Todd’s Take on the Market
What more could they throw at us? We have had COVID-19, protests, rioting, vandalism, murder hornets and hurricanes, and its only June. What does Jumanji have planned for us next?
Stocks continue to push higher with the Dow rising 6.85%, the S&P 500 rose 4.96% and the NASDAQ rose 3.44%. The Dow’s gain was boosted in part by big gains in Boeing, Caterpillar and JPMorgan.
As I have commented many times, there is no “playbook” for this market because everything happening since the first COVID-19 cases are not normal—not even close. Here are a few highlights:
- This is a disease which the world has never faced and is very contagious
- The economic shock is not even close to normal
- The business cycle—it’s messed up
- The fiscal and monetary policy response…not normal
But what has really surprised us is how the stock market’s behavior has been. The Dow up 6.8% last week. There is no normal to that.
This has become a very strong recovery that is hard to explain.
The shifts from those that were cautious and even looking for a retest of the March lows has been as quick as I can ever remember.
According to a survey from Bank of America from mutual fund managers:
- Cash balances are very high
- Bond holdings are the highest in 10 years
- Stock holdings are severely underweight
Let’s look at the economy. US new housing starts plunge -30.2% m/m in April, its largest drop since figures began in 1960. That puts new housing starts at their lowest level since February 2015, down -29.7% from a year ago.
2.438 million people filed initial jobless claims for the week ended May 16th. 38.93 million people have filed in the last nine weeks. 16.0% of the US labor force was receiving unemployment insurance benefits as-of May 9th. Stocks are pushing higher.
According to the WSJ, 15 million credit-card accounts and 3 million auto loans didn’t get paid in April.
1) Reopening: Protests may slow reopening, but reopening is happening.
2) Trade War with China: It seems to be heating up, but the trade deal is still intact.
3) Monetary/Fiscal Stimulus: More coming from everywhere—Europe (Merkel/ECB), Japan, U.S.
4) Treatment/Vaccine: Many reports of advances.
Oh, and I haven’t even gotten to this yet. Best 50-day rally ever!
This is clearly not a textbook market but we will be monitoring it and keeping you posted. Stay tuned.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
