U.S. stocks fell this week with Small-Cap and Value indices hit the hardest. It was a mixed bag of news flow with optimism around states beginning to reopen hampered by the concerns that too much too soon could just extend the crisis. Only time will tell if politicians are striking the right balance. Speculators beware. Positive news on treatment or the trajectory of new cases could send stocks soaring. It is also possible that stocks could slump if reopening efforts reaccelerate the spread of the virus.
Trying to predict any market, let alone this incredibly uncertain one, is just market timing, which is proven to be detrimental to investor returns over time (see our white paper on the subject). As Mark Twain said, “Prediction is difficult, particularly when it involves the future.” That is not to say we subscribe to pure passive investing, though. There is a middle ground between active and passive, which we see as most beneficial to investor portfolios.
You can do better than owning the whole market passively. At the core of our portfolios are funds that target specific rewarded factors. Why own the entire market, the good and the bad, when you can own stocks with characteristics that have historically outperformed? We will also shift allocations gradually as parts of the portfolio become more attractive than others. There is no timing involved. It is gradual tilts as the data we track changes – science, not speculation.
Headlines This Week
Slow but steady
- States around the country have been cautiously reopening their economies.
- New York state has begun reopening certain public parks and is planning to open its beaches on Memorial Day weekend.
- Governor Andrew Cuomo gave his blessing to begin reopening the Finger Lakes, Central New York, Mohawk Valley, Southern Tier, and North Country regions.
Stay home shopping
- While retail sales fell over 16% in April, no one was surprised.
- Categories like clothing, electronics, and furniture sales suffered the most.
- Non–Store Retailers like Amazon and ETSY reported an 8.4% increase in sales for April.
- Grocery store sales declined 13.2% from March as consumer stockpiling cooled off.
- Consumer confidence was better than expected as the University of Michigan Consumer Sentiment Index topped expectations and increased slightly from last month.
- Over 90% of the companies in the S&P 500 reported their earnings.
- S&P 500 first-quarter earnings have declined by around -13.8% year-on-year.
- On a positive note, more than half of the companies have beaten their revenue and earnings per share estimates.
- The Federal Reserve balance sheet has reached nearly $7 Trillion.
- Several of the emergency facilities announced have yet to be implemented.
- The Federal Reserve only this week started buying Corporate Bond ETFs, and the first round of activity ($305 Million) was less than anticipated.
- Chairman Powell this week insisted that the Central Bank does not intend to join other developed countries with negative interest rates.
The Week Ahead
Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin are scheduled to testify before the Senate Banking Committee next Tuesday.
- As a result of the CARES Act, the pair are required to provide updates to Congress on the economic program.
- Powell is also set to hold a speech on Thursday regarding how the COVID-19 pandemic has affected everything ranging from the labor market to inflation.
- The Federal Reserve will release its Federal Open Market Committee meeting minutes on Wednesday.
Next Thursday will bring yet another Initial Jobless Claims report.
- Since late March, over 36 million Americans have filed for unemployment.
- The unemployment rate during the pandemic has reached nearly 15% – the highest since the Great Depression.
The preliminary Manufacturing and Services PMI figures for May will be released on Thursday.
- Some experts expect sentiment to improve slightly, but still, be far below any sort of reassuring level.
- While these figures typically play a more significant role in investor sentiment, the reports are likely to hold less weight as the fallout from the pandemic continues.
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