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Weekly Market Update for June 19, 2020

by Jim Ulland

The battle continues between the stock market valuation, which is on the high side, and the Federal Reserve, which has vowed to keep interest rates low while continuing to stimulate the economy with the help of Congress.  There is an old phase, “Don’t fight the Fed.”  The thinking goes that the Fed is so big and has so many resources that it can determine the direction of the economy.  Therefore, if this is correct once again, don’t shelter in cash, but stay invested.  We feel the battle between these two forces will swing back and forth with the market going sideways from here until a treatment or vaccine for Covid-19 is announced.  Then it will take another leg up.

The week showed a continuation of reopening announcements along with somewhat higher numbers of Covid cases in the states with the fastest reopening schedules.  The fact is that cities are running low on funds with diminished sales and lodging tax revenues.  Big cities and most states cannot withstand a continuation of the lockdown policy as revenues drop and expenses to fight the virus stay high.  Therefore, reopening is gaining support.

The economy showed signs of life with new and used car sales higher. Mortgage rates hit another record low helping home building and home sales. In addition, retail and manufacturing were higher in May and China agreed to buy more grain. Grain prices went up. Continuing claims for unemployment also improved; however, there are still 20 million on unemployment.

The SP 500 was up +1.6% for the week and the market was much calmer than the week before. The NASDAQ had better performance, as has been the pattern, up +3.7%. Preferred stock, which is the dominant security in our fixed income strategy, had solidly positive results as well.

The trend of declining volatility resurfaced this week as volatility decreased -5.1%.  The S&P 500 was +0.8% Monday, +1.9% on Tuesday, -0.4% on Wednesday, +0.1% on Thursday and, -0.8% on Friday.

Next week will provide a modest amount of economic news that could move the market. The one item we will be watching most closely is the release of the bank Stress Tests, evaluating how healthy the banks are during this challenging time. This release is 6/25 after the market closes.  Existing and new home sales will be released as will the number of mortgage applications.  All are expected to show strength.  The final reading on Q1 GDP will come out, as will personal spending for May.  Of course the weekly Jobless Claims report will be watched for improvement. The following week another critical Jobs Report will be released hopefully showing more returning to work in June.

Happy Fathers’ Day to all those Dads who wish they had some baseball to watch.

*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.