rioted in the streets in a manner not seen in decades over the death of George Floyd at the hands of police in Minneapolis, but that didn’t stop equity markets, which continued an incredible run, up 5.3% in the US and 7.2% outside the US. The disconnect is startling. Jeremy Grantham of GMO wrote in his latest quarterly letter that the market valuation, as measured in terms of p/e, is in the top 10% in history, while the economy, is in the bottom 10%, and probably worse than that. However, on the other hand, Wharton Professor Jeremy Siegel, has said that if you do a discounted cash flow analysis and assume a 30% drop in earnings this year, followed by a return to normalcy, you would get a price cut of only 4% or so. That is slightly better than the overall US market as measured by the VTI which is down just 5.5% from the February 19 high.

As crazy as it seems that the market would rally with cities burning, it is not without precedent. The week after Martin Luther King’s death in 1968, stocks were up by 2.9% and were up 5.1% one-month after. Stocks were up 1.2% after LA police officers were found not guilty of assault against Rodney King. Liz Ann Sonders, chief investment strategist at Charles Schwab says that “…if you look back at large-scale civil unrest… the market tended to sort of look through that.”

The week was already positive but ramped higher on a surprisingly strong jobs report. The consensus was for a loss of 7.5 million jobs, but employers added 2.5 million jobs. The jobless rate fell to 13.3%, still a terrible number but down from 14.7%. The jobless rate is still 4x higher than in February, and some of the hires might be due to the PPP program. But the market took the report as a signal that the economy can come back to life sooner than feared and that a V-shaped recovery can happen.


Week Ending 5/29/2020


The rallied continued on as US stocks were up by 2.98% and international stocks were up by 4.31%. Stocks gapped higher on Monday through the 200-day moving average and stayed there all week. For the month of May, US stocks were up by 5.4%.

According to Bespoke Premium, over 70% of S&P 500 stocks are now trading at over 1 standard deviation above their 50-day moving average, a condition that has happened only a handful of times. On Thursday, more than 96% of stocks were trading above their 50-day moving average. The last time that happened was in 1991. Both measures indicate an overbought market.

However, in periods when stocks did trade above the 1-standard deviation marker after not having done so in the previous year, forward returns were good.

The economy is beginning to turn, although it is still at extremely low levels. The number of travelers passing through the Transportation Security Administration screening on April 14 was 87,534. On May 24, it has increased to 267,541, which is still down 87% from a year prior but up by about 3x since April 14. Truckloads are also up. “We’re seeing some positive signals in household spending, in the real estate market, and in the stock market. But I don’t think we can predict whether those are going to continue and this is going to be a V-shaped recovery or this is going to be a sustained, prolonged depression. Really, the answer to that is going to come from the health situation,” said University of Chicago economist Constantine Yannelis.

There have been more than 40-million jobless claims since the pandemic started, but continuing claims for unemployment fell by about 4-million for the week ending May 15. The Fed’s Beige Book reports that employers are having a hard time hiring people, as many are being paid more by the government to be unemployed than they could make working. Consumer spending dropped by a record 13.6% in April, while personal income increased by 10.5%, do to all of the Federal support programs.


Week Ending 5/22/2020


It was another big week for stocks as the overall US market jumped by 3.78% and international equities were up 2.78%. On Monday stocks were up by 3.31% after getting a double-barreled boost from Fed Chair Jerome Powell and then vaccine maker Moderna. During a 60 Minutes interview on Sunday, Powell said “There’s really no limit to what we can do.” Then, on Monday morning, Moderna reported that the early results from its coronavirus vaccine, given in March to eight volunteers, appear successful. The shots were safe and well-tolerated and boosted antibodies to levels similar to people who had recovered from Covid-19.

While the market has had an incredible comeback rally, the market is not out of the woods yet. The VTI sits just under the 200-day moving average. Rallies sometimes falter at that spot.

The US economy is starting to reopen. Staying indoors is switching to going outdoors. While toilet paper was the hot commodity early on, now bicycles are riding off the shelves. You can’t find one at Wal Mart or the other big retailers.

The big retailers are doing more than just selling bicycles, they are turning into the winners at the further expense of small businesses across the country. Wal-Mart posted better than expected results. Target’s Q1 digital “comparable sales” increased by 41%. Both Lowe’s and Home Depot had an 80% increase in e-commerce sales.

But retailers like JC Penny, which never established a strong online presence, are in trouble. JCP filed for bankruptcy last week and plans to close 240 of its stores or about 30%. JCP joins Neiman Marcus and J. Crew in Chapter 11.


Week Ending 5/15/2020


US and international stocks both fell by about 2.5% and the bond market was up by 0.50%. The overall US stock market as measured by the VTI has now traded in a range between 137.5 and 147.5 since April 9.

The economy continues to tailspin but maybe we hit bottom. We emphasize the word “maybe” as it is certainly too early to say that, but a preliminary reading of the University of Michigan Consumer Confidence ticked up. The Empire State Manufacturing Index came in at -48.5, but that was up from -78.2 in the prior month, and above the expected -63.5. Mortgage applications have increased for the fourth straight week. Let’s remember the absolute level of these indexes is dismally low. And there was still plenty of terrible economic news.

Retail sales were down by a seasonally adjusted 16.4% from a month earlier. It was the biggest drop since the early 1990s. Manufacturing output dropped by 13.7% in April, the largest monthly decline since 1919. Three million more people applied for jobless benefits. The 8-week tally totals 36.5 million unemployed.

Then, to make matter worse, the US decided this was a good time to ramp up the trade war with China, by disallowing Huawei Technologies access to semiconductors that use US technology. That led to speculation that China would retaliate against big US tech companies like Qualcomm, Cisco, or Apple.

Let’s not forget that a trade war that was ramped up in the midst of recession helped turn the 1930s into the Great Depression. Let’s hope for a better outcome this time.





Week Ending 5/8/2020


Unemployment spiked to 14.7% in April as 20.5 million workers lost their jobs. 10-years of job gains were wiped out during the month. Meanwhile, the stock market continues to take an optimistic view as US stocks rose by 3.99% and international stocks were up by 3.02%. The NASDAQ composite turned positive for the year. Bonds fell by 0.35%.

A good portion of why the market is going up when the economy is going down is driven by the outperformance of a few big tech companies like Microsoft, Apple, Amazon, Alphabet, and Facebook. Investors also have already written 2020 off and are looking at 2021 and beyond. Also, companies have been able to raise a lot of capital by the Fed backstopping the bond markets. The Fed’s balance sheet has expanded by $2.4 trillion over the last eight weeks. And the yield on the S&P 500 is 2.07% versus a 10-year treasury yield of 0.69%.

Earnings estimates for this year are falling fast. Earnings for the S&P 500 is now estimated to be $128.02, which is down from its peak at the beginning of the year of $177.26, a drop of 27.8%.


Week Ending 5/1/2020


Stocks were down slightly, the S&P 500 dropped by 0.21%. Q1 GDP fell by a 4.8% annualized rate in Q1, the biggest drop since 2008. Q2 is on target for a 40% annualized drop. The market rallied at the beginning of the week as some states began to reopen and was helped further midweek when it was announced that the Gilead drug, remdesivir, shortened recovery times for some patients by about 1/3. There has begun a major push to have a vaccine by the end of the year. As the week ended, stocks fell hard as the big tech stocks showed that they are even impacted by the virus. Amazon has record sales but higher virus-related costs increased expenses. Apple didn’t post guidance for the first time since 2003.