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Markets Remain Volatile Amid State Reopenings  Thumbnail

Markets Remain Volatile Amid State Reopenings


As states continue reopening, investors are having a hard time deciphering the path ahead. They hope for a V-shaped recovery but must reckon with the reality of the economy. These talking points highlight the issues that may be concerning clients this week.

“Significant uncertainty remains about the timing and strength of the recovery.”

—Jerome Powell, Federal Reserve testimony, June 16, 2020

“This is now one of the greatest surges off a major low ever.”

—Ryan Detrick, LPL Research, June 16, 2020

“The COVID-19 pandemic is the most economically destructive natural disaster in a century…the duration of this disaster also means many jobs lost will never come back.”

Wall Street Journal, June 15, 2020

Key takeaways


  • Arizona, California, Florida, South Carolina and Texas all reported record numbers of new cases. Florida added 3,207 new cases, shattering the previous daily record as it emerges as an alarming hot spot among places grappling with a resurgence of COVID-19. Californians will be required to wear face coverings in high-risk environments. (WSJ)
  • A study found that dexamethasone, a common steroid used to treat rheumatoid arthritis and asthma, reduced deaths in hospitalized COVID-19 patients by a third. Doctors are hopeful it could help treat the most seriously ill, though full data has not yet been published. (STAT)
  • Oxford Economics anticipates the recovery will occur in two phases: in the first phase, growth will be strong as consumer spending and business demand rebounds from depressed levels, but thereafter lingering scars from the GCR will limit the pace of growth. (Oxford Economics)
  • A new outbreak is spreading through Beijing. Authorities grounded hundreds of flights, suspended schools and announced that all movement in and out of the Chinese capital will be “strictly controlled.” (The Guardian)
  • Some 78% of fund managers surveyed by Bank of America see the stock market as “overvalued.” (Bank of America Global Fund Manager Survey, Bloomberg)
  • Consumer sentiment improved again in June to 78.9, beating survey estimates of 75.0. (University of Michigan Survey)
  • U.S. retail sales jumped from -14.7% to +17.7% in May, the largest monthly increase since records began in 1992. (WSJ)
U.S. Stock Market Data
6/19/2020 CloseWeekYTD1-year
S&P 5003,097.74+1.86%-4.12%+4.99%
NASDAQ9,946.12+3.73%+10.85%+23.84%
DJIA25,871.46+1.04%-9.35%-3.17%

Source: Market Watch

1. Market update


If the stock market had an emotion this week, it might be exhaustion. The major indexes are up, with the DJIA rising +1.04% and the S&P 500 climbing +1.86% for the week. Investors are having a hard time deciphering the path ahead as they are caught between a V-shaped recovery and the reality of the economy. Federal Reserve Chairman Jerome Powell warned Congress that the economic damage is “going to be lasting,” and the central bank will need to continue pumping aid.

  • Year-to-date, the S&P 500 is -4.12%, the Nasdaq is +10.85%, and the DJIA is -9.35%.
  • Price-to-earnings ratios remain elevated at 21.8x. The last time it was this high was during the tech bubble.
  • About $5 trillion is currently invested in money markets. This is nearly double what it was five years ago. (LPL Financial)
  • The Federal Reserve announced that the central bank would begin buying individual corporate bonds in addition to those held in exchange-traded funds. (CNBC)
  • Many economists believe the value of the dollar is going to fall sharply because of the weight of unprecedented government debt and a reversal of decades-long globalization trends. Stephen Roach, former chairman at Morgan Stanley, believes that a move away from global supply chains “will add fuel to the fire.” (Business Insider)
  • The S&P 500 has gained almost 45% off of the lows on March 23, 2020. This is the largest rally off of a major low ever. The subsequent pullback after major lows are in place has been 10.3%. In other words, some weakness after big moves like this is perfectly normal. (LPL Financial)
  • According to LPL Financial, the extreme overbought nature of stocks is consistent with the start of a new bull run. They believe that the spread between the number of stocks above their 50-day moving average and 200-day moving average is near the highest level ever, and therefore over the long-term, there are still gains to be had. However, near-term, the potential is there for a well-deserved pullback.
  • Relative to the S&P 500, the MSCI EAFE Index price-to-earnings ratio is 7% cheaper than its 10-year average, while the MSCI Emerging Markets Index is 9% below its comparable metric. (LPL Financial)

2. COVID-19 summary


According to the Wall Street Journal, the number of new COVID-19 cases in the U.S. started to climb again and progress toward a remedy remains painfully slow. New cases within the tri-state NYC area are slowing down, but the number of daily infections outside of the NYC area hit a record this week. This has caused the seven-day moving average of daily new cases to increase substantially off its lows on June 7, 2020.

