Summer Market Update

July 28, 2020

 

Now that we are in the summer months we still expect volatility as the summer progresses (a more likely scenario now that coronavirus cases are increasing).  We still expect a slow-and-steady economic recovery, one that may take two years to complete.  And we still think US stock markets may be a little ahead of themselves given the current high level of uncertainty. 

 

There are many positives when evaluation the economy now and in the near future.  The huge numbers of job losses due to the coronavirus are receding.  The unemployment rate now stands at 11.1%. 

 

Monetary stimulus is still in place.  There isn’t another interest rate cut on the horizon, but the Fed continues to add to its balance sheet through aggressive bond buying.  Also, rates are destined to stay “low for longer.”  More fiscal stimulus is also a possibility.  Although it is an election year, there is a lot of support on both sides of the aisle for legislative action. 

 

There are some technical trends that are working in investors’ favor as well.  According to Bespoke Investment Group, on the nine previous occasions since World War II when the S&P index was up by 15% in a quarter, the index was up in the succeeding quarter by an average of 9%. 

 

However, on the downside Fed Chairman Jerome Powell warned Congress that “significant uncertainty remains about the timing and strength of the recovery”

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