A tale of two regulators. Stocks erased early losses to close in the green after bank regulators relaxed restrictions on banks. A continued surge in virus cases had investors nervous in the AM, the FDIC scrapping the Volcker Rule excited them in the PM, and the Fed deflated their excitement after the bell.
N O T E W O R T H Y
This is a test. I am a patient person. I wasn’t born patient… nobody is. There are some basic economic precepts and, amongst them, my favorite has to be “more is good”. In order for an economic system to work, in theory, demand must be insatiable. Of course, there are constraints on never-ending demand such as resources, supply, and utility. Utility is a measure of “goodness” or satisfaction one gets from receiving something. Think of the level of pleasure you get when you take the first bite of that fresh-out-of-the-oven cookie. That is worth something, and microeconomic theory endeavors to explain what that utility is worth. As you probably know by now, that first bite is always the best. Economists have figured that out as well. We have a concept called the law of eventually diminishing marginal utility. The notion asserts that we eventually tire of something and get increasingly less satisfied as we acquire more and more of it. Imagine eating a dozen cookies. By the time you hit cookie 12, your enjoyment has gone down significantly and may even be bordering on disgust. Makes sense right? The basic theory can probably be applied to just about anything… except for maybe: capital. Capital – you know that thing that allows us to get… well… everything else (cookies included). That makes it quite versatile, which is why most of us, once we are aware that it exists, spend a lifetime pursuing it. Sure that first dollar earned is probably the most satisfying, but having lots of them is certainly better than having a few of them. I am sure that there is a theoretical point where too much is not good, but I doubt many of us will ever get to that point. Jeff Bezos is the richest person in the world with a net worth of over $140 billion and he seems to remain pretty satisfied to me. Anyway, back to our world. We work hard and save as much money as possible so that we can enjoy a comfortable, safe lifestyle. We hope to someday retire and pursue hobbies, personal goals, and perhaps pass some wealth on to the next generation. As we are taught from an early age, saving and growing that nest egg is critical to accomplish this. We also learn very quickly that it takes a lot of patience and is not always easy.
The past 20 years has brought us a wave of unprecedented innovation which has enabled us to be more productive with our time and effort. Technology has allowed us to get pretty much anything we want almost instantly, without even leaving our living rooms. For many of us, that innovation was a lifesaver in the past several months. I hate to use the trite term “instant gratification”, but the world certainly seems to be going in that direction. When it comes to food delivery or online shopping, the concept may work, but when it comes to investing there are no shortcuts. In the wake of the COVID outbreak, the US Economy was almost entirely shut down to curb the spread of the virus. As we turn the corner and start down the road to recovery we must remember that it will take time. The markets have recovered some of the losses from earlier in the year but there still remains many challenges. Many companies are stressed as a result of the losses in revenues, and as we learned yesterday, reopening is not as simple as flipping a switch. But switches are increasingly being flipped and we are making progress. This is the point where I remind you that long term investing has the greatest probability of success. If you haven’t learned it by now, patience is a key ingredient to realizing your investment goals. Stay patient.
Stocks rallied into the close, led by the banking sector as the FDIC relaxed banking regulations. WHILE YOU COMMUTED (from your home office to your kitchen), the Federal Reserve restricted banks from stock buybacks and dividend increases, which caused a selloff in bank shares, post close. The S&P500 climbed by +1.1%. the Dow Jones Industrial Average traded up by +1.18%, the Russel 200 Index rose by +1.7%, and the Nasdaq Composite Index advanced by 1.09%. Bonds climbed and 10-year treasury yields added +1 basis point 0.68%.
– Personal Income (May) is expected to have fallen by -6.0% compared to the +10.5% rise in the prior month.
– Personal Spending (May) is expected to have grown by +9.2% up from Aprils -13.6% pullback.
– The PCI Core Deflator (May) may have remained flat for the month bringing the annual level to 0.9%, well below the Fed’s target.
– University of Michigan Sentiment (June) is expected to come in at 79.2, up from the last read of 78.9.
– Next week we have PMI’s, Consumer Confidence, more housing numbers, FOMC Meeting Minutes, Factory Orders, and the highly watched monthly employment situation. Check back on Monday for calendars and details.
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