Source: New York Times

  • As of June 19, 2020, there were more than 2.18 million cases and over 116,000 deaths in the United States. Worldwide, there have been more than 8.5 million cases and over 452,000 deaths. The United States has more than double the cases than the next country (Brazil with 980,000). (Johns Hopkins University)
  • Arizona, California, Florida, South Carolina and Texas all reported record numbers of new cases. Florida added 3,207 new cases, shattering the previous daily record as it emerges as an alarming hot spot among places grappling with a resurgence of COVID-19. Californians will be required to wear face coverings in high-risk environments. (WSJ)
  • At least six states, including Oklahoma, saw record increases in new coronavirus cases, as many leaders continued to press forward with reopening plans. Tulsa health officials urged Trump to postpone his rally on Saturday, June 20, 2020, warning it could become a “super spreader” event. (Reuters)
  • Governor Andrew Cuomo warned New Yorkers against triggering a “second wave” of the coronavirus, singling out bars and restaurants in Manhattan and the Hamptons as the worst offenders among 25,000 complaints filed to the state. He also threatened to take away liquor licenses at restaurants and bars. (Bloomberg)
  • A new outbreak is spreading through Beijing. Authorities grounded hundreds of flights, suspended schools and announced that all movement in and out of the Chinese capital will be “strictly controlled.” (Guardian)
  • A study found that dexamethasone, a common steroid used to treat rheumatoid arthritis and asthma, reduced deaths in hospitalized COVID-19 patients by a third. Doctors are hopeful it could help treat the most seriously ill, though full data has not yet been published. (STAT)
  • The Food and Drug Administration revoked its emergency-use authorization for two malaria drugs —chloroquine and hydroxychloroquine—to be used in treating COVID-19. (WSJ)
  • The CDC issued new guidelines that aim to help the public minimize risk while venturing out into public spaces. It outlines that individuals should wear masks, try to maintain distance from others, and limit the time of their interactions with one another, but does not specify outdoor versus indoor behavior. (Washington Post)

Source: Washington Post

Powell testifies, urges Congress to continue boosted jobless benefits

Fed Chair Jerome Powell warned Congress on Wednesday, June 17, 2020 of the risks to the economy if lawmakers do not pass additional fiscal aid. One emergency measure, the extra unemployment benefits of $600 per week, expires at the end of July. He noted that 20 million workers remain displaced. “It would be a concern if Congress were to pull back from the support that it’s providing too quickly,” Powell stated.

Some 1.5 million people filed for unemployment compensation last week, a painfully elevated level considering the crisis began three months ago. According to Powell, “it will hold back the economic recovery if they continue to lay people off.” He also said that if state and local governments don’t get more aid soon, they'll have to start laying off employees. Such layoffs were a significant drag on the recovery from the 2008–09 recession, when 708,000 public employees were laid off in the four years after the recession ended. Powell added, “until the public is confident that the disease is contained, a full recovery is unlikely.”

Officials last week signaled they expected to hold rates near zero at least through 2022. Mr. Powell said the central bank wasn’t close to thinking about raising rates or how to shrink its asset portfolio that has nearly doubled over the past year, to around $7.2 trillion. He also said the Fed hadn’t made any decisions about whether to employ yield caps. “If rates were to move up a lot and for whatever reason, and we wanted to keep them low to keep monetary policy accommodative, we might think about using it,” he said. “It’s sort of an early stage thing we’re evaluating.”

Powell said he expects the economy to move through three phases if the virus remains “reasonably well under control.” The first phase, a sharp contraction, could then lead to the second—a bounce back marked by large increases in re-employment. He said it was possible the economy was in the beginning of the second phase, but he warned that the third phase of recovery would require Americans to regain their confidence engaging in activity that requires close indoor contact or large outdoor gatherings. This last stage could take some time, keeping employment and activity below their pre-pandemic levels. “There are parts of the economy that will struggle to return to their old ways of activity,” Powell said.

