Stabilization and Looking Ahead
While we are seeing the start of businesses reopening and establishing a new “normal,” with the uncertainty of the coronavirus’ full impact, we believe we are still in the “Stabilization” stage of this Bear Market. Moneta’s Chief Investment Officer, Bill Hornbarger, gives us three things to know and to watch for in the week ahead.
3 Things to watch
Consumer prices (CPI) will be released Tuesday morning. After last week’s soft Producer Price Index (PPI) number, investors will be looking for signs of deflation as the economy faces the potential of additional COVID related restrictions. CPI is expected to be up 0.6% on a YOY basis in June, driven by an unseasonable June increase in gasoline prices.
On Wednesday, the Fed will release the Beige Book report on business conditions across the 12 Federal Reserve Districts. The Beige Book contains qualitative information, including anecdotes about things like lost sales from business interruptions and broken supply chains learned directly from sources in each of the 12 districts.
The National Federation of Independent Business will release the small business optimism index on Tuesday. June saw a large increase in the NFIB hiring intentions gauge. This part of the report will be closely watched based on the recent increase in reported COVID tests.
3 Things to Know
Tesla is on a tear. Since closing at $1,079.81 on June 30, the company’s stock is up over 43% in 8 trading days. (Source: Moneta, Bloomberg)
The S&P 500 Index gained 20.5% during the second quarter, bringing its year-to-date return to negative 3.1% as of June 30. Just three stocks (Apple, Microsoft, and Amazon) accounted for more than 25% of the return on the S&P 500 during the second quarter as technology led the rally. (Source DiMeo Schneider)
Price matters – the longer you hold equities, the more beginning valuation (at purchase point) drives returns. (source: BofA Global Research, Brandes)
Staying optimistic amid historic volatility
As we continue to work to flatten the coronavirus curve, we remain optimistic about the market’s resilience and stay steadfast in our investment plans. “Policymakers have made it clear that they will do whatever is necessary to support the economy and markets during this time,” said Moneta’s Chief Investments Officer, Bill Hornbarger.
Congress has reacted much more swiftly to 2020’s market challenges than in the past. Due to the efforts of policymakers during the last recession – the Global Financial Crisis (GFC) in 2008-09 – several policy tools were already available to address the current market environment. These actions did not go into effect until 80 weeks after the GFC of 2008-09 began.
This time around, Congress activated relief efforts only 11 weeks after the first reported coronavirus death in China. Just four weeks after that, legislation was signed to provide an additional $310 billion in funding for the Paycheck Protection Program (PPP), $60 billion of which is reserved for community banks and small lenders; $75 billion for hospitals; $25 billion to support testing efforts; and $60 billion for emergency disaster loans and grants.
One of the key characteristics of a good investor is resisting panic and euphoria. The unprecedented volatility and speed of the market’s changes may temp some to make emotional decisions about their financial plan, but it’s important to remember that market drawdowns of this magnitude are not uncommon. The economy and markets want to grow and these episodes are periodically part of that experience.
THE CARES ACT
The most recent bill, the CARES Act, is a $2.2 trillion emergency aid package providing significant tax and non-tax stimuli to individuals, their businesses and employer plans. Whether you’re an individual, a business owner or a retirement plan sponsor, follow the links below to learn more about what’s in it for you:
Last updated April 27, 2020
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