“We can’t direct the wind, but we can adjust the sails” – Thomas S. Monson

This past week marked the month-end, quarter-end, and the end of the first half. We have reached the halfway point and what a wild six months it has been. The bull market roared into January, continued in February, then COVID-19 entered the scene. The economy was placed in an induced coma and a bear market ensued. The debates rage on whether the subsequent bounce has now eliminated the bear and ushered in a new bull market.

Suffice to say those that remained on the equity scene have easily outpaced the army of people that decided the market lows were not yet established in March. If one avoided playing the guessing game by hedging every rally, that performance difference is larger yet. Those gains since the March lows have been enhanced by concentrating on the sectors of this “new” COVID economy. With emotions running amok and negativity regarding the virus situation being highlighted again, it’s easy to see how the majority of pundits and far too many equity investors have yet to discover the new macro trends that are being forged because of this health scare.

Some believe they are fads with stock valuations getting frothy. Once again bringing out comparisons to the tech era of 1999-2000. I disagree. The focus always seems to find its way to the new startup that is selling at 20 times sales to make their case. Sure they can be found in this market. Newsflash, they are always there. While it may vacillate to various levels over time, greed rarely disappears entirely.

Most if not all of these trends won’t be a passing fancy. When we start to look under the hood at some of these companies we find a strong technical foundation with robust earnings all selling at reasonable PE multiples. While the majority continue to concentrate on the sectors of the economy that will have a tough road ahead, there are plenty of companies offering solid outlooks amidst the questionable economic backdrop. The focus should be on those that have already stepped out and raised forward guidance. No question we will need to see our basic core consumer industries return to normal, but dismissing the “change” taking place and measuring the stock market by those core industries is a big mistake.

Despite a very bumpy start to the “reopening” of the economy, COVID fears being ramped up, and civil unrest added to the picture, one would have thought the stock market was ready to go back and retest or perhaps plumb new lows. Now we see that plenty of analysts and pundits had the story wrong again.

The month of June came to a close and that also put the second quarter of 2020 in the history books. For the month the S&P gained 1.8%, and that left the S&P with a second-quarter gain of 19.9%. After witnessing one of the worst quarters for the stock market in history, the S&P rebounds with the best quarter since 1998.

Source: Bespoke

The stock market limped into last weekend battered by the COVID news and ready to turn the page in June and set sail for July. Similar to last week the weekend news concerning the country’s health scare was all negative. HHS Secretary Alex Azar warned last Sunday that the “window is closing” for states to be able to control this latest spike in cases.

Despite that, it was a “risk-on” mentality across the globe in the equity markets at the start of the week. Some of this could be attributed to more of the quarter-end window dressing or perhaps investors noticed that some states decided to “dump” backdated “probable” COVID deaths into the system. That just begs questions on the data being reported during this global health scare. Market participants also may have noticed that many other countries have seen their reopenings go rather well.

Add in strong China data, the big improvement in the Dallas Fed manufacturing activity, and the blowout housing sales, the S&P 500 climbed 1.47% on Monday. That move erased what was a small loss for June. The strong performance of Industrials, namely Boeing (BA), and Communication Services stocks were highlights. Breadth was strong with only 50 S&P 500 stocks falling on the day.

There was no turnaround this Tuesday as buyers remained in charge. COVID news here in the U.S. held less weight as the focus seemed to gravitate to the EU proclamation that it reopened its borders to 14 countries. That kept the rally going as the S&P ran its gains up to 4+% for the week. The Nasdaq kicked off the second half of the year with fresh record highs on both Wednesday and Thursday making it 23 new all-time highs in 2020.

For the year the Nasdaq leads the pack with a 13+% gain, telling investors where the earnings growth will be. The S&P is down 3% for the year, and now 7.5% from the all-time high, in what can only be described as an unprecedented six months ever seen in the equity market.

With the year almost half over now, the biggest winners in global markets have been U.S. equities, especially growth and tech stocks, along with gold and bonds. On the other hand, the biggest moves higher since the March 23rd lows for US equity markets have been Energy names, which have rallied more than 50% in the past three months.

Some international stocks have also been outperformers since the lows for the S&P 500, with a commodity exposed indices in Australia and Canada up big, along with industrial powerhouse Germany and emerging market India.

Chinese equities surged to close out the trading week with the Shanghai Composite gaining 2.1%. At current levels, the Shanghai Composite is just 0.80% from taking out its pre-COVID peak made in early January. However, even with big gains in June, countries like Brazil (EWZ) -38%, France (EWQ) -15%, Italy (EWI) -17%, Spain (EWP) -21%. and Mexico (EWW) -28% remain down big in 2020.

Economy

As the economy reopens, consumers maintain their focus on essentials and online shopping.

Data from the Commerce Dept. Graphic provided by Federated research.

As retail started to open in June, not surprisingly auