THE UNCERTAINTY CONTINUES
What We Are Seeing:
Volatility and chaos have remained as prevailing themes, both in the markets and in a broader social context.
Despite the turmoil, the markets have performed admirably. Going into the last trading week of the quarter, the S&P 500 was up approximately 20% on the quarter, with the DJIA up roughly 18% and the Nasdaq up almost 30%!
Many states have chosen to re-open to varying degrees. This has been met with an enthusiasm that, while beneficial to local economies, has often resulted in an uptick in new corona cases. As a result, many states were forced to rethink their timelines for re-opening.
In the past three months, through 6/20/20, unemployment benefit applications were more than 15 times the number of first-time applications for jobless benefits filed in the three months before the pandemic hit. (47.2 million vs. 3.1 million) (Source: Dept. Of Labor)
Due to several factors, the market has experienced some very dramatic short-term shifts. In fact, earlier in June, the market shifted from “overbought” to “oversold” in three days. That type of shift has never occurred in the history of the stock market over that short of a period.
What Is Being Done:
Congress and the White House are working to develop the next round of fiscal stimulus, with President Trump verbalizing a commitment to a 2nd round of stimulus payments.
The Federal Reserve indicated that it remains committed to doing everything in its power to stimulate the markets, saying “We’re not thinking about raising rates”. Over a 4-week period, ending 4/10/20, the Fed provided over 2 trillion of loans to municipalities, states, investors, distressed companies, investment companies, and money market funds. (Source: BTN)
Many hard-hit individual companies moved to create more flexibility in their balance sheets by freeing up cash. Carnival plans to sell a half dozen ships to raise cash, while Hilton and multiple airlines have announced that they will be selling loyalty points/miles.
While quarterly corporate earnings provided a mixed bag, there were still some positive takeaways, with nearly two-thirds of reporting companies beating earnings estimates and some of the largest market-cap names (Apple, Facebook, Microsoft) exceeding expectations.
Travel numbers are increasing substantially, with week/week increases in June above 20%.
Homebuyer demand is currently at 25% above pre-pandemic levels.
Roughly 80% of currently unemployed workers indicated that they expect their job loss to be temporary.
What We Are Doing:
We are working with clients to make sure that they are still on the right track to meet their goals. Portfolio performance is a piece of the puzzle, but in uncertain times, it is important to look beyond the numbers. Over the past quarter, we have had conversations with clients about topics such as ROTH conversions, exercising stock options, penalty-free withdrawals from retirement accounts, and refinancing debt, to name a few. This is a good time to get your planning and “house” in order.
Regarding our money management actions, we have shifted more attention to some individual stocks, especially those that have exhibited a unique story, financial strength, and who were punished unfairly earlier in the year (Starbucks, Johnson & Johnson). The first quarter tumult also allowed us to assess areas of risk in certain fixed-income vehicles. We have continued to remain in favor of buffered funds, which allow for some market exposure while seeking to limit downside. These funds allow for market participation, without “diving in headfirst”.
This quarter offered another bumpy ride, with many twists and turns. For every positive indicator, there was a negative headline. Nevertheless, the market remained resilient, as it recouped a large portion of early-year losses. We like the prognosis for the long term, but there will definitely be turbulence along the way. While the unpredictability continues, it is important to be nimble, yet maintain a long-term mindset.
June 30, 2020
Josh VanFleteren, MBA, AAMS®
Investment advice offered through Strauss Financial Group, Inc., a Registered Investment Advisor.
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