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Weekly Market Update for June 12, 2020

by Jim Ulland

Why did the market get hit so hard on Thursday, a loss of -5.9% for the SP 500? Or, you could ask, why did the market go up so much in June through Wednesday, a gain of 4.8%? The two questions are interrelated. The market rose in June as news of the reopening of the economy dominated the headlines. The market was looking six months ahead and felt by that time most would be back to work, a vaccine and treatment for Covid-19 would be announced, and the Minnesota Twins would be battling for a World Series slot. But, on Wednesday, Fed Chair Powell threw a little cold water on that rosy picture when he said that the depth of the downturn and the pace of the recovery remains “extraordinarily uncertain.”  The headlines too had a slight shift and featured stories where the virus spread actually had increased in some states that had opened faster than others. The market took a step back and thought maybe the economy would not return to health as quickly or fully as hoped.

The SP 500 was down -4.8% for the week. The NASDAQ had better performance with a modest decline of -2.3%. The most beaten down sectors lost some of their recent gains; thus, banks, retail, oil and gas, hotels, resorts, airlines, and casinos were down hard. Preferred stock, which is the dominant security in our fixed income strategy, fell as well. Normally, preferreds have about 25% of the change experienced by stocks, although this is only a rough measure and this week was a little weaker than what we would have expected.  Chairman Powell did say that interest rates would remain low through 2022, which is very favorable for preferreds that have a fixed payment.

The trend of declining volatility reversed this week and the volatility index increased 47%. High volatility generally means high uncertainty, which was clearly the case. Friday the market recovered about 1.3% after being higher earlier. The SP 500 was +1.2% Monday, -0.8% on Tuesday, -0.5% on Wednesday, -5.9% on Thursday and, +1.3% on Friday.

Next week will provide a lot of economic news that could restore the recovery story. Look for reports from manufacturing, retail, capacity utilization, mortgage applications, housing starts, and of course the weekly Jobless Claims report.

*The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Clients or prospective clients should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All clients are strongly urged to consult with their tax advisors regarding any potential investment. Past performance does not guarantee future results; there is always a possibility of loss.

 

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Ulland Investment Advisors

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