Kipley Lytel CFA Stock Market Recap I Weekly S&P 500 Stock Market Analysis, Commentary, Insights, Recap Overview by Kip Lytel, CFA I Equity Market Advice Monthly 2018

Weekly Stock Market Summary & Monthly S&P 500 Update Oct 2021

10/2/2021

October 16, 2021 Weekly Market. Stocks posted their best week since July after earnings, with retail sales and banking earnings topping estimates. Consequently, the broad market blue-chip index of the S&P 500 closed out the week higher by about +1.8% in its best one-week increase since July. According to FactSet, the S&P 500 index is now "reporting the third highest (year-over-year) growth in earnings since Q3 2010." While only 8% of the companies in the S&P 500 have reported earnings results for Q3 2021, 80% of the composite have reported actual EPS above estimates with averages exceeding expectations by 14.7%. Banks posted much stronger-than-expected third-quarter earnings results, including Bank of America (BAC), Citi (C) and Morgan Stanley (MS), which helped alleviate investor concerns over a sharp deceleration in corporate profits. The Consumer Price Index (CPI) rose +0.4% overall with the core increasing +0.2% in September; and on a 12-month basis, the headline rate rose to 5.4% year-over-year, marking the 10th straight month consumer inflation came in over the five-year average. However, supply chain issues remain strained and therefore continues to help fuel inflationary pressures.

October 9, 2021 Weekly Market. The Dow Jones Industrial Average led the major US equity indices with +1.22% followed by the S&P 500 Index +0.79% and the Nasdaq +0.09%. Core inflation rose +3.6% in August from a year ago, the biggest jump in more than 30 years. Supply chain shortages have elevated preexisting inflationary pressures by growing beyond electronics and chips into most other commodities: oil is at a 6-yr high, beef up +14%, pork by +12.1%, and poultry by +6.6%. Even food-away-from-home like restaurant purchases is +4.7 percent higher. Also, the job report was disappointing only 235,000 positions added vs. expectations of 720,000.

October 2, 2021 Weekly Market Update. The S&P 500 equity index fell -4.8% in September, representing the worst month since March 2020. Further, the S&P 500 finished the month -5.1% below its all-time high set on September 2, 2021. Fortunately, on the first day of trading for October the S&P 500 bucked the past four days of losses with a robust turnaround in trends, rebounding +1.2% on the day. On the economic front, consumer spending, which accounts for over two-thirds of U.S. economic activity, rose +0.8% in August while inflation also maintained its upward trend with the monthly personal consumption expenditures (PCE) price index up +0.3% (+3.6% over past 12-months}.

Weekly Stock Market Summary & Monthly S&P 500 Update Sep 2021

9/4/2021

September 25, 2021 Weekly Market Update. Equity volatility as measured by "VIX" spiked on the week to the highest in four months as the U.S. equity markets tumbled then recouped the losses by the end of the week. The Dow Jones Industrial Average led the major indices with +0.62%, followed by the S&P 500 Index +0.51%and the Nasdaq +0.02%. The capital markets were rattled by one of China’s largest real estate groups facing a debt crisis in the form of potential default, uncertainty over the direction of the scheduled Fed meeting, and ongoing delta variant struggles; the virus uptick has led some economists to lower growth targets for both the third and fourth quarter of the year. However in contrast, the Leading Economic Index marked the 15th advance in over the last 16 months, rising +0.9% to 117 for the month of August. With the Fed’s recent statement of "slower bond buys may soon be warranted", it appears the FOMC might also be tapering the purchase program by year-end.

September 18, 2021 Weekly Market Update. All major U.S. equity indexes lost ground on the week: Dow Jones Industrial Average declined -0.07% followed by the Nasdaq -0.47% and the S&P 500 Index -0.57%. After hitting a new high back on September 2nd, the S&P 500 has been trading lower in a narrow, choppy range as we look to close the summer. With no fundamental earnings reports due until mid-October the focus remains on the virus, the developments on a new Congressional spending bill, meandering course of the Biden tax plan, and the economy. On this front the news has been mixed with some positive economic trends laden with potential higher capital gains taxes (25%) concerns and frustration over the coronavirus variants.

September 11, 2021 Weekly Market Update. Marked by three days of consecutive losses the Dow Jones Industrial declined -2.15% followed by both the S&P 500 Index -1.69% and the Nasdaq -1.61% losses for the week. Market volatility has increased in what we believe to be a response to uncertainty related to the meandering course of Biden’s new tax regime that could have negative impact on investment gains and estates along with a growing feeling of ongoing virus mutation taking a toll on future economic growth. Additionally, the equity markets have been rising without much resistance; September is the 11th month without a 5% correction for the S&P 500, which from a historical perspective, also happens to be one of the longer rally streaks.

September 3, 2021 Weekly Market Update. The U.S. market indexes finished mixed for the week: Dow Jones Industrial and S&P 500 posted +0.9% and +0.7% gains, respectively, while the Nasdaq Composite dipped -0.1%. However, the broad market index of the S&P 500 showed a strong trend by closing with gains in 7 out of the last 8 trading sessions. With S&P 500 Q3 earnings just around the corner (3 wks), FactSet noted that third quarter (Q3) earnings estimates showed the “fourth largest increase in EPS Estimates for S&P 500 Companies Since 2009.” Going into this new month it is also notable that since 2004, September has finished up for the month in 11 of the last 17 years, or 65% of the time, while also finishing up 75% of the time in three of the past four years.

Weekly Stock Market Summary & Monthly S&P 500 Update Aug 2021

8/7/2021

August 28, 2021 Weekly Market Update. All U.S. equity market indexes participated in an upswing for the week on FDA approval of Pfizer COVID-19 vaccine, the virus new case count slowing to 2.8% week-over-week while hospitalizations also easing to a 5.7% increase: The Nasdaq +2.82% led the index gains, followed by the S&P 500 +1.52% and the Dow jones Industrial Average +0.96%. The capital markets were also supported by the House infrastructure resolution passing, which should enable work to begin on drafting the budget reconciliation bill. Finally, for the first time in over a month seasonally adjusted jobless claims came in higher with claims around 353K.

August 21, 2021 Weekly Market Update. All the major U.S. equity market indexes lost ground on another choppy trading week: The Dow Jones Industrial Average ( -1.11%), the Nasdaq (-0.73%) and the S&P 500 Index (-0.59%). The stock market was rattled by minutes from the Federal Reserve indicating asset purchases would be tapered by year-end, geopolitical instability (Afghanistan), another weekly Delta variant infection uptick (+14%) and the weaker than expected retail sales for July. However, vaccinations did increase this week to 60.2% of the total U.S. population (one dose) and the booster shot is expected to be released next month.

August 14, 2021 Weekly Market Update. The S&P 500 and the Dow Jones Industrial both rose on the week, +0.71% and +0.87% respectively, while the tech-laden Nasdaq slipped -0.09%. On the week, the S&P recorded three straight days of new highs while the month of August has marked the 10th consecutive month where the index recorded a new record high. However, with a surge in cases of the Covid-19 delta variant the August University of Michigan Consumer Sentiment unexpectedly tumbled from 81.2 to 70.2, which is a foreboding sign. After the passing of the $1.5 trillion Infrastructure bill, the Senate has now shifted to pursuing a $3.5 trillion budget resolution that would expand a social safety net to levels not seen since the “New Deal” programs of the Great Depression.

August 7, 2021 Weekly Market Update. All major U.S. equity indexes hit new highs on positive earnings and employment news, along with the appearance that the new infrastructure bill will not have accompanying taxes: the Nasdaq (+1.11%) led the major indices followed by the S&P 500 Index (+0.94%) and the Dow Jones Industrial Average (+0.78%). According to FactSet, the S&P 500 is reporting year-over-year earnings growth of 88.8% for Q2, which is the highest earnings growth rate for the index since Q4 2009 (109.1%); also, 87% of companies have beaten revenue estimates for Q2 to date. The better-than-expected July jobs report, 943,000 versus expectations for 845,000, dropped the unemployment rate to 5.4%. The seasonally adjusted IHS Market U.S. Manufacturing Purchasing Managers’ Index posted 63.4 in July, up from 62.1 in June while The ISM Services' rise to a 64.1 all-time high in July from 60.1.

Weekly Stock Market Summary & Monthly S&P 500 Update July 2021

7/1/2021

July 31, 2021 Weekly Market Update. With delta variant unbridled pace of new infections, the Dow Jones Industrial Average slipped -0.36% and S&P 500 declined fractionally -0.37% while the Nasdaq trailed -1.11%. The U.S. Bureau of Economic Analysis (BEA) revised its Gross Domestic Product (GDP) estimate, posting an increase of 6.5% in the second quarter of 2021; slightly above its revised first quarter estimate of 6.3%. The Senate passed a procedural vote on the $550 billion bipartisan infrastructure package.

July 24, 2021 Weekly Market Update. Market trading was marked by choppiness where the week started with the potential for the S&P 500 to break below technical support levels followed by the setting of another new record by week's end: The Nasdaq gained +2.84%, followed by the S&P 500 (+1.96%) and Dow Jones Industrial Average (+1.08%). The leading index rose 0.7% to 115.1 in June, another new record high with eight of the 10 components making positive contributions. So far the earnings season is robust with 86% of the S&P 500 companies beating revenue estimates for Q2 with 88% of the reporting companies beating EPS estimates, which is the highest since FactSet began tracking this metric in 2008.

July 17, 2021 Weekly Market Update. The U.S. equity markets retrenched for the week on investor worries over the potential flattening of the yield curve (slowing economy sign), consumer confident dipping to 80.8 (from 85.5 in June), inflation concerns (CPI rose a whopping 5.4), and Biden’s proposed higher tax changes: For the week, the Dow Jones Industrial Average slipped -0.52% followed by the S&P 500 Index -0.97% and the Nasdaq -1.87%. Further, the Delta coronavirus variant appears to be taking hold with U.S. case counts rising 87% week-over-week. In contrast to these ailments, 90% of S&P 500 companies have beat revenue estimates for Q2 to date, with 85% beating EPS estimates to date (Source: Factset).

July 10, 2021 Weekly Market Update. Though a bumpy ride, the major U.S. equity indexes finished up for the week: the Nasdaq +0.43%, the S&P 500 Index +0.40% and the Dow Jones Industrial Average +0.24%. Market volatility was spurred by the 10-year Treasury dipping to 1.25% from a high of 1.75% back in March. The drop in yields is often an indicator of economic slowdown, and while economic data may have peaked globally with Delta version of the coronavirus shutting down travel in many regions of the world again, there isn’t any hard evidence the U.S. economy is slowing at this stage. Case in point, the bottom-up EPS estimate for the S&P 500 for Q2 increased by +7.3% from March 31 to June 30, which was the largest increase during a quarter since FactSet began tracking this metric in 2002. Further, according to Factset, industry analysts in aggregate predict the S&P 500 will see a price increase of 11.2% over the next twelve months.

July 5, 2021 Weekly Market Update. Strong employment trends continue to take center stage with unemployment dropping to 5.9%; nonfarm payrolls jumped 850k in June, a 150K higher figure than expectations. For the week, the Nasdaq (1.94%) led the major indices followed by the S&P 500 (1.67%) and the Dow Jones Industrial Average (1.02%). U.S. consumer confidence index rose 7.3 points to a 16-month high of 127.3 in May marking a 13-month high while pending home sales rebounded 8.0% to 114.7 in May.

