Stocks took a breather this week, dropping a couple of percentage points, as investors grappled with the dichotomy of improving economic data and worsening U.S. COVID-19 trends. Biotech was a bright spot, and international markets (particularly emerging) held up relatively better than the broader market.
The current calculus for market watchers is challenging. On the one hand, we see sizeable month-on-month improvement in economic data, such as durable goods new orders. On the other hand, COVID-19 trends in the U.S. are poor, and as a result, the reopening story is cloudy at best. And let’s not forget the uncertainty surrounding the anticipated forthcoming stimulus from the Fed and lawmakers.
These volatile times will excite emotions but should not influence investment decisions. We often see uncertainty prompt investors to request a wholesale exit of the stock market or even go “all in” on recovery. Such behavior is what we call market timing. Uncertainty may be high, but we know that trying to outguess the stock market through market timing, on average, has proven to damage long-term returns.
Our advice? Understand your risk tolerance (our advisors can help with that), invest consistently in line with that risk tolerance, and continue to focus on living your best life!
Monthly Growth in Durable Goods New Orders
New orders of durable goods (like cars and washing machines), saw an increase of 15.8% in May versus April, as states continued the process of reopening the economy. While this is good progress, durable good orders are down nearly 18% from May of last year. All of those new cars will come in handy as there is still quite a distance to travel on the road to recovery.
Headlines This Week
- Weekly jobless claims came in slightly above expectations with 1.48 Million new applications.
- On the positive side, continuing claims fell below 20 Million to 19.5 Million, a sign that people are returning to work.
- The Durable Goods New Orders report surprised economists (up 15.8%) as Americans were buying cars and washing machines at a higher rate than expected in May.
- Personal income fell less than expected at 4.2%, and consumer spending jumped 8.2% in May, which was a record monthly increase.
- The U.S. first quarter Gross Domestic Product (GDP) final read was a non-event as a previously estimated 5% decline was affirmed.
The International Monetary Fund (IMF) lowered its global GDP forecast to a 4.9% decline this year. The previous forecast in April was for a 3% contraction.
- The 2021 forecast predicts 5.4% global growth.
- The U.S. forecast anticipates an 8% decline for 2020 and a 4.5% expansion in 2021.
Deal or No Deal?
White House trade advisor, Peter Navarro, roiled the markets when in a Fox News interview, he said, “It’s over. Yes,” in regards to a trade deal with China.
- The President took to twitter to assure the markets that the deal remains intact.
- Trade Representative, Robert Lighthizer, and Chinese officials also dismissed Navarro’s remarks.
Not Toasting to That
In further trade and tariff news, the President is considering $3.1 Billion of new tariffs on products from France, Germany, Spain, and the United Kingdom.
- The items targeted include olives, coffee, chocolate, beer, and gin.
- Machinery and trucks are also on the list.
The Federal Reserve told the biggest banks this week that they performed well in their annual stress test.
- However, the central bank told the banks they cannot increase dividends nor buy back their stock, at least through the third quarter of this year.
- Furthermore, the Federal Reserve utilized what’s known as a “Three scenario side-test” for this year’s stress test, related to the pandemic, aimed at illustrating three downside scenarios.
- The 34 banks will release their plans on Monday however, Fed Reserve Vice Chair, Randal K. Quarles, stated, “the results of our sensitivity analyses show that our banks can remain strong in the face of even the harshest shocks.”
The Week Ahead
One of the biggest stories next week is likely to be the latest unemployment rate, released on Thursday.
- Consensus figures put the new rate at 12.2%, down from 13.3%.
- Also on Thursday, non-farm payrolls for June and initial and continuing jobless claims will help determine the direction of investor sentiment.
- On Wednesday, the ADP Employment Change report will be released which could provide a preview of what to expect on Thursday.
Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin are both scheduled to testify on Tuesday about the financial response to COVID-19.
- The FOMC meeting minutes, released on Wednesday, should provide additional detail about possible next steps to support the economy.
The Consumer Confidence report is set to be released on Tuesday.
- Given how vital the consumer is to economic recovery, the level of confidence could have a significant impact on the direction of the market next week.
Wednesday, Russians will vote on a referendum for constitutional change.
- The proposed constitutional changes would provide for a reset to term limits on the Presidency, allowing Vladimir Putin to maintain a hold on the office until 2036.
- Putin has been in power since 2000 and is currently set to be termed out in 2024.
Saturday, July 4th is Independence Day in the U.S. Markets will be closed on Friday, July 3rd in observance of the holiday.
Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets of over $1.8 billion.Overview
Strategic Financial Services, Inc. is a SEC-registered investment advisor. The term “registered” does not imply a certain level of skill or training. “Registered” means the company has filed the necessary documentation to maintain registration as an investment advisor with the Securities and Exchange Commission.
The information contained on this site is for informational purposes and should not be considered investment advice or a recommendation of any particular security, strategy or investment product. Every client situation is different. Strategic manages customized portfolios that seek to properly reflect the particular risk and return objectives of each individual client. The discussion of any investments is for illustrative purposes only and there is no assurance that the adviser will make any investments with the same or similar characteristics as any investments presented. The investments identified and described do not represent all of the investments purchased or sold for client accounts. Any representative investments discussed were selected based on a number of factors including recent company news or earnings release. The reader should not assume that an investment identified was or will be profitable. All investments contain risk and may lose value. There is no assurance that any investments identified will remain in client accounts at the time you receive this document.
Some of the material presented is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. Strategic Financial Services believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
No content on this website is intended to provide tax or legal advice. You are advised to seek advice on these matters from separately retained professionals.
All index returns, unless otherwise noted, are presented as price returns and have been obtained from Bloomberg. Indices are unmanaged and cannot be purchased directly by investors.