Joel’s Weekly Talking Points – 6/1/20

1. Rally caps are on – still:  Last week, most stock markets rallied mainly again with the Russell 1000 rallying 3.11%.  Almost all other indicies followed suit; even International Markets (EAFE up 5.11%) and Emerging Markets (up 2.86%). Value stocks once again beat Growth with Value up 4.42% and Growth “only” up 2.15% (based on the Russell 100 Value and Growth respectively).
2. Thesis: My current thesis is that the markets have run too far, too fast to the upside, or as a recent Citi strategist put it, “Markets are way ahead of reality”.  There are still many unknowns out there: A) is COVID-19 really under control here in the US or will there by a 2^nd wave B) Is the economic damage over? C) What exactly is the economic damage? D) When will the unemployment rate drop, and/or dip below 10%? I could go on and on here, and I haven’t even talked about the current social unrest in the US.
3. The Economy:  Jobless claims fell to 2.123 million new initial claims last week.  Once again, there are some folks out there praising this as “improvement” from the previous weeks and now months of really bad data.  I always like to remind folks that the previous record for weekly initial claims were 695 thousand set in 1982.  We have now beaten that record for 9 consecutive weeks.
4. The Economy continued:  Durable goods orders fell 17.2% in April, and March was revised even lower.  This is an important gauge to look for in terms of an economic recovery – durable goods as the name implies are generally longer-term products that require at least some sort of capital investment.
5. Earnings and savings rates: One interesting quirk in the data last week was that annualized earnings actually increased in the month of April – entirely due to the massive stimulus passed by Congress.  Unfortunately, the data suggests that Americans are not spending that money – the savings rate in the US increased by 33% in April far surpassing the previous record of 17.3% in 1975.
6. Fun information for the week:  A JACKSON A DAY – Retail sales in the USA in April 2020 were $403.9 billion, down 16.4% or $79.5 billion from just a month earlier.  The monthly decline is equal to every US household (124.4 million) spending $21 less per day during April than the dollar amount they spent per day in March (source: Commerce Department).

Bottom line: While everyone in the US was focused on the current social strife in the US last week and over the weekend, the trade tensions with China started to escalate again.  While President Trump announced last week that the “Phase 1” trade deal will remain intact there are far larger geopolitical issues that are being mentioned as well – namely the fate of Hong Kong.  Clearly, between the COVID-19 concerns, a jagged and uneven national reopening of the economy and now social strife – we don’t need any other issues to contend with right now.  All of the issues I mention above, alone would be cause for concern and they are hitting us all at once.  While we remain cautious in the short run, we still believe that Americans will find a way to push past this and remain optimistic in the intermediate and long-run.

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.

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 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