Weekly Stock Market Summary & Monthly S&P 500 Update June 2021

6/1/2021

June 26, 2021 Weekly Market Update. On positive data showing a resurgence in the world economy and Biden’s announced agreement on a new infrastructure stimulus bill of $1.2 trillion over eight years (with nearly $600 billion in new spending), the U.S. equity markets rallied on the week: Dow Jones Industrial Average (+3.44%, the S&P 500 +2.74% and the Nasdaq +2.35%. A European survey reported the fastest pace of business activity in 15-years while the overall health of America’s manufacturing continued its upswing; Institute of Supply Management's capacity utilization is now at 88%, a post-1995 high. Lastly, the Fed announced it was eliminating temporary limits on dividends and stock buybacks.

June 19, 2021 Weekly Market Update. The Federal Reserve jolted the market with changed stance toward the potential of two hikes in interest rates in 2023, prompting all U.S. equity markets to sell off on the week: The Dow Jones Industrial Average -3.45%, the S&P 500 Index -1.91% and the Nasdaq -0.28%. However, Fed Chair Powell reiterated that the Fed would maintain Quantitative Easing at its current monthly pace of $120 billion. Meanwhile, President Biden and Congress continue efforts to resolve differences for an agreed infrastructure bill. The U.S. leading index rose 1.3% to another record high of 114.5 in May while PPI grew 0.8% in May.

June 12, 2021 Weekly Market Update. The Nasdaq led the U.S. major equities with +1.85% followed by the S&P 500 +0.41% while the Dow Jones Industrial Average declined -0.80%. Inflation took center stage on the week with Consumer prices jumping 5% in May, marking the fastest pace hike since the summer of 2008. Used cars and truck prices continued their climb higher, rising 7.3% on the month and 29.7% for the past 12 months while the gasoline index is up 56.2% over the past year. New job claims declined 9,000 from previous week to 376,000. Meanwhile the White House and Congress continue to work on a meeting of the minds for the infrastructure stimulus bill.

June 5, 2021 Weekly Market Update. All major U.S. equity indexes rose at a modest pace in a rather uneventful news week for the stock market: the Dow Jones Industrial Average +0.66%, the S&P 500 Index +0.61% and the Nasdaq +0.48%. However, there was one positive piece of data the reconfirmed the upward trajectory of the economy and that was economy added 559,000 jobs in May, well above April’s 278,000 (Q1 GDP remained at 6.4%). Over 60% of America’s population has now had at least one vaccination shot leading to sharp U.S. declines in Covid hospitalizations and deaths. Accordingly, it comes to no surprise that TSA screened more than 7.1 million people during the Memorial Day weekend - its highest traffic numbers since March 2020.

Weekly Stock Market Summary & Monthly S&P 500 Update May 2021

5/1/2021

May 29, 2021 Weekly Market Update. The Nasdaq +2.06% led the major U.S. equity indices followed by the S&P 500 Index +1.16% and the Dow Jones Industrial Average +0.94%. The markets were supported by positive decline in unemployment claims, Biden’s Infrastructure bill showing promising comprise by both parties, further home price appreciation and manufacturing showing upticks with PMI on the rise. However, Biden’s new tax regime and inflation remain to be an ongoing concern going forward for investors.

May 22, 2021 Weekly Market Update. The major U.S. equity indices, though volatile at times, finished muted and mixed on the week: Nasdaq posted a gain +0.31% while the Dow Jones Industrial Average -0.51% and the S&P 500 Index -0.43% lost ground. The S&P 500 is now just about 3% from the all-time high and remains up about 10% for the year. Equities continue to process degrees of sector rotation from high-flyer growth names to cyclicals, financials and energy; financial stocks look particularly attractive going forward with inflation, economic recovery trends and the potential of rising rates (higher rate interest on new loans). May composite purchasing managers index (PMI) came in at a whopping 68.1, handily beating the 63.7 estimates while initial jobless claims declined for the third consecutive week.

May 15, 2021 Weekly Market Update. Rising inflationary signs led investors to tap the breaks with all U.S. equity markets losing ground on the week: The Nasdaq -2.34% led the major indices lower followed by the S&P 500 Index -1.39% and the Dow Jones Industrial Average -1.14%. The reality is that things are likely to get more expensive for the producer and consumer as the Producer Price Index spiked 6.2% for the 12-months ended in April, while the Consumer Price Index also rose (from 2.6% to 4.2% year-over-year, marking the largest increase since 2008). The inflation data trends are spooking the market with concerns that the economy may be heating up so much that the Fed will be forced to taper its support early, and rate hikes could be back on the table. However, business activity continues to be very much on a robust, rebound trajectory with even more new lenient CDC mask guidelines now taking hold.

May 8, 2021 Weekly Market Update. The major U.S. equity markets finished mixed for the week: The Dow Jones Industrial Average +2.67% gain led all the major indices followed by the S&P 500 Index +1.23%; meanwhile the Nasdaq lost ground with -1.51% loss. On the corporate earnings front, the second quarter marked the second-highest increase in the bottom-up EPS estimate during the first month of a quarter since FactSet began tracking this metric in 2002. While the U.S. equity markets should be celebrating the potential for another massive (and unprecedented) stimulus bill of $1.8 trillion, there are strings attached in the form of potential massive tax hikes for corporations, high-earners, and on portfolios. With regards to COVID-19, one-third of the adults are now fully vaccinated while 45% of the population has had at least one shot.

May 1, 2021 Weekly Market Update. The U.S. equity markets finished the week with mixed results led by the S&P 500 +0.02% followed by marginal declines by the Nasdaq (-0.39%) and the Dow Jones Industrial Average (-0.50%). FOMC kept its policy stance unchanged with rates near 0% and also maintained the $120 B in monthly QE buying. The Fed commented "the path of the economy will depend significantly on the course of the virus, including progress on vaccinations." While COVID-19 has resurged in Europe, with particularly horrible outbreak in India, the uptick in U.S. states appear to have a short fuse with J&J vaccine re-released and 43% of the population now having at least one shot. The backbone of the economy has been the consumer and this category is sanguine with almost 11% consumption growth and consumer sentiment sharply higher in April at 121.7. As to the state of the health of the U.S. companies, 86% of the S&P 500 companies have beaten EPS estimates to date for Q1, which is the highest EPS beat % since FactSet began tracking this metric in 2008. However, the market has been reluctant to bring strong rewards given forward-looking concerns over future potential corporate tax rates (and new onerous capital gain tax regimes).

Weekly Stock Market Summary & Monthly S&P 500 Update April 2021

4/3/2021

April 24, 2021 Weekly Market Update. The U.S. equity markets returns were slightly off on the week with the S&P 500 Index -0.13%, the Nasdaq -0.25%, and the Dow Jones Industrial Average -0.46%. Biden’s onerous 39.6% tax plan proposal on capital gains (from 20%) weighed heavily on otherwise sanguine earnings results where 94% of S&P 500 earnings have beat analysts’ expectations, setting a record high. U.S. Leading Economic Index rose +1.3% to 111.6 in March, a figure that was a little stronger than expectations. It remains uncertain whether the latest Biden tax proposal makes it to the finish line in its present form. However, taxing growth and income can unwind even the strongest of economies with the stock market being the first victim in the dominos that could potentially fall.

April 17, 2021 Weekly Market Update. The equity markets continued the upward trajectory for the week led by the S&P 500 Index +1.37%, followed by the Dow Jones Industrial +1.18% and the Nasdaq +1.09%. The March retail sales results handily beat expectations at +9.8% vs. estimates of +5.5% as restrictions eased and consumers benefited from stimulus checks. On the global front, the quarterly GDP growth of +18.3 reported by China was a positive surprise for the World’s economy. The U.S. Core Consumer Price Index (“CPI”) rose 0.3% on the month, a huge monthly jump for the index that excludes food and energy. This CPI inflationary gauge has a run rate of over 3% annually, which would probably place core inflation around 2%. However, despite the big jump, the 10-year Treasury yields remained around 1.6%. While many states seem to be experiencing spikes in new COVID-19 cases, this worry was offset by 38.5% of U.S. adults having now received at least one vaccination dose; 24.3% are now fully vaccinated.

April 10, 2021 Weekly Market Update. The Nasdaq reemerged as the major indices leader with a +3.12% gain, followed by the S&P 500 +2.71% and the Dow Jones Industrial +1.95% for the week. The economy added 916,000 jobs in March, the largest gain since August 2020, marking pandemic-low unemployment rate of 6%. Meanwhile the ISM non-manufacturing Index report of 63.7% blew-out estimates of 58.5% while March ISM manufacturing Index reached a 38-year high of 64.7%. Investor sentiment towards the global economy over the next 6-months has also reached a record high according to survey data covered by Sentix. However, proposed U.S. new corporate and individual tax hikes may lead to greater uncertainty and spur future market volatility.

April 3, 2021 Weekly Market Update. The S&P 500 led the major U.S. indices with +1.57% weekly return, followed by the Dow Jones Industrial +1.36% while the Nasdaq gave back -0.58%. The ongoing equity rally reflects a recovery where the term “recession” is no longer in the Wall Street vocabulary but rather “V” shape recovery; this has been spurred by unprecedented government stimulus and a very liberal Fed policy. Though the COVID-19 cases have recently spiked (5% range) in over half the U.S. states, the shift toward “business as usually” continues its incremental path toward pre-coronavirus normalcy. Indeed, over 30% of the U.S. population have now had at least one vaccination shot and some of the vaccine options appear to affective against the new variants. It should come to no surprise then that the Conference Board's consumer confidence index has now jumped to a one-year high of 109.7 from 90.4 in February.

Weekly Stock Market Summary & Monthly S&P 500 Update Mar 2021

3/1/2021

March 27, 2021 Weekly Market Update. The U.S. equity markets provided a topsy-turvy investor ride yet ended the week largely positive: The S&P 500 led the major indices +1.57% followed by the Dow Jones Industrial Average +1.36% while the Nasdaq declined -0.58%. The four pillars driving the economic engine continue to take center stage: Covid-19 vaccination trends, government stimulus (new infrastructure bill), the Federal Reserve’s policies and the economy reboot progression. Another key story was an instrumental transportation way of the Suez Canal has been blocked by a jumbo ship running ashore; this is expected to delay vital goods and commodities such as critical oil supplies.

March 20, 2021 Weekly Market Update. The decline in U.S. equity indices were led by the Nasdaq (-0.79%), followed by the S&P 500 Index (-0.77%) and the Dow Jones Industrial Average (-0.46%). The tech-heavy Nasdaq Composite has fallen in recent weeks and remains off about -7% from its all-time-high about a month ago, which is emblematic of both sector market rotation and investor concerns over inflation. Indeed, the Fed’s zero interest rate policy together with government stimulus spending could tip the inflation rates scale above the Fed’s 2.0% target.

