As I write this, the market as measured by the Dow Industrials, is up almost 500 points for the day to over 27,500, as we are facing the highest unemployment numbers since the Great Depression! How does that make sense? What is going on?!!
As I mentioned in our March 29 letter, our friends at Federated had suggested that the effects of the Coronavirus would probably compare to the devastation of a hurricane, short in duration but unknown in severity. It seems they were spot on as even President Trump compared the Coronavirus panic to a hurricane last week. We are now seeing the devastating impact on our economy from the shutdown of so many businesses across the country and around the world.
DON’T FIGHT THE FED
What matters now is how effective the financial medicine that our Federal Reserve, Congress and Treasury Secretary have prescribed and dispensed has been. Undoubtably, the scale of the stimulus efforts has been historic, and all indicators are that they were delivered to the exact places in our economy where they would have the most immediate effect.
Even the CEO of Polaris, the manufacturer of 4-wheelers, dirt bikes and snowmobiles mentioned recently that their sales have been surprisingly strong and that many of the ride-on toys were purchased with $1,200 down payments…exactly the same amount as the stimulus checks that many of you received! Also, as Jim Cramer recently pointed out:
“Autozone, Burlington Stores, Dollar General and Dollar Tree, places where the thrifty and do-it-yourselfers shop, reported phenomenal sales numbers and cited the benefits of a munificent federal government.”
In other words, all indications are that the stimulus efforts are working effectively.
One investing rule created many years ago by well-known market advisor Marty Zweig has worked better than any other in recent years: “Don’t fight the Fed.” When the Fed is stimulating, be bullish. When the Fed is tightening, be cautious.
WHAT ABOUT ALL THE BAD NEWS?
It seems we are bombarded daily by the media informing us of the disturbing unrest around the country, the historic unemployment numbers, the uncertain political environment, coronavirus second wave concerns, layoffs from company after company downsizing because of the recession…it never seems to let up. And yet, the Nasdaq market is setting new all-time highs and the S&P 500 is positive for the year.
Again, crediting Phil Orlando, chief market strategist at Federated for an apt analogy, but the market, “like a trusty bloodhound”, had already sniffed out the positive employment trends that we saw in Friday’s employment report. The May report showed an impressive gain of 2.5 million jobs, blowing expectations out of the water. Bloomberg consensus was forecasting a loss of 7.5 million jobs, making the Friday number a positive swing of 10 million jobs.
TD Economics summarized:
“All in all, this week’s data indicate that the worst of the pandemic’s shock may be behind us. But with the path forward still contingent on that of the virus, we’re not quite out of the woods just yet”
We must hope that the reports of promising progress on the drug development front prove to be accurate, and we can avoid a second wave of the virus this fall.
EUROZONE BREAKUP OFF THE TABLE?
One underlying concern professional investors have repeatedly had to worry about is the fragile organization known as the Eurozone, the monetary union of 19 of the 27 European countries. After the great recession, we have had to deal with crisis after crisis in Europe, first Greece, then Portugal, Ireland, Spain and Cyprus (Thank you Wikipedia) that have collectively become know as the European debt crisis.
Without getting into the weeds too far, each of these crises have threatened to cause a breakup of the Eurozone which, it was feared, would have created a world financial crisis as bad or worse than the 2008-09 Financial Crisis. The fear was that another financial event like that would cause worldwide deflation, which would be very bad news for banks and financial institutions.
Oversimplifying a very complex subject, John Stepek with London publication MoneyWeek stated this week:
“Perhaps ironically, it’s only during the coronavirus crisis that convincing moves to underwrite the Eurozone for the longer term and prevent the breakup of the euro have been made. Most of the scariest moments of the past decade or so when it comes to deflation can be largely traced to concerns over the eurozone going pear-shaped again. So, plugging that hole matters a lot to markets. And increasingly it looks as though they might achieve it.”
In our opinion, for the average long-term investor, owning a portfolio of stocks in carefully chosen companies along with a balance of high-quality bonds is still the best way to fund a comfortable retirement. We are constantly looking for the best ways to assist you in funding your financial needs. Call us when you have a minute…Kay or Dave would be happy to tell you more.
Beginning around the first of July, we will resume our efforts to meet with each of our clients to review and discuss your specific needs. Call Kim if you want to get on the calendar sooner rather than later this year. We look forward to seeing you!
Dave Crouch Kim Blackburn Kay O’Connell
Registered Principal Branch Operations Manager Financial Advisor
"We've long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children."
Any opinions are those of Dave Crouch and not necessarily those of Raymond James. Raymond James is not affiliated with and does not endorse the opinions or services of Jim Cramer and/or John Stepek.
The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.
Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Past performance may not be indicative of future results. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Expressions of opinion are as of this date and are subject to change without notice.