What Day Is it Again?

What day is it again?  Investors were determined to be optimistic in yesterday’s session, rallying stocks despite a further swell in new virus cases.  Investors were unmoved by reports of reopening reversals and rising cases as all sectors closed in the green for the day.

 

N O T E W O R T H Y

 

Please, just enjoy Summer…safely.  After a Friday of glass-half-empty selling, investors logged a glass-half-full day of buying yesterday.  And the news of the day… nothing really.  It should all sound boringly familiar to you by now.  Economy has turned the corner, employment is less terrible, US and China are still bickering, lawmakers are arguing over a next round of stimulus, the Fed still has our back, some states are reopening for business with new virus cases down… wait… that last statement is not quite right.  Virus cases have been spiking, and not only because testing has increased. Positivity levels are going up in states with lax distancing enforcement.  One-time stalwart governors from Florida and Texas have shut down bars and south Florida is closing beaches just in time for the Independence Day Holiday.  Eyebrows raised yet? California, which has been aggressive in its quarantine activity just announced that it too would shut down its beaches in the southern part of the state.  In New Jersey, where new cases are declining, the Governor decided to forego plans to allow limited indoor dining to restart later this week.  Don’t worry there is still the tented parking lot if you are into that sort of thing.  New York is expected to follow suit.  This is news of what would normally be considered the “negative variety”, but not yesterday.  It was travel stocks accompanied by malls and retail that got the nod yesterday… for some strange reason.  Perhaps traders were pleased with states’ moves for more limited shutdowns vs. the total lockdowns we had earlier in the year.  The White House is certainly pleased with the progress of reopening.  Treasury Secretary Stephen Mnuchin will address House Lawmakers today and his prepared statement relates that he is forecasting a +17% economic growth for Q3 followed by a +9% growth in Q4. He further states that 3/4 of all small business are at least partially reopened and 50% of the remaining ones will open soon. Fingers crossed, but what about those equity valuations, aren’t stocks a little rich?  I have highlighted the high forward P/E multiples on the stock indexes. We look at those relative to the recent past as well as longer term historical averages.  The S&P500 has a forward P/E of 24.5 compared to the 21.1 P/E at the end of last year… when things were still normal-ish.  I use that term because the average is around 15, so stocks were already technically rich at the end of last year.  So have stocks gotten ahead of themselves?  You are probably well aware that there are always at least two opposing opinions on Wall Street.  Some analysts are not bothered by the high P/E multiples, stating that earnings expectations (the “E” in the equation) are so low right now that they can only go up in the coming quarters.  That would, mathematically at least, bring the multiples back in line with history… without having to lower prices (the “P” in the equation). So, you see that the battle between the optimists and pessimists rages on.  Realistically, we are still in this battle and need to remain vigilant.  Trying to get into the minds of traders who are obsessed with timing the market is a fool’s errand.  We know that market timing is not a successful endeavor.  A diversified portfolio still remains the best defense in these turbulent times.  Some vitamin C may also help… orange juice futures are up around +24% year to date on increased demand.

 

THE MARKETS

 

Markets posted a broad-based rally yesterday on optimism that a full Q1 lockdown would not be necessary to put down small flair-ups of virus growth.  The S&P500 rose by +1.47, the Dow Jones Industrial Average climbed by +2.32% (helped by a big day from Boeing), the Russell 2000 Index jumped by +3.08%, and the Nasdaq Composite Index added +1.2%.  Bonds fell but 10-year treasury yields also slipped by -2 basis points to 0.62%.  Treasuries had a bid yesterday as traders continue to bet that the Fed would start utilizing yield-curve management (more on that in the days ahead).

 

NXT UP

 

– S&P Corelogic Case-Shiller Price Index (April) is expected to have slowed from +3.92% to 2.8% year over year.

– Chicago PMI (June) may have risen to 45.0 from 32.3.

– The Conference Board’s Consumer Confidence (June) is expected to come in at 91.5 compared to last month’s 86.6.

– Today’s Fed speakers include Williams, Brainard, Bostic, and Kashkari.

– Fed Chairman Jerome Powell and Treasury Secretary Stephen Mnuchin will speak before a House Financial Panel at 12:30 PM EST.

– This morning, JC Penney missed expectations.  We will hear from Conagra Brands before the bell and FedEx after the close.

daily chartbook 2020-06-30