March 13, 2021 Weekly Market Update. In response to the passing of the $1.9 trillion stimulus package by Congress and more than 101.1 million vaccine doses now administered (reaching 19.9% of the total U.S. population), the U.S. equity markets rallied on the week: Dow Jones +4.07%, the Nasdaq +3.09% and the S&P 500 +2.64%. However, bonds are down on inflationary concerns and an uptick in the treasury yield curve, with the mainstream U.S. corporate bond index (symbol: AGG) -2.85% YTD. With bonds often a core asset class of most portfolios, even though equities are rallying there remains a return drag from the fixed-income components.

March 5, 2021 Weekly Market Update. The U.S. equity markets were mixed with the tech-sector losing ground on continued delays and uncertainties over the stimulus package in Congress, along with Fed Chair Powell’s comments which suggested the Federal Reserve does not intend to take any action to mitigate the rising treasury bond curve yields, which disappointed investors. For the week the S&P 500 Index edged up +0.81% while the Nasdaq lost -2.06%. However, the S&P 500 is still in a cooling-off pattern and is off about -3.5% since its high of last month, which is the second pause in the market since the index’s breakout back in November of 2020.

Weekly Stock Market Summary & Monthly S&P 500 Update Feb 2021

2/1/2021

February 27, 2021 Weekly Market Update. The U.S. equity markets were disrupted on the week by inflation and interest rates as interest rates jumped mid-week on inflationary concerns, as well as signaling of the economy reheating: Nasdaq lost -4.92% followed by the S&P 500 Index -2.45% and the Dow Jones Industrial Average -1.78%.

February 19, 2021 Weekly Market Update. With winter storms damaging the transportation of goods around much of the country, and literally shutting down the largest state of Texas, the U.S. equity markets were mixed for the week with the Dow Jones Industrial Average +0.11, the S&P 500 Index -0.71% and the Nasdaq -0.57%. The markets were down until Friday then uplifted by an Israeli study which reported an 85% effectiveness after one dose of the Pfizer/BioNTech vaccine, and other reports of accelerated production in the coming weeks. To date, 83% of companies in the S&P 500 have reported fourth quarter earnings showing a +3.1% earnings growth rate, far surpassing the pre-earnings analyst estimates of an -8.8%.

February 13, 2021 Weekly Market Update. All major U.S. equity indexes moved to new highs on the year on effectiveness news of coronavirus vaccines and a national drop in hospitalization (-22%). The week's positive index returns are as follows: The Nasdaq +1.73%, the S&P 500 +1.23% and the Dow Jones Industrial +1.00%. With more people back at work jobless claims dropped to 793K which is the lowest level since the first week of the year while corporate earnings continue to rebound. Together with another massive stimulus package in the works the capital markets remain sanguine.

February 6, 2021 Weekly Market Update. On the heels of another massive $1.9 trillion stimulus approved by Congress the equity markets celebrated with sizable gains: Nasdaq +6.01%, S&P 500 +4.65% and Dow Jones Industrial Average +3.89%. The Plan will provide $1,600 direct payments along with unemployment extension and increase. The S&P 500 earnings season has been marked with robust financial results with 81% of companies haven beaten EPS estimates to date for Q4, which is tied for the 2nd highest EPS beat % since FactSet began tracking this metric in 2008. Amazon, Google and AbbVie were among a number of companies reporting strong results for the quarter.

Weekly Stock Market Summary & Monthly S&P 500 Update Jan 2021

1/1/2021

January 30, 2021 Weekly Market Update. There was an investor uprising against Wall Street and its “short interest” which is traced back to Reddit social media and day traders, which caused stocks like GameStop, AMC Entertainment, and Blackberry shares to rise sharply on the week. The week was marked by high volatility for the major equity indices with the S&P 500 losing -2.5% on Wednesday, then recovering +1.5% Thursday and ending down again -1.9% on Friday. In brief, the average joe trader revolt against hedge funds overshadowed otherwise fundamentally positive news developments such as favorable earnings reports, the J&J’s vaccine trial results, and other sanguine economic data. Essentially the big institutional short interest losses drove those funds to sell other holdings to cover big money losses and this event helped drive other stocks down; meanwhile names like GameStop overtook the financial news cycle for the week.

January 22, 2021 Weekly Market Update. Propelled by positive corporate earnings results all major U.S. equity indices rallied on the week with the Nasdaq hitting a new high with a +4.19%; the S&P 500 and the Dow Jones Industrial also finished higher with +1.94% and +0.59%, respectfully. Indeed, roughly 86% of S&P 500 companies have beaten earnings (EPS) estimates for Q4 to date, which is the highest earnings beat % since FactSet began tracking this metric in 2008.

January 16, 2021 Weekly Market Update. The equity markets took a breather by giving back past gains with losses led by the Nasdaq -1.54% followed by the S&P 500 -1.48 and the Dow Jones -0.91%. The lofty $1.9 billion Biden Economic Rescue Package was offset with sobering economic news of higher than expected 965,000 job claims, spiking coronavirus cases engendering further business restrictions and consumer confidence edging downward to 79.2 from 80.7. However, earnings week launched with banks reporting stellar quarterly financial results.

January 9, 2021: Recap & Investing Outlook Vignette Excerpt: Stock Market Forecast

During this extraordinary 2020 period of negative and volatile markets, our firm’s model portfolio continually shifted from its traditional market holdings by incrementally adjusting to more cash, then when unimaginable amount of government stimulus was infused into the economy, along with an extraordinary amount of Federal Reserve asset purchases (even high yield debt), we also incrementally shifted client portfolios back into greater and greater equity exposure.

The stock market enters 2021 with favorable trends: 1) vaccines should thwart the spread of Covid-19; 2) S&P 500 earnings are expected to keep rebounding; 3) the Federal Reserve has assured markets that it won't raise interest rates; and 4) the government signed a new round of fiscal stimulus into law. Indeed, there are several catalysts we already know about that has already initially push the market higher.

A Covid-19 vaccine will continue to expand in the early months of 2021 to where distribution in the U.S. should be widespread and the Federal Reserve intends to keep interest rates low for the foreseeable future. Government spending should continue to spike with additional stimulus and perhaps the much-anticipated infrastructure bill. However, the unknowns include how robust the economic recovery will be, the timing of another stimulus package from Congress, and the broader impact of new regulations, including the potential for more aggressive tax regimes.

In tandem with the abovementioned 2021 tailwind factors, investors should also benefit from a couple of other positive market forces. First, since there isn’t really any other viable return alternatives to stocks at the moment, with bond & other fixed-income yields nearing all-time lows, then stocks should continue to be the most alluring asset class. Second, there is a wave of retirees that must rely on financial asset returns and this establishes both foundational support and positive momentum for much of 2021. This crescendo of demand translates to more buyers than sellers, which in its simplest form, moves stocks higher. From another perspective, how many investors are looking to offload stocks before additional stimulus given there isn’t much competing return options elsewhere? This low interest rate backdrop should encourage investors to continue favoring equities relative to bonds.

2021 Portfolio Strategies:
This year’s asset allocation theme will be to share in the upside of a rising stock market with diversity of asset allocations. We believe that stock market sentiment is generally favorable but also expect volatility given elevated valuations. We will continue to hold individual stocks, individual bonds, exchange traded funds (ETFs) with exposure to both these classes, along with some mutual funds that provide needed asset and strategy diversity
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During the stock market extremities of last year, new investment vehicles were launched to better cope with the new market loss risk realities, such as defined outcome exchange traded funds (ETFs). The most common reason for using defined outcome investing is for the ability to invest with some measure of known downside protection. Over long periods of time, the stock market has tended to go up. But over shorter periods, stock market losses are common and unpredictable.

The investing world has many risks, many which are unknowable and with the S&P 500 trading at a rich 25 forward looking price-earnings (PE) ratio compared to the historical mean is about 19 that then it is important to have safeguards in place. Therefore, we will continue to use defined outlook ETFs to track the return of the S&P 500 (up to a predetermined cap or others uncapped ETFs) while buffering investors against a range of losses over the outcome period, such as 9-15% of the initial market losses. In this investment climate where the printing machine has distorted the underpinnings of relative valuations with “funny money” the prospects of using ETFs that offer the potential for double-digit upside returns with similar downside buffers is compelling for the risk tolerances of our client base.

January 1, 2021 Weekly Market Update. For the last week of the year the market retrenched on news of lower stimulus checks and uncertainty over which party will control of the Senate given the close Georgia elections: The S&P 500 -1.43%, the Dow -1.35% and the Nasdaq -0.65%. However, for the year all U.S. markets finished positive in the throws of an -30% economic contraction and if anything, this can be best summed-up by former Fed Chair Janet Yellen, “The stock market isn’t the economy.” Interestingly, over 50% of the S&P 500®’s gains for the year just came from three stocks: Apple, Amazon and Microsoft. Our 2021 outlook newsletter (clients only) is still being researched and drafted, but with government printing machine still working on overdrive we expect further gains again – at least for the first half of the year (albeit with some intermittent stock fluctuations).

Weekly Stock Market Summary & Monthly S&P 500 Update Dec 2020

12/1/2020

December 24, 2020 Weekly Market Update. The U.S. equity markets finished the holiday shortened-trade week mixed with the Nasdaq up +0.4% while the S&P 500 and Dow Jones Industrial ebbed slightly down by -0.2% and -0.1%, respectively. Congressional Republicans halted an effort by Democrats to increase the stimulus checks in the coronavirus aid package to $2,000, as proposed by President Trump earlier this week. New weekly jobless claims fell unexpectedly but remain elevated at 803,000. The U.S. has vaccinated just 1 million people out of a goal of 20 million for December.

December 20, 2020 Weekly Market Update. For the week, the Nasdaq gained +3.05% followed by the S&P 500 Index +1.25% and Dow Jones Industrial Average +0.44%. The U.S. equity markets continue to show optimism toward the prospects of a trillion-dollar range coronavirus package and the effectiveness of two virus vaccines currently being rolled-out. Other sanguine developments for the week were housing's continue rebound (new starts up another +1.2%), 7th straight monthly increase U.S. leading index (rose 0.6% to 109.1 in Nov) and the national unemployment rate dropping to 6.7%.

December 12, 2020 Weekly Market Update. On news of COVID relief package delays and new disagreements between the House (state & local aid) and Senate (corporate liability coverage), all major U.S. equity indexes declined for the week: Dow Jones Industrial Average -0.57%, the Nasdaq -0.69% and the S&P 500 Index -0.96%. Hence, with diminished expectations for a fresh round of stimulus the markets retrenched after three weeks of upticks; energy was the lone sector to trade up, while technology and real estate were the laggards.

December 5, 2020 Weekly Market Update. For the second week in a row, and for four out of the past five weeks, all U.S. equity markets rallied on news that Biden-Pelosi-McConnell are pushing for a stimulus package by year-end; including the prospects of another stimulus check put back in play. Accordingly, the Nasdaq led the indices with a gain of +2.12%, followed by S&P 500 Index +1.67% and the Dow Jones Industrial +1.03%. Also, in an effort to offset the negative economic virus impact, the FDA Advisory Committee will meet on December 10th to determine the likely approval of Pfizer/BioNTech vaccine’s Emergency Use Authorization. The manufacturing recovery jumped into gear in November with production growth kicking into the highest for over six years with a 56.7 posting in November, up from 53.4 in October. Additionally, construction spending beat estimates after a posting a +1.3% rise over the previous month.

