Joel’s Weekly Talking Points – 5/26/20

  1. Rally caps are on – for now:  Last week, most stock markets rallied mainly on the optimism around the potential of having a COVID-19 vaccine sooner than most had anticipated.  The Russell 1000 rallied 3.55% and most other indicies followed suite with the notable exception of Emerging Markets.  For the first time in it seems like forever, Value stocks beat Growth with Value up 4.09% and Growth “only” up 3.15% (based on the Russell 100 Value and Growth respectively).
  2. Thesis: I still find it difficult to position the majority of client assets in the risk-on bucket right now.  Week over week, according to Johns Hopkins, the US only saw a decline of 1,000 new COVID-19 cases week over week.  That means that we still had slightly over 158,000 new cases during the week of May 22nd.  The curve has flattened, and states are beginning to reopen, but what does that mean, exactly?  We still don’t know – in fact there are some states that are already experiencing spikes in new cases.  Let’s assume for second that we ignore the virus – I do not believe anyone has the stomach for a second round of nationwide lockdowns at this point so what the virus does, or does not do, may be irrelevant.  That leaves us with just the economy to focus on…
  3. The Economy and High Frequency data:  So much of the economic data that is released to the public is dated: JOLTs is 10-14 days “late”; the unemployment rate is a month late; durable goods orders are also a month late.  It’s tough, in the current environment to “see” too much from these numbers because the news flow is so fast.  There are other numbers however that are updated more frequently and often: jobless claims, mortgage applications, and consumer comfort to name a few.  Unfortunately for us right now, we are seeing very little improvement here – granted, there is some improvement but these are off very, very low numbers.  The most important one in my opinion continues to be the initial unemployment claims – last week another 2.4 million Americans claimed unemployment for the first time.  This was heralded in some sectors as good news because it was fewer than the week before, however in any other environment this would be considered horrific news.  For context – the previous record for weekly initial claims was 695 thousand – in 1982.
  4. To vaccine or not vaccine?  As I mentioned in the first of this week’s points, we continue to see news reports, this week it was a different company, of potential vaccine candidates.  Both last week, and this week, the “news” was about a Phase 1 trial.  Vaccines must go through three phases to be approved and distributed for use – phase one is very much like a baby step.  Phases 2 & 3 are the most arduous, plus there are (by most estimates) close to 100 vaccine trials going on around the world as I write this.  We still have a long way to go before we can proclaim COVID-19 defeated, let alone under control.
  5. Fun information for the week:  NEW NOTE – The US government auctioned off $20 billion of new 20-year Treasury notes last week on 5/20/20, its first sale of 20-year paper since 1986.  Subsequent auctions of 20-year Treasury notes are scheduled each month going forward.  In 1986, the auction of 20-year notes occurred quarterly (source: Treasury Department). 

Bottom line: As I write this on the Tuesday after Labor Day, US markets are up about 2% on the day and treasury yields are slightly higher – definitely a “risk-on” feel at the moment.  Also as of this writing, the S&P 500 is only down 6.7% YTD – this is astonishing given what’s happening to the economy.  While I remain optimistic in the intermediate and long-run for the US economy, I am of the belief that a little too much optimism is being baked into asset prices and at least for the short-term, remain cautious.

 

Any opinions are those of Joel Faircloth and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.
Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors.
International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.
Individual investor’s results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
 The Russell 1000 Index is an unmanaged index of 1000 widely held stocks that is generally considered representative of the U.S. stock market.
 The Russell 1000 Value Index measures the performance of those Russell 1000 companies with higher price‐to‐book ratios and lower forecasted growth values.
 The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price‐to‐book ratios and higher forecasted growth values.
 The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index.
 The MSCI EAFE (Europe, Australasia, and Far East) is a free float‐adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations.
The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index’s three largest industries are materials, energy, and banks.
The Bloomberg Barclays US Aggregate Bond Index is a broad‐based flagship benchmark that measures the investment grade, US dollar-denominated fixed‐rate taxable bond market.
The Bloomberg Barclays U.S. Corporate High Yield Bond Index is composed of fixed‐rate, publicly issued, non‐investment grade debt, is unmanaged, with dividends reinvested, and is not available for purchase. The index includes both corporate and non‐corporate
See All

Are You On Track
For Retirement?


Here at Aspen, we utilize cutting-edge financial planning software to analyze your plan’s probability of success. Whether you’re at the beginning of your career, still working, or have already retired, we want to help make sure that you’re on track to meet all of your goals–whatever they may be. The first step in doing so is establishing a financial plan.

See If You’re On Track For Retirement

External Link Notice

The following website is being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize, or sponsor the following website or their respective sponsors. Raymond James is not responsible for the content of the websites or the collection or use of information regarding the websites’ users and/or members.

Continue Cancel