Uncategorized, Weekly Update

Markets Are Coasting on the Recovery Story

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Published June 19, 2020


A recent commentary by Blaine Rollins of 361 Capital offered a good selection of charts explaining why the stock market continues to believe that the worst is behind us and sunnier skies are ahead.

First, this week’s reiteration by the Federal Reserve that interest rates will remain near-zero for a long time to come continues to keep the pilot light lit under stocks. Adding to that, the Fed announced that they will begin buying corporate bonds in an effort to insure market stability. Markets have no concerns or questions about Fed policy going forward – it is full-throttle supportive. Next, we have the continuing uptick in travel. Yes, it’s rebounding from nearly nothing. But the trend is now weeks old, and heading toward being back fully on par with last year in another couple of months. I think most people expect this upward trend to flatten out at some point, if only because the airlines are not selling their full capacity of seats, often holding back the middle seat to provide some social distance. The chart below shows traveler activity last year (red line on the top) and this year (up-trending line at the bottom).

Traveler activity

Home buying hasn’t really missed a beat. The chart below shows buying interest in homes at record levels with mortgage rates very attractive.

Buying interest in homes

For another example, retail sales recovered essentially all of their March/April swoon, though they remain depressed from last year’s levels.


These factors combine with many others to lead Goldman Sachs to declare that the recovery has moved up to a ‘2’ on their scale. That’s a far cry from the ‘fully open’ level shown below in green. But the trend is consistently up, albeit gradually.

Goldman Sachs recovery scale

In these latter days of the quarter, with corporate earnings and economic data sparse, the markets can coast on the existing narrative. That narrative is a continuing rebound in economic activity as consumer and business activity resumes. The attendant rise in virus cases keeps that optimism in check to some degree, but has yet to reach levels serious enough to derail the recovery story. We won’t know until late in the summer after the payroll replacement checks have dried up whether and how severe the true economic picture is. For now, the economic data is trending well, supporting the recovery thinking.

Market Update

Stocks overcame early weakness to post a solid week as the Fed once again offered market support. Monday’s opening bell saw the stock market down some -3% as investors fretted about a rise in coronavirus cases in the U.S. and China. But the drop was short-lived. Buyers swooped in to push the indexes higher throughout the day and ultimately turn stocks +0.8% positive by the close. The rally gained steam in the afternoon when the Federal Reserve announced it would begin buying corporate bonds, yet another effort to backstop markets and help investors maintain confidence. A blowout retail sales number Tuesday sent stocks further upward, this time by +1.9%. Stocks stepped back -0.4% Wednesday with investors catching their breath after three solid days. Shares traded in a quiet, flat session Thursday; rising cases of coronavirus being sited for tapping the brakes on the stock rally. Shares opened solidly higher Friday. But a report that Apple (AAPL) would close 11 of its retail outlets pushed stocks negative mid-day. The closures are caused by surging coronavirus cases in Florida and other sunbelt states. Stocks slid -0.5%.

A solid week for stocks despite the tepid tone to end the week. The S&P 500 (SPY) gained +1.88% while the Nasdaq 100 (QQQ) was +3.51% higher. Small-cap stocks (IWM), which have been the beneficiary of economic recovery optimism, ticked higher by +2.26%.

Warm wishes and until next week.