Weekly Stock Market Summary & Monthly S&P 500 Update Nov 2020

11/1/2020

November 28, 2020 Weekly Market Update. All U.S. equity markets rallied on the week with continued signs of healthy sector rotation as marked by the Dow Jones Industrial leading the charge +2.2%, followed by the S&P 500 +1.6% and pulling the rear being the normally outperforming Nasdaq +1.3%. Market sentiment focus remains on the tug-war between new vaccines and painful economic tolls of partial business lockdowns enforced to counter virus upticks. Other broader factors impacting markets are the cabinet picks by Biden (showing more moderate selections), new administration transitioning and prospects of some form of further COVID-19 relief stimulus.

November 21, 2020 Weekly Market Update. After two weeks of strong equity rallies the markets took a breather with mixed returns: The Nasdaq +0.22%, the Dow Jones -0.73% and the S&P 500 -0.77%. Indeed, the capital market performance on the week was emblematic of mixed Covid-19 virus implications with positive vaccine news countered by sharp upticks in infections across the U.S. and, the world at large. The economic toll is already playing out with certain states re-implementing partial shutdowns and curfews. Looking ahead, we are moving into corporate earnings season and ponder how Congress will bridge the great stimulus (phase 4) divide between the Senate at $500 billion and the House at $2.2 trillion.

November 14, 2020 Weekly Market Update. On approved Covid-19 vaccine being 90% effective, equity markets rallied with the Dow Jones leading the charge +4.08% followed by the S&P 500 +2.17% and Nasdaq +0.55%. Since 1950-1999 the period of Oct 27th thru Jan 18th has demonstrated to be one of the strongest seasonal return periods for the year with the average return being around +3%; even higher at about +4% in election years such as 2020. It is obvious that a vaccine is critical to an economic recovery as echoed by Fed Chair Powell on Thursday: “We do see the economy on solid path of recovery. The main risk is the further spread of the disease.” U.S. initial jobless claims dropped roughly -48k to 709k for the week of November 7th.

November 7, 2020 Weekly Market Update. Last week’s losses were more than recovered with the biggest U.S. equity market rally since back in April with the Nasdaq +9.01% taking the lead, followed by the S&P 500 Index +7.32% and the Dow Jones Industrial Average +6.87%. The equity markets celebrated the likelihood of a GOP Senate majority throwing a roadblock to a perceived onerous Biden tax regime and potential unfriendly business regulation stance. On the S&P 500 corporate earnings front, reporting continues to exceed expectations and of the 235 companies that have reported, 88 companies have raised forward-looking guidance. For example, companies such as Estee Lauder, Coca-Cola and General Motors earnings show a benefit from strong consumer spending (related to past stimulus). JPMorgan said it expects a 54% upside potential in the S&P 500 from current levels, based on investors' average under-allocation to stocks in their portfolio. Looking back further, according to a McLean Retirement Insights article, from 1926-2019 the S&P 500 produced an attractive average annual return of +9.12% under a Republican presidency. However, under a Democratic presidency, the result was even better with a +14.94% return.

Weekly Stock Market Summary & Monthly S&P 500 Update Oct 2020

10/1/2020

October 31, 2020 Weekly Market Update. On the heels of a delayed and uncertain future of the next stimulus package combined with spikes in COVID-19 cases, the U.S. equity markets repriced to new economic headwinds: Dow Jones Industrial Average led the market losses with -6.47% followed by the S&P 500 Index -5.64% and the Nasdaq -5.51%. However, there was also positive economic news this week of preliminary third quarter GDP reading of 33.1% (still a 3.5% year-over-year decline). Keep in mind the capital markets are forward looking and therefore responding to the economic clouds related the virus uptick and no timeline for the next round of the much needed economic stimulus.

October 24, 2020 Weekly Market Update. After several weeks of positive equity gains in the U.S. markets the three major equity indexes lost ground for the week: S&P 500 -0.53%, Nasdaq -1.06% and Dow Jones Industrial -0.95%. Early in the week the markets were impacted by troubled impasse on the stimulus aid package followed by Friday’s disappointing announcement that the House and Treasury Secretary Mnuchin decided no deal can be made before the election. Meanwhile, the economy continues to show improvement with 81% of S&P 500 ("$SPX") companies having beaten revenue estimates for Q3 to date while 84% of $SPX companies have beaten EPS estimates. The monthly survey report on business executive showed the IHS Market flash PMI Indices for services and manufacturing sectors both rose to new 20-month and 21-month highs, respectively. On the vaccine front, the FDA approved the restart of AstraZeneca’s Phase 3 vaccine trial and J&J also restarted its vaccine trial.

October 17, 2020 Weekly Market Update. The major U.S. equity indexes finished up on a choppy trading week with the Nasdaq leading +0.79% followed by the S&P 500 +0.19% and the Dow Jones Industrial +0.07%. Economic data was mixed with surprisingly strong retail sales while the COVID-19 stimulus package came no closer to agreement other than Mnuchin saying he would “give ground” in stimulus talks while Trump says he would raise his offer.” Markets tend to abhor uncertainty and three big concerns are very much in the air: 1) the very much needed stimulus; 2) who will win the election (as past Biden leads are again narrowing in battle ground states); and 3) when the country will have an effective and reliable vaccine (J&J paused its vaccine trial while Elli Lilly paused its antibody trial). But the obvious big focus is the upcoming Presidential election and legal teams on both sides are preparing to legally challenge the election result if it is close. Earnings season began this week and according to FactSet 82% of S&P 500 (“SPX”) companies have beaten revenue estimates for the third quarter (Q3) while 86% of the SPX of beaten the S&P 500 estimates to-date as of Q3. For example, most major banks announcing earnings results which far exceeded estimates. Consumer sentiment ticked upward by +0.8 points to its highest level since March at 81.2 after rising +6.3 points to 80.4 in September.

October 10, 2020 Weekly Market Update. The Nasdaq +4.56% led the major indices for a second straight week while the S&P 500 Index and Dow Jones Industrial posted +3.84% and +3.27%, respectfully; this is their best performance since early July. As we enter the last month of the election, the S&P 500 is just 6.5% from an all-time high while the Nasdaq composite is up some +23% and stands just 8.5% from its most recent all-time high (a positive equity trend remains in place which has boded well for the bulls). The markets continue to show optimism about the prospects for Covid-19 treatments, vaccine testing and ultimately a future vaccine treatment by year-end. For example, "Phase 3" trials are quickly progressing for AstraZeneca, J&J, Moderna & Novavax, among others. On the economic front, continuing unemployment claims fell by 1 million to 10.98 million, less than the consensus of 11.5 million, while September ISM Non-Manufacturing Index unexpectedly rose from 56.9 to 57.8. Also, Treasury Secretary Mnuchin moved upward the stimulus dollar amount to $1.8 trillion on Friday in an effort to keep the Pelosi negotiations on the track for approval before the election. Nonetheless, Biden continues to have a comfortable lead heading into the final election days, and this portends that the market is well aware that whoever wins the election it will be rewarded with stimulus either way. Current economic conditions have been a catalyst for the ballooning money supply with the U.S. government issuance of over $3 trillion in fiscal stimulus while the Fed has also increased the money supply by $3.4 trillion year-to-date.

October 3, 2020 Weekly Market Update. The major U.S. equity indices, despite selling off on Friday, posted gains for the week led by the Dow Jones Industrial +1.87% followed by S&P 500 Index +1.51% and the Nasdaq +1.48%. For our moderate to higher-risk client accounts, we put money to work on Friday when the Nasdaq dropped over -2% on news President Trump contracted covid-19 and was flown into Walter Reed Medical Center. The investment strategy employed was a Nasdaq-100 ETF that is characterized as defined outcome as it offers about +15% tech upside participation with a loss buffer of about -15%. On the economic front, the September jobs report added 661,000 jobs moving the unemployment rate down from 8.4% to 7.9%. However, some major entertainment and travel companies announced new layoffs including Disney's 28,000 permanent theme park layoffs, and American Airlines & United Airlines, furloughing over 32,000 employees. Perhaps this is why the biggest investor focus remains on the status of the next stimulus package where Treasury Secretary Mnuchin and Speaker Pelosi are trying to close the gap between the WH’s $1.6 trillion offer and the House bill of $2.2 trillion (negotiations expected to continue over the weekend).

Weekly Stock Market Summary & Monthly S&P 500 Update Sep 2020

9/1/2020

September 26, 2020 Weekly Market Update. The U.S. equity markets finished mixed with Nasdaq rallying +1.11% for its first weekly gain in four weeks while the S&P 500 Index moved downward by -0.63% and the Dow Jones Industrial Average lost -1.75%. Much of the market focus was larger issues confronting the country such as the death of Supreme Court Justice Ruth Bader Ginsberg and the impact on the highest court’s future, along with speculation on the House’s downward revised Congressional stimulus measure (in effort to find middle ground). The timing of future stimulus also took center stage after Fed Chair Powell expressed agreement that the economy needed more help from the government. However, as clarified by Chief Business Economist at IHS Market on this point with regard to what the multiple rounds of stimulus so far has accomplished: "U.S. businesses reported a solid end to the third quarter, with demand growing at a steepening rate to fuel a further recovery of output and employment."

September 18, 2020 Weekly Market Update. For the week, the Russell 2000 benefitted as investors rotated into undervalued stocks by jumping +2.64% while the S&P 500 lost -0.64%, the Nasdaq fell 0.56% and the Dow Jones finished about flat. Investor focus continues to be on another round of prospective stimulus, vaccines, election and finally the “valuation” word has surfaced this week. We are not raging bulls here as we are only getting any new equity market exposure for clients by using defined outcome ETFs that have loss protection buffers, while enabling additional equity exposure. Yes, the tech sector is both rich and lofty but from a historical perspective it is still dwarfed by the prior peak of 2000 peak at 57x; between 1995 and 2000, the Nasdaq Composite stock market index rose 400%. It reached a price–earnings ratio of 200. What is also distinctly different from 2000 and today is interest rates now are 0.69% (10-yr treasury) versus well over 6% back in 2000. This means two things: (1) the valuation discount rate enables a higher discounted cash flow valuation than past and 2) the alternative investments environment of bonds is not an attractive draw from equities, which is part of the reason new cash inflows have been redirected towards stocks. There is also a big future catalyst for equities and that is a “reliable” vaccine. Other impactful news on the capital markets include the Fed’s commentary that indicated an uncertain pace of economic recovery while it encouraged more government relief and sustained hype-low rates for years, along with the much awaited coronavirus relief bill still be held-up by opposing party political forces.

September 11, 2020 Weekly Market Update. The tech-heavy Nasdaq fell -3.3% for the week, as the top five stocks took a pause and retreated from past highs; Amazon, Microsoft, Apple, Facebook and Google comprise over one-quarter of the market capitalization of the S&P 500 Index. Meanwhile the S&P 500 dropped -2.3% and the Dow Jones Industrial dropped -1.8% for the week. Normally when market internals deteriorate like this and the leaders begin to abate (last week they started to falter), a correction or prolonged consolidation becomes likely. Indeed, the Nasdaq has moved into correction (minus 10% range) phase and typically these allow new bases to be built in leaders (or new rotational sector leaders) set to continue to lead. Certain investor sentiment factors have also been clouded with a failed Congressional stimulus relief package and Dr. Fauci’s view that covid-19 vaccine may not be available until later than expected (& needed); instead of by October vaccine guidance has been pushed out to the end of year, or early next year. The consumer has nonetheless stayed resilient as evidenced by the Auto and Housing sectors.