3. What else is going on in the economy?


  • U.S. retail sales jumped from -14.7% to +17.7% in May, the largest monthly increase since records began in 1992. (WSJ)
  • Overall mortgage applications activity rose +8.0% last week, with new purchases posting a ninth straight weekly gain to reach an 11-year high of +4.0%, up 21.1% from a year ago. Refinance-related activity jumped 10% last week, up +106% year-over-year as the average 30-year fixed-rate home loan declined from 3.38% to 3.30%. (CNBC)
  • After falling behind Canada and Mexico during the U.S.-China trade war, China reclaimed its spot as America’s largest trading partner in April. China traded $40 billion with the U.S, while Canada and Mexico traded near $30 billion each. (WSJ)
  • Consumer sentiment improved again in June to 78.9, beating survey estimates of 75.0. (University of Michigan Survey)
  • New homebuilding construction starts rose +4.3% in May to an annualized rate of 974,000, but was shy of projections for 1.095 million. Despite the miss, housing starts rebounded from a -26.4% plunge in April. Building permits rose +14.4% in May after declining -21.4% in April. (CENSUS)
  • Oxford Economics anticipates the recovery will occur in two phases: in the first phase, growth will be strong as consumer spending and business demand rebounds from depressed levels, but thereafter lingering scars from the GCR will limit the pace of growth. (Oxford Economics)
  • 93% of countries are in a recessionary state right now. As a result, more countries will be in a recession this year simultaneously than during the World Wars or the Great Depression. (World Bank)

4. Unemployment


Continuing claims are holding above 18 million which indicates that the labor market is facing a long recovery. The number of workers applying for and receiving unemployment benefits has stabilized at historically high levels, signs that while the labor market is healing, hundreds of thousands of workers are still losing their jobs each week.

  • New first-time claims for unemployment benefits totaled 1.508 million last week, down 58,000 from the week prior, but was above consensus expectations of 1.3 million.
  • Since Jerome Powell last offered his semi-annual testimony in February, the unemployment rate has climbed from 50-year lows to its highest levels recorded in more than 80 years. (WSJ)
  • Joblessness remains at historically high levels. Before this year, the most Americans receiving unemployment benefits in a single week was 6.6 million in 2009, according to Labor Department records going back to 1957.
  • Continuing workers receiving benefits under all programs, including pandemic assistance, totaled 29.1 million, a decrease of more than 375,000. Claims in Florida and Oklahoma showed the biggest declines, while claims in Texas rose the most. (Cetera Investment Management)
  • Lower wage workers are bearing the brunt of this recession. Minorities are being affected more than whites, and service jobs in retail, restaurants, hotels, and entertainment venues have seen the most extensive wage declines. (Federal Reserve Board)

5. Bullish thinking


  • Morgan Stanley said that the market correction seen during the week of June 8, 2020 was overdue and “healthy.” They believe that the bull market will soon “resume in earnest.” They added that the market likely has another 5%–7% downside before the bull market resumes, however.
  • Morgan Stanley raised its S&P 500 price target from 3,000 to 3,350 through June 2021. It also shifted its bull and bear cases higher—from 3,250 to 3,700 and from 2,500 to 2,900, respectively.
  • The significant rebound in equity prices has moved S&P 500 levels close to Goldman Sachs year-end target of 3,000.
  • According to LPL Financial, “near-term, the potential is there for a well-deserved pullback, but going out 6-12 months, stocks have consistently performed when spreads between 50-day moving average and 200-day moving have been this wide.”
  • J.P. Morgan cited stronger consumer consumption in revising its projected fourth-quarter drop to 6.3%.

6. Bearish thinking


  • Goldman Sachs worries about how much spending power investors will have in the next two years. They expect disposable income to decline -2.3% in 2021.
  • Billionaire investor Leon Cooperman says that the retail investors using the no-fee Robinhood app to pile into beaten-down stocks will “end in tears.” (MarketWatch)
  • Some 78% of fund managers surveyed by Bank of America see the stock market as “overvalued.” (Bank of America Global Fund Manager Survey, Bloomberg)
  • In 2019, S&P 500 companies paid out about $485 billion in dividends. Citigroup is forecasting a drop of as much as 30% from last year in S&P 500 dividends paid in 2020. (Barron’s)
  • Jeremy Grantham, renowned investor and co-founder of Grantham, Mayo, & van Otterloo, says the stock market right now is in the fourth “Real McCoy” bubble of his career. He says that investing in it is “simply playing with fire.” (Bloomberg)


Debra Taylor, CPA/PFS, JD, CDFA, is the principal and founder of Taylor Financial Group, LLC, a wealth management firm in Franklin Lakes, N.J. Debra has won many industry honors and is the author of My Journey to $1 Million: The Systems and Processes to Get You There, a book about industry best practices. She is also a co-creator of the Savvy Tax Planning program.