September 5, 2020 Weekly Market Update. For the week, tech stocks led the market lower with the Nasdaq losing -3.27% followed by the S&P 500 -2.31% and the Dow Jones Industrial Average -1.82%. After investors have been binge buying tech favorites to excess causing unsustainable valuations with the Fab Five (FB, MSFT, APPL, GOOG & AMZN) it is only natural that the markets let out some steam going into the long holiday weekend. In turn, other companies tied to the economy reopening, experienced an uptick like Carnival Cruises +5% and Macy’s +8%, a sign of some healthy sector rotation in play. The number of first-time unemployment filings decelerated again to for the week of Aug 29 at 950,000, which moved the unemployment needle below 10% for the first time since March. We used the market weakness as an opportunity to buy a newly priced defined outcome ETF which provides 10% targeted downside buffer with uncapped upside of 87%-89% S&P 500 return participation and fully tradable liquidity.

Weekly Stock Market Summary & Monthly S&P 500 Update Aug 2020

8/1/2020

August 28, 2020 Weekly Market Update. Nasdaq jumped +3.39% followed by the S&P 500 Index +3.26% and the Dow Jones Industrial Average +2.59% on higher inflationary goals by the Fed of above 2%, coronavirus vaccine progress and continued expectation of additional government support to aid the economic recovery. From a more subtle perspective, COVID-19 is driving changed behavior to where e-commerce sales as a percentage of total retail sales to reach a new peak (21%), over two times the level seen in 2010. Also, with mortgage rates hovering around all-time lows, new home sales jumped another +13.9% in July, the best since December 2006; mortgage applications for home purchase also continue to run some 33% above levels a year ago.

August 22, 2020 Weekly Market Update. The Nasdaq led the major U.S. equity indices gaining +2.65% followed by the S&P 500 +0.72%; the Dow Jones Industrial Average finished flat on the week. However, the breadth of the rally has been a narrow one, driven mostly by fan favorite mega-cap tech stocks, causing worries of a bubble. For example, the percentage of S&P stocks trading above their 200-day moving average fell from 68% at the market's June peak to just 54% at the end of July. Goldman Sachs, however, just recently hiked its year-end target on the S&P 500 to catch up with the historic rally that pushed the market over its record; yet, the bank warned that the U.S. election poses a significant risk to this call. The U.S. capital markets were also boosted by some monster earnings releases by big box retailers of the likes of Walmart & Target, both of which crushed 2nd quarter estimates with strong same-store-sales and e-commerce.

August 15, 2020 Weekly Market Update. The Dow Jones Industrial Average rose +1.81% this week to lead the U.S. equity markets followed by the S&P 500 Index +0.64% and the Nasdaq +0.08%. Insofar as negotiations between Republicans and Democrats for the fifth coronavirus relief package remain at an impasse, Trump has taken his own initiative by signing an executive action for $300 extra weekly unemployment (with the option of the state to kick in $100), along with a few other assistance actions ranging from helping out renters, student loans and payroll tax. The economy is showing some glimpses of recovery with initial jobless claims last week falling lower than expected to 963,000; the past twenty weeks of jobless claims has been in excess of 1 million. Meanwhile airline travel is also showing revival signs as the TSA screened more than 800,000 passengers last Sunday (airlines are also adding back some flights). With two consecutive quarters of GDP declines, the economy is in a recession yet the unsurpassed stimulus, relief packages and assistance has offset much the pain for large public companies. The most recent (previous) recession was Dec 2007-June 2009 where equities peaked in early October 2007, two months before the start of the recession, and bottomed on March 9. 2009. The S&P 500 had jumped by +36% before the official expiration of the recession on June 30, 2009. This economic dip turned out to be a U-shaped recovery. If in June 2009, you had thought you had already missed out on those gain then you would have been incorrect, as the S&P rallied another +44% over the course of the next two years.

August 8, 2020 Weekly Market Update. For the week, the equity markets posted strong results with the Dow Jones Industrial Average +3.80%, the Nasdaq +2.47% and the S&P 500 Index +2.45% on news Fed stays course with "whatever it takes...", better than expected earnings and ebullient investor sentiment. Case in point a recent Natixus Survey showed results indicating investors on average are expecting 12% return annually from the stock market while at the halfway point for the 2nd quarter earnings there were 215 S&P companies beating expectation, 37 missed and 2 that matched. However, the market continues to be powered by 5 stocks (Apple, Microsoft, Amazon, Google and Facebook) that now make up nearly 40% of the R1000 Growth index.

August 1, 2020 Weekly Market Update. The S&P 500 Index gained +1.73% and the Dow Jones Industrial posted a slight loss of -0.16% on the week. The discounting mechanism nature of the equity markets continues to have stocks rise sharply in anticipation of future improvement on the economic and earnings front. However, a good part of the market run-up has been led by the top five stocks by market cap (Apple, Microsoft, Amazon, Google and Facebook), now make up nearly 24% of the S&P 500. That means 1% of the stocks—measured in simple, equally-weighted terms—now practically make up their own quartile in market cap terms. That is significantly higher than the prior 2000 peak of about 18%. The chosen method of getting capital working in this lofty valuation market for the firm is defined outcome ETFs where we capture certain percentages of the market rally upside while having loss buffers between -9 and -30%. Unemployment claims (1.4M) ticked up again and the annualized -32.9% decline in second quarter GDP far exceeded any prior reading. However, consumption rose +5.6%, a figure that was certainly boosted by the COVID-19 unemployment check of an extra $600 a week; that extra money is now expired going forward until Congress can reach a new agreement.

Weekly Stock Market Summary & Monthly S&P 500 Update July 2020

7/4/2020

July 25, 2020 Weekly Market Update. For the first time since the month of May, the Nasdaq reporting its 2nd weekly loss by dropping -1.33%; the Dow Jones declined -0.76% while the S&P 500 stayed largely flat at +0.28%. Jobless claims came in at 1.4 million for the week ending July 18, exceeding expectations; this was the 18th straight week in which initial claims totaled more than 1 million. Meanwhile time is almost running out to keep or partially replace the extra $600 weekly unemployment as the Senate Republicans and the White House remain at odds with the House on a new Covid-19 relief bill. The S&P 500 has reported a decline in earnings of -42.4% for Q2, which would be the largest earnings decline reported by the index since Q4 2008 (-69.1%).

July 18, 2020 Weekly Market Update. Dow Jones Industrial Average gained +2.29%, and S&P 500 rose +1.25% while the Nasdaq lost -1.08% on the week. According to Factset Research: “To date, 9% of the companies in the S&P 500 have reported actual results for Q2 2020. In terms of earnings, the percentage of companies reporting actual EPS above estimates (73%) is above the five-year average. The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings decline for the second quarter is -44.0% on a blended revenue decline for the second quarter is -10.5%. Looking ahead, analysts predict a (year-over-year) decline in earnings in the third quarter (-24.4%) and the fourth quarter (-12.4%) of 2020.” Meanwhile on the COVID-19 front, the U.S. has now become the worst-affected country in the world with more than 3.6 million diagnosed cases and at least 139,175 deaths. Until a vaccine emerges, the virus will likely continue to spread unless social distancing (with masks) is maintained. The U.S. House recently approved another COVID-19 relief bill—a whopping $3 trillion in assistance to citizens and businesses beyond the first infusion of $2 trillion in March (other countries have passed similar packages).

July 3, 2020 Weekly Market Update. The S&P 500 Index gained +1.76%, Dow Jones Industrial Average rose +0.96% and a slight loss for the Russell 2000 -0.64% on the week. The S&P 500’s returns continue to be propelled and dominated by tech leaders such as Amazon, Apple and Microsoft. The Federal Reserve and government stimulus programs continue to provide market momentum in the throws of grim news where coronavirus cases are resurging in many U.S. states – with some states once again pressing the pause button on certain business sector operations. Meanwhile, many mainstream retailers and restaurants are either closing shop or cutting stores – for example, J Crew, Neiman Marcus, Brooks Brothers and Chuck E Cheese all recently filed for bankruptcy while the likes of Dunkin' Donuts and Starbucks have closed over 400 stores (leading to permanent jobs losses).

July 3, 2020 Weekly Market Update. Equity markets rallied on news that June non-farm payrolls surged 4.8 million, surpassing estimates of 3.06 million. For the week, the Nasdaq outperformed at +4.62% followed by the S&P 500 Index +4.02% and the Dow Jones Industrial Average +3.25%. However, June’s “real” unemployment rate was 18%; a figure that is almost as bad as the 25% rate during the Great Depression. The U-6, or real unemployment rate, includes the underemployed, the marginally attached, and discouraged workers. Markets are cherry picking news and celebrating selective positive economic data while turning a blind eye to worrying surge of coronavirus cases. Of course, stocks have been fueled by large amounts of excess QE money that has been finding its way into the capital markets. However, this excess QE that the Fed has created has started to decline with the Fed’s balance sheet dropping by $86 billion these past couple weeks. Markets also continue to disregard escalating trade tensions between the U.S. and China.

Weekly Stock Market Summary & S&P 500 Market Update June 2020

6/1/2020

June 27, 2020 Weekly Market Update. Led by big banks, the markets sold off Friday after the Federal Reserve said in its stress test results that it would restrict dividends and share buybacks on financial companies for the third quarter. The Fed stated the action was to “ensure large banks remain resilient despite the economic uncertainty from the coronavirus event.” Hence, all U.S. major equity indices gave back several weeks of gains as the Dow Jones Industrial Average lost -3.31% followed by the S&P 500 Index declining -2.86%. On the technology front, social media stocks including Facebook, Instagram and Twitter also came under pressure due to their policies on censorship. Other market jitters related to Thursday’s new case tally surpassed 40,000 for the first time. States reporting record new cases include Florida, California, Arizona and Texas. Nearly 1.5 million workers filed new state claims of unemployment last week which was higher the expectations. Given the disconcerting news there should have been no surprise when consumer sentiment slipped to 78.1 in the final June reading, down from the 78.9 reported earlier in the month. Consensus economists expected a reading of 79.2; the index of consumer sentiment reached a high of 99.3 back at year-end 2019.

June 20, 2020 Weekly Market Update. The market edged upward after last week’s sizable losses - S&P 500 Index +1.86% & Dow Jones Industrial Average +1.04% - on news that retail sales is showing some new life with recently released double digit recovery figures (but retail still down -8% since February). In the 1st half of the week the market rallied on retail sales, yet gave back about one-half those gains in the 2nd half on concerns about spiking COVID-19 infections in many states including Texas, Arizona, California, Utah, Florida, Oklahoma and several southern states. The U.S. government also discussed a potential new infrastructure bill and future stimulus, but nothing is imminent. Of interest, a June 2020 WSJ article highlighted the following: “Grappling with the most economic uncertainty in decades and a head-spinning stretch of volatility in the U.S. stock market, many investors have rushed into money-market funds. Assets in the funds recently swelled to about $4.6 trillion, the highest level on record, according to data from Refinitiv Lipper going back to 1992.” A recent Bloomberg article offers insight on what might be a good part of this unusual market recovery “The role of retail investors in 45% rebound since late March has been intensely analyzed, as a swarm of tiny buyers chased after recovery plays and insolvency stocks. A record number opened new trading accounts in the first quarter.” Hence, there is market concern of a growing cadre of smaller investors becoming day-traders and taking outsize speculative market bets (perhaps like the tech bubble of 2000).

June 13, 2020 Weekly Market Update. For the week, the Dow Jones Industrial Average fell -5.55%, S&P 500 Index dropped -4.78% and the Nasdaq finished down -2.30%. The focus of the equity price contraction across the board were concerns over COVID-19 spikes related to the economic reopening, along with comments by Fed Chair, Powell. The Federal Open Market Committee’s (FOMC) Summary of Economic Projections indicated the Fed expects a steep 6.5% contraction in real GDP in 2020, with an unemployment rate at 9.3%. Also, weekly initial unemployment claims totaled 1.542 million for the week ended June 6, the Labor Department said in its weekly report. We sent the following email to clients back on June 8th: “Equity markets have rallied on continued news of business reopening and potential COVID-19 vaccine by late September and insofar as we believe these are justifiable positive catalysts for market gains, we believe market valuations are overextended. U.S. equity markets are priced similar to where we were at the end of 2019 with the economy running without any foreseeable obstacles and with earnings growth slated for +9%, yet the current economic makeup is nowhere near the robust levels of last year. We therefore are looking for the normal periodical market correction to place additional risk back into portfolios. As Warren Buffett once remarked “Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard” and as such, in the short run the stock market acts like a “voting machine” (reflecting all kinds of irrational attitudes and expectations), while functioning in the long run more like a “weighing machine.” It is also notable that this "world’s best investor" is sitting on a record level of cash totally $139 billion and recently sold Goldman Sachs, Airlines, Energy stocks and Travelers. In closing, as stewards of capital for long-term goals we must weigh the risk-return trade-offs and it is our view that the current market valuations have disconnected with earnings and economic growth, particularly given the consumer (70% GDP) has yet to show a sign of spending at 2019 levels. Hence, we will look for redeploying additional equity risk when valuations have aligned with fundamental earnings measures, or in the event Congress moves to initiate “monthly” stimulus checks (which would certainly reengage the consumer).”

June 6, 2020 Weekly Market Update. The month of May’s employment number was a big surprise for Wall Street, showing a gain of 2.5 million jobs versus an expected 7 million loss. The markets rightful celebrated and finished the week with the following gains: S&P 500 +4.91%, Dow Jones +6.81% and Nasdaq +3.42%. This positive economic indicator was justifiably supportive of the capital markets upswing. Further, with a potential COVID-19 vaccine slated for potential availability by late September, there remains a number of fundamentally positive aspects to having the economy move into high gear. Our equity outlook issue is now more about equity valuations. Should the stock market be priced back to where we had a very robust economy at the end of 2019 where we were moving into 2020 with another +9% growth in earnings? To be clear, we are not bearish and hold no shorts or inverse ETFs - rather we believe portfolios should have sufficient cash to offset the risks of lofty equity valuations. For instance on the jobs front, there were a large percentage of simply temporary “furloughed” workers that were easily brought back online and we think the May job report reflected that shift. Keep in mind that employment is still 13% (absolute number) below February figures and, ultimately, consumer spending will dictate the economic recovery path – you can reopen businesses and rehire, but you need the same active consumer mindset (& wallet size) as 2019. Yes, we are going to see “sequential” increases in weekly and monthly sales across the board since the economy was essentially paused for months – however, all this “recovery” trend will be far below last year’s figures, yet equity valuations will be the same (or higher)? Investors should have equity exposure to benefit from the recovery, but also keep sufficient cash to offset valuations being over-stretched. Final thought, China trade tensions are escalating.

Weekly Stock Market Summary & S&P 500 Market Update May 2020

5/2/2020

May 30, 2020 Weekly Market Update. Market sentiment remains sanguine as the country continues to re-opening businesses and the development of coronavirus vaccine by Fall becomes a possibility. Investors continue to shrug-off news of frightful economic data with the impression that the worst is over, and we have hit the economic bottom. The Dow Jones led all the major U.S. indices +3.75% followed by the S&P 500 +3.01%and the Nasdaq +1.77%. We still recommend portfolios should have meaningful equity and cash positions, keeping both feet placed in potential returns and cautious safety of cash. The reality is there will be obvious sequential improvement in businesses, often with double digit increases, given sales for many industries were severely damaged: for April, retail sales were down -21.6%, auto sales down -53%, airlines sales down -90%, etc. Also, there remains other new risks, such as renewed trade tension with China and simply put, on the home front many business sectors can't operate at the same profit levels anymore until there is a vaccine. Yet, valuations are priced as though the economy was operating at 2019 levels with sizable growth ahead and no uncertainty (2nd wave?).

May 22, 2020 Weekly Market Update. The U.S. equity markets recovered last week’s loses on expectations of a possible COVID-19 vaccine, another phased reopening of the economy and additional stimulus programs underway: S&P 500 Index +3.20%, Dow Jones Industrial Average +3.29% and Nasdaq +3.44%. Recent economic data suggest a national unemployment rate of 14.7% with about 38 million Americans filing for unemployment over the past nine weeks. However, the very valid investing theme grabbed investment professionals’ attention on Monday of this week, and that was a salient excerpt from Fed Chair Powell’s interview: "There's no limit to what we [Fed] can do." Well, then, the market awaits the Fed fixing the following: Housing starts dropped -30.2% in April, existing home sales report dropped -17.8% in April, unsold product inventory of 4.1-month supply at recent sales pace, 38 million people out of work (of 165 million workforce, or 23% unemployed), overall decreases in manufacturing employment this month with 58% of firms reporting decreases in activity, amount of debt classified as distressed in the U.S. up +161% in just the last two months (to more than half a trillion dollars), etc. The point being is that even with unsurpassed stimulus and Fed liquidity support there still remains an enormous amount of "fixing" to be done by the government and its agencies (Treasury & Fed). That said, we reiterate that investors should have both equity and cash positions to hedge the ultimate outcome which could result in further volatility until the economy is able to both adapt and reinvigorate.

May 16, 2020 Weekly Market Update. Stocks lost steam and ground on the week with S&P 500 losing -2.26% on Fed Chair Powell statements indicating the U.S. economy is facing unprecedented risks that "could do lasting damage." Powell said almost 40% of Americans in households making less than $40,000 a year had lost a job in March. Particularly salient remarks were the following: “The loss of thousands of small- and medium-sized businesses across the country would destroy the life’s work and family legacy of many business and community leaders and limit the strength of the recovery when it comes” and “While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks.” The stock market is no longer tied to the economy as it is metamorphosizing into the market of the Fed & government stimulus. Typically, the decision of cash would be a no-brainer given the catastrophic economic damage of suspending most business activity for months, but the government seems adamant about backing the entire economy, and many segments of the capital markets, with its balance sheet (both government & Fed). There is a big investment theme for professionals and that is "don't fight the Fed" - so, much of the rebound is also tied to "unlimited liquidity" from Fed Chair Powell. Also, medical/healthcare advances and progress against COVID-19 are inevitable, and the market will celebrate any news on that front. The most recent recovery rally has been more about phased business reopening, but that comes with significant "2nd Wave" risks as well. So, what to do? Well, in our humble opinion, there are obviously way too many unknowns (including uptick in trade hostility with China) to have all your chips waged on this table. Taking this analogy further, I think it is prudent to take some chips off the table given we are now only -11.7% down YTD. Thus, for those 100% invested, it would prudent to probably pick a day of market strength and reduce some of your winner positions (those with less than double digit losses). Let's do some quick math: GDP economy is losing about $2 trillion a month and all this stimulus is not even matching that drain. Also, let's look at supply-demand: 45% of the supply of economy is small business (2/3 of net new jobs) and these guys are being decimated with probably 30-40% shuttering in next few months; then, demand, we have the consumer being 70% of the economy and they are shell-shocked, many permanently unemployed and will likely have a changed mindset with greater debt and less stable job outlook. Trump is doing everything to get reelected and therefore the only caveat is if the Fed starts buying the stock market with ETFs (it moved into high-yield ETFs this week), then all chips should be back in the game.

May 9, 2020 Weekly Market Update. For the week, S&P 500 gained +3.50%, Dow Jones Industrial Average rose 2.56% and the tech heavy Nasdaq jumped +6.00%, despite another 3.2 million jobs lost on the week. The April unemployment rate reached 14.7%, marking seven-weeks of declines totally 20.5 million jobs; this surpassed the previous post-World War II unemployment rate record of 10.8% (Great Depression was 24.9%). It is apparent that the stock market considers a large swath of these lost jobs as simply temporary in nature, such as furloughs. The markets continue to embrace two big themes in which it considers positive: 1) the economies have established a phased reopening and that many states have entered this first stage and 2) both the Fed and the U.S. government has the stock markets back in the form of unlimited liquidity and immeasurable future stimulus. Further adding to market strength is progress with COVID-19 testing, treatments, and fast-tracked future vaccines. In short, equity market valuation pricing is very much forward-looking and placing its bets for the best case “V” recovery scenario. We caution that plans involving so many unknowns are unpredictable and therefore encourage investors to have a reasonable cash cushion in portfolio as expectations seem overly sanguine. Indeed, we predict job losses to have more permanency and anticipate a large collapse in small businesses; we also do not foresee the consumer spending at the same rate as 2019.

May 2, 2020 Weekly Market Update. The U.S. equity markets lost ground for the week with the S&P 500 (-0.21%), the Dow Jones (-0.22%) and the Nasdaq (-0.34%). The S&P 500 remains down -12.4% year-to-date and is still -19.6% off its all-time high of 3,386, reached back in February. On the week the markets were moved by counter-weighing considerations of the prospects of the U.S. economy initiating a phased reopening versus another 3.8 million workers filing for unemployment (total of jobs lost due to the pandemic is now over 30 million).

Weekly Stock Market Summary & S&P 500 Market Update April 2020

4/1/2020

April 24, 2020 Weekly Market Update. All major U.S. equity indexes lost ground with the S&P 500 -1.32%, the Dow Jones -1.93% and the Nasdaq -0.18%. For the week ending April 18, another 4.4 million Americans filed for unemployment benefits. Over the past five weeks, more than 26 million Americans have filed unemployment insurance claims. Further, for the third consecutive week oil prices fell, but this time precipitously as drastic cuts in production still failed to keep pace with an estimated 30% decline in worldwide demand. New auto sales were down -32% in March while consumer spending was down over -25% year-over-year in the past week. According to a recent survey, around 33% of respondents were “within three missed paychecks of having to either borrow money or skip bills.” On the other hand, quantitative easing (“QE unlimited”) continues with the Federal Reserve expanding its balance sheet at a pace of about $41 billion per day. In fact, the Federal Reserve, European Central Bank, Bank of Japan and Bank of England will expand their balance sheets by a cumulative $6.8 trillion. Central banks in Group of Seven countries purchased $1.4 trillion of financial assets in March, nearly five times as much as the previous monthly record set in April. Earnings season had some good news and bad, but it is backward-looking; most U.S. states were still operating at full pace thru mid-March. The tug a war between government stimulus, the Fed and progress against COVID-19 versus severe economic mayhem is impacting capital market price behavior with yo-yo like moves. Our market view has not changed, and we reiterate that we believe the prospects of a gradual “V” shaped economic recovery to be overly sanguine; yet the worst case scenario (Great Depression) is off the table with unprecedented governmental intervention. We still anticipate markets to retrace back downward at some point when it is clear the consumer mindset has changed post-virus, particularly given the consumer (again 70% of GDP) has really taken it in the shorts and a $1,200 one-time stimulus distribution is palpably insignificant.

April 18, 2020 Weekly Market Update. On the week, the market celebrated any form of good news and largely shrugged-off the very severe, and partly permanent, damage to the U.S. economy. The S&P 500 gained 3.04% while the Dow Jones posted a 2.21% weekly return. Instead of processing and valuing the awful economic toll, the market inflated the new prospective Gilead COVID-19 treatment and the fact that Boeing plans to resume production at one of its plants. Also, market forces clanged to news of WH’s criteria for reopening the economy. The real market support, however, is that the that worst case scenario is off the table as the government has been aggressively purchasing assets to support the capital markets; the Treasury ledger of assets owned by the Federal Reserve, has ballooned to 6.08 trillion as of April 8. What was not reflected in the markets were a record 22 million people who have sought jobless aid as a result of COVID-19. This is reflected throughout the U.S. economy: March retail sales cratered -8.7% and Philly Fed manufacturing index plunged -43.9 points to -56.6 (lowest since 1980), while Housing starts plummeted -22.3% to 1.21 million in March. Unfortunately for small businesses the $350 billion PPP payroll relief package is already depleted and there are reports some of the biggest beneficiaries were larger companies, which 'reportedly' was an unintended result.

April 11, 2020 Weekly Market Update. After a remarkable rally this week, even the world’s leading investment strategists now hold mixed and often conflicting views on the ultimate direction of the U.S. equity markets. In one camp, there are market strategists who hail this recent market shift out of bear market territory, to where the S&P has now exited the -20% loss range, as a confirming signal that the market has returned to be a bull market phase. In contrast, other market strategists view this week’s rally as only a normal bear market rally that is simply a head fake, which they show supporting historical statistics. Unfortunately, nobody knows the right answer for sure. Case in point, does one piggyback on the government and central bank extraordinary stimulus of pouring trillions of dollars into the economy and, more recently, the central bank ‘actually’ purchasing financial market assets. Or, does one focus on historical Ned Davis Calendar, where on average across the past 11 bear markets, the final bear market low came 137 days after first registering such a loss. Both are compelling arguments where one must weigh the unprecedented scale of government and central bank support against severe economic distress as highlighted by record job losses and virtually an economic seizure, along with the prospect of controlled halt to economic activity for many weeks, or months to come. On Thursday of this week, the Federal Reserve said it could pump $2.3 trillion with expanded programs which includes bond market asset purchases. This is separate from the earlier $2.2 trillion COVID-19 stimulus package. There is no doubt that policy makers are making grandiose gestures with spending to keep boosting the flailing economy and capital markets. However, the typical rule of thumb is that stock markets decline roughly as much as corporate earnings drop, which many expect to fall 25%-38% range over the next few quarters. Also, when looking at past bear markets as a guide, you don’t have a bear market without a bear market rally. For example, turning to 1929, 1987 and 2008 as guidance, there were all marked by bear market rallies followed by more severe losses later. The market crash of 1929 lasted from Oct. 10-29, which was followed by a bounce that retraced 36% of the crash-phase losses, only to fall even further down later (80%). The crash phase of 1987 lasted from Oct. 2-19, then there was a first bounce retraced 28%, only to reach crash-phase losses again later. The sharpest crash of 2008 lasted was Sept. 19-Oct. 27, followed to the first real bounce retraced 24% of the crash-phase losses, then ultimately falling a total 38%.We are not reinvesting right now as we believe both stimulus vs. historical bear market behavior are likely in play, which will result in the market yo-yoing. First, we have written that we anticipate the market rally on news of COVID-19 infection flatlining trends and new treatment drugs, along with stimulus news. However, running the math shows that all the stimulus is simply covering a large growing gap, not rebooting an economy. So, here is the math: if the U.S. economy is about $21.5 trillion and the GDP essentially moved offline in mid-March, then the economy has been stalled for about a month now, at a cost of roughly $1.8 trillion lost. Yes, some businesses are still operating, but for sake of simplicity, let’s assume $1.8 trillion evaporates every month and most expect that the economy won’t reopen until mid-May (earliest), with a good part still idled for many more weeks (hotels, airlines, cruise ships, Las Vegas, etc.). Then, let’s say the economy loses two-months of productivity, which is about $3.6 trillion dollars gone from the U.S. economy (recall, COVID-19 was $2.3 trillion). Yes, the central bank is also adding big stimulus, but that isn’t going into the economy, but rather boosting the capital markets so fear doesn’t run rampant – therefore, just superficial stimulus. Finally, let’s say Trump and Congress decide to add a couple more rounds of COVID-19 stimulus to match the $3.6 trillion lost ground (or another $1.3 trillion added), then all that does is cover a gaping economic hole and does not reboot the 10’s of millions newly unemployed, pay consumers’ massively mortgage and utility delinquencies during this period and certainly doesn’t save the hardest hit small businesses that went out of business, like restaurants, gaming, retail, sports, entertainment (concerts, movies, parks, festivals) etc.Yes, the market is celebrating the central bank’s asset purchases in the markets, and also rejoicing in news that businesses and consumers will be helped out with stimulus, but how will the market be reacting to the horrible economic toll numbers that will be released in the weeks to come – probably not so celebratory. Also, I have yet to hear of one business or personal to have received a dime yet from this stimulus, and knowing the inefficiency of bureaucracy, some of the stimulus may be “too little, too late.” Recall, consumer spending is about 70% of the economy and they are hurting the most. Considering this perspective and the current economic landscape, I still think the roughly 28% average cash balance for clients has a good probability of being deployed to buy at lower equity value prices down the road. To be clear, nobody can say with certainty what will happen, but a little extra cash during times of great uncertainty seems prudent. Also, portfolios are still exposed to the market and therefore benefiting from the recent rally last week. Lastly, in the event trillions upon trillions of more (new) dollars are continually added to both the economy and the markets with additional asset purchases, then we very well may need to rejoin the party with the cash in hand. But for now, I think we have the right balance of diverse invested assets relative to cash given current conditions.

April 4, 2020 Weekly Market Update & (Revised) 2020 S&P 500 Market (Directional) Forecast:
For the week, the Dow Jones Industrial Average led the U.S. index losses at -2.70%, followed by the S&P 500 Index -2.08% and the Nasdaq -1.72%. It was another topsy-turvy week that was impacted by jobless figures (crazy spike), payrolls (down), oil (down, then dead-cat bounce), COVID-19 infections (scary up) and stimulus policy implementation (initiated). Looking back at this bear market, it was initially started with daily free falls in stocks, then over the course of the past weeks the equity markets have been less volatile with more liquidity, yet still oscillating on a downward trajectory. The reality is it will take a long time for the U.S. economy to properly absorb the 2 trillion-dollar stimulus and by the time the economy does, then things will likely be even worse. I look at it this way, the stimulus represents about 10% of GDP, but some Wall Street firms are now looking at the U.S. economy (GDP) contracting almost -40%. So, from the macro perspective, even when the stimulus is fully implemented, the markets should still be down over -25% just as a baseline (+10% -38% = -28%). Yes, there is more stimulus likely to be on the way, but I suspect the full negative impact of COVID-19 on business activity has yet to be foretold. For example, there is going to be a heck of a lot of businesses that will shutter, which will include many bankruptcies for small businesses, and serious downsizing for even the big companies with slashed office footprints, closed retail space, laid-off staffing/workforce etc. The government just can’t throw money at a massive and complex problem, then jump-start the U.S. economy into a “V” shape recovery. That said, at some point, there will still be an opportunity to trade here as the markets are behaving with better liquidity (exogenous help by Treasury w/ asset purchases); therefore, advisers with a thoughtful investment strategy can be opportunistic. Case in point, we plan to reenter the market with phased increments near or at the March 23rd lows. Then later, we think there will be some upside opportunity to sell some of the bottom feeding acquisitions months after on expected future COVID-19 medical treatment announcements down the road. It is our view there is the highest probability that the U.S. equity markets will take a partial “W” course, but flat-line before making the last upswing. Hence, the market will fall (which it did), it will recovery some with stimulus (which it did), will fall again (started, expect further downside), then partially recover again when there is news that COVID-19 is flattening & news of effective medical treatments, then finally decline from there to some (unknown) degree as the market ‘soberly’ processes that the world’s largest economy just can’t restart all engines when many of the largest companies had already taken longer-term “cutback” actions that simply can’t be undone with a magic wand.

First Quarter & March’s Monthly Wrap-up: The S&P 500 index finished down -20% for the first quarter, marking its worst quarter since the fourth quarter of 2008. The S&P 500 was down -12.51% for the month, while the Dow finished off -13.74%. Except for utilities, the other 11 sectors were down; tech’s big 5 lost a trillion dollars last month.

Weekly Stock Market Summary & S&P 500 Market Update March 2020

3/1/2020

March 28, 2020 Market Update. The S&P 500 Index gained +10.3%, the Dow Jones Industrial Average jumped +12.8% and Nasdaq rose +9.1%, marking the largest weekly gains in 11-years. However, the gain momentum was partly offset by strong headwinds on Friday where the the S&P closed off -3.37%. All major U.S. equity indices are still down more than -20% year-to-date with the S&P 500 still down about 25% from its record close on February 12th (at the peak of losses, the index was down about 34%). The broad market index futures area showing a tough Monday morning as it is currently flashing -3.41%. We will look to start dipping our toes back into equities again should (or when) the market retests the March 23rd lows; we have identified several buying targets at different levels. Further, we will target a diverse set of equity ETFs, with unique methodologies such as strong balance sheets, low volatility, strongest dividend history, technology exposure, etc.

March 26, 2020 Market Update. Often the advisor’s best-interest path for clients is the hardest road, and for me that has been frequent, incremental de-risking of client portfolios during periods of market strength. This is a labor-intensive selection processes that takes not only many days, but typically all day when trading. For example, with all the trading that has been done (including today), the average client portfolio cash allocation now stands at about 25% (depending on risk profile some higher, some lower). With all the emails I have sent about active trading, many would think that cash would be crazy high by now, but as explained, portfolios will keep some level of market exposure since you simply can’t pick the best recovery days. In the end, inasmuch as the “averaging out” with phased sell transactions is a rather arduous process, this strategy has effectuated the recapture of incrementally more (& more) lost return ground, particularly the past few days with the market recovery action. Markets were up for two reasons today: 1) Federal Reserve Chairman Jerome Powell made appearance on national TV this morning, professing that the central bank still has plenty of tools left to support a U.S. economy: “When it comes to this lending we’re not going to run out of ammunition, that doesn’t happen,” Powell said. Then, 2) the stimulus bill passed the Senate moving the estimated $2 trillion bill to the House as Congress with optimism. Oddly, a very relevant market consideration that would have normally damaged stocks today was bizarrely absent from trading behavior, and that was a horrific jobs report. In the week ending March 21, the advance figure for seasonally adjusted initial claims was 3.3 million, an increase of 3 million from the previous week's revised level and twice the consensus expectations of 1.6 million claims. This marks the highest level of seasonally adjusted initial claims in the history of the seasonally adjusted series. Given the market shrugged off a frightening jobs report that was not only bad, but ended up twice as worse, then this shows that investors are clamoring for any good news; also investors are becoming more immune to reacting to bad news as we have all had more than our share of frightening headlines.

March 24, 2020. We Continued to Sell Risk Assets During Today’s Market Rally on More Stimulus News. We were active sellers of riskier portfolio assets on today’s record point gain day where the Dow finished up 2,113 points (+11.37%) and the S&P 500 jumped 210 points (+9.38%). The increase in client cash balances from our periodic asset sells during market rallies have served three objectives: 1) adds more “dry powder” to purchase equities at lower levels (more liquidity for opportunity); 2) reduce unrealized loss volatility in the portfolio (less future losses) in bear market; and, 3) capital protection provides a layer of sleep at night factor. Also, we have only executed sell trade actions for all client accounts on days of strong market strength. Hence, we are not participating in fear-selling. The government, Fed and the central banks are moving forward to throw $2 trillion at the COVID-19 problem, with the Fed essentially indicating QE will be unlimited. The government stimulus includes tax rebates/checks for individuals, corporate tax relief, small business loan forgiveness, bailouts/aid for distressed industries, extended/enhanced unemployment benefits and public health spending. Similarly, the Fed intends to increase the amount of liquidity in the repo market to highest ever, restarted quantitative easing (QE) by expanding maturity range for its $60 billion/month purchases, started new QE programs, buying $500 billion in treasuries and $200 billion mortgage-backed securities (MBS), allowing banks to use capital and liquidity buffers, etc. However, while this stimulus will certainly be helpful, it is important to keep in mind that back during the 2008 crash, it took four months and -40% in S&P 500 losses before stimulus started to work. Now Trump said he also wants to put people back to work by Easter (or in 2.5 weeks), but during this announcement his head of CDC was notability absent. A model of potential outcomes in the U.S., released by the CDC last Friday, showed as many as 1.7 million Americans could die from the virus, and between 160 million and 210 million Americans could contract COVID-19. Fortunately, those CDC estimates sped up and heightened the U.S. response to curtail the pandemic. These events remain unchartered waters as we just don’t yet know how long until the workforce will be re-engaged, when companies will restart their growth & capital investments, when the consumer will feel comfortable enough to resume the robust consumption of past years, etc. It is our goal to continue to adapt client portfolios to this new reality where we are processing many different data points to execute trade decisions. For example, corporate bonds typically help offset equity losses during market stress, but this asset class has also lost ground due to credit rating worries; thus, we have also taken action to reduce the lower (credit) quality bonds in portfolios. We remain comfortable with cash being a large asset class as we have a significant cash hoard built-up to reenter the capital markets at (hopefully future) bargain prices. It is unlikely that we will pick the bottom, but I would rather pay-up for greater visibility and certainty than trying to catch a falling knife (investing during a collapsing market). I leave you with one of the founding fathers of economics own words, John Maynard Keynes, who said in the 1930s: “Markets can stay irrational longer than you can stay solvent.”

March 21, 2020 Market Update: First, we would like to recap the tone of our approach to the market with our published opinions (& trading actions on client accounts) throughout the market upheaval mayhem (views that were in place at the beginning of the onslaught and collapse): “This portfolio risk reduction action also takes account that other forms of U.S. government stimulus will likely occur, such as bailouts of certain travel/transport sectors, along with perhaps central bank asset purchases. We are also mindful that in a year of elections, incumbents such as Trump will take inordinate action to keep the party going”; “we do tilt portfolio risk down, while also keeping some level of market exposure”; “we have been geared to be sellers on this news and used this opportunity to reduced risk for all client accounts. Insofar as we believe the duration of this financial crises will be shorter than that of 2000 and 2008, the depths of losses could be more severe during the short-term. Again, we believe there will be more bad news than good over the next few months and therefore have been very active in selling..”, etc. For the week, the Dow Jones Industrial Average collapsed -17.3%, the largest weekly decline since October 2008; the Dow is 35.2% below its recent February high. The other major indices dropped by double digits for the week: the S&P 500 Index ‑15.0%, and the Nasdaq -12.6%. Both the S&P and the Nasdaq posted their worst weekly performances since the financial crisis in 2008. We have provided periodical correlation updates on client portfolio exposure to the market losses and what is meaningful is, due to both diversity and actions to reduce risk, the exposure to losses have been shifting lower and lower for our clients. For example, on Friday when the S&P 500 lost -4.34%, the range of loss exposure for our client portfolios was about 0.35%-to-1.35% loss, or a correlation of only 10%-30% loss exposure. In closing, our views have not changed and we will continue to be sellers on any material equity market rally. We continue to believe there will be more bad news than good over the next few months and don’t think the markets have found a bottom yet. Also, we recount another published view “over the 20-year period from Jan-1999 to Dec-2019, if you missed the top 10 best days in the stock market, your overall return was cut in half. That's a significant difference for just missing 10 days of investment exposure. Thus, we need to keep some market exposure as we are not smart enough to know when those 10 days will occur.”

March 17, 2020 Market Update: As we predicted, COVID-19 related economic slowdown just prompted a massive government stimulus proposal of $1 trillion, including an effort to put money into consumers’ pockets. Indeed, Treasury Secretary Steven Mnuchin is pitching Senate Republicans on a package that would include up to roughly $250 billion in direct payments to Americans. The Trump administration is also supporting a request for $50 billion in economic relief for the airline industry as part of the broader package. The $1 trillion package would come in addition to another $100 billion-plus package passed by the House that aims to provide paid sick leave, unemployment insurance and other benefits for impacted workers. As also expected, the U.S. equity markets rallied on this news with the S&P 500 finishing up +6%. As repeatedly conveyed to clients, we have been geared to be sellers on this news and used this opportunity to reduced risk for all client accounts. Insofar as we believe the duration of this financial crises will be shorter than that of 2000 and 2008, the depths of losses could be more severe during the short-term. Again, we believe there will be more bad news than good over the next few months and therefore have been very active in selling this headline for client accounts. It is our view the economic costs of a large swath of U.S. businesses operating with austere staffing, and in many cases at a complete pause, has yet to be fully valued (discounted) in the markets. It just isn’t travel, retail, hotels, sporting events, cruises, concerts, etc., as the consumer is checking out. It is simply hard to imagine the engine of the economy - that being the consumer at 70% GDP - to be a robust participant in broad spending when quarantined. Further, this would not be the time for companies to undergo large expansion, capital expenditure or stock buybacks (which many have agreed to cease).

March 14, 2020 Weekly Capital Market Update. The week was messy, showing signs of sharp fear-driven selling followed by a sharp market rise - U.S. equity markets sold off the highest point loss since 2008, then marked the largest percent gain since 2009. The S&P 500 closed the week off 19.9% from the all-time high, but at one point dropped by about 26%, which technically was in bear market territory (anything over 20%). Market volatility will likely remain elevated, and momentum will likely be centered on the outlook for the COVID-19 (& its impact on companies), juxtaposed with the effectiveness of health containment initiatives and fiscal/monetary policies. We traded throughout the week and will continue to look for opportunities to move portfolios toward more defensive allocations given we still believe the markets have yet to find its lows; there will likely be more bad news than good news over the course of the next 2-3 months. Case in point, fear rhetoric is very powerful and often can bypasses reason, and this panic emotion can cascade into knee-jerk market decisions. For example, more people will be sent on home-leave from work, less items will be available at stores, their friends and family might (at some point) have serious health problems, parts of their community might be quarantined, hospitals might be at overcapacity, then.. how do they react with their investments? Yes, part of the market reaction is the economic toll of COVID-19, but investors' fear-behavior will also inevitably be disruptive to the markets. So, why not just move to cash and sit on the sidelines? Pulling all the way out of the market has adverse implications on a portfolio. Looking back over the 20-year period from Jan-1999 to Dec-2019, if you missed the top 10 best days in the stock market, your overall return was cut in half. That's a significant difference for just missing 10 days of investment exposure. Thus, we need to keep some market exposure as we are not smart enough to know when those 10 days will occur. That said, we do tilt portfolio risk down, while also keeping some level of market exposure. The lesson is investors are only rewarded in the long-run, and that means sticking to your investment plan. Until Friday, the market seemed to be missing the other side of this crisis: The recovery will come at some point in the future as the U.S. will sooner or later overcome the coronavirus, and when this happens the economy will benefit from record low interest rates, extremely low energy costs, tax cuts and stimulus packages. Chances are that the US economy will have a strong recovery when the coronavirus crisis is over, and the stock market would naturally be the beneficiary. However, that likely won’t matter in the near-term as panic emotions fail to be rational and will probably overlook that markets typically recover within 6-12 months of past pandemics, whatever they have been. This isn't some permanent, structural event. Yes, madness of crowds rarely lasts, but that doesn’t mean panic behavior won’t distort markets in the short-term. We already are seeing sharp drops in new coronavirus cases in China and South Korea. Warmer weather and higher humidity of Spring and Summer is expected to also help slow the spread of the virus. As enormous as this pandemic is, the 2008-2009 recession was worse. COVID-19 should be temporary because the world is finally taking extreme measures for containment (along with citizens), and treatments and vaccines will be released in due course.

March 6, 2020 Weekly Capital Market Update. We contend COVID19 will lower U.S. and global corporate earnings this year from the previously expected +9% EPS growth rate, to a lower, declining range of minus (-) single digits. The reality is U.S. business activity has been curtailed, including new overseas investment and international trade, all of which will drag U.S. corporate profitability. Further, we believe prospective consumer sentiment will sour and the consumer has been a driving factor for economic growth. Ultimately, these factors compress valuations going forward and thus we believe portfolio growth exposure should, accordingly, be reduced. While Fed's accommodative action of reducing rates by -0.50% should theoretically be stimulating for the economy, rate action is like using a rifle to stop an ant invasion. For example, with the threat (& fear) of OCVID19, the Fed’s more attractive lending rates simply won’t make people fly to the Olympics, won’t spur people into shopping centers or movie theaters, won’t motivate people to attend global conferences, and certainly won’t urge people to go on vacation. There are simply too many unquantifiable unknowns which the markets have yet to properly process. This portfolio risk reduction action also takes account that other forms of U.S. government stimulus will likely occur, such as bailouts of certain travel/transport sectors, along with perhaps central bank asset purchases. We are also mindful that in a year of elections, incumbents such as Trump will take inordinate action to keep the party going. Fortunately, current portfolio allocations are already substantively diversified amongst many asset classes, which has helped mitigate portfolios from the intense negative market volatility. To be clear, at this stage, we are in no way panicked and not moving to risk-off, but rather taking thoughtful, strategic shifts that correlates to negative impacts on the economy, where the flight path of corporate earnings has shifted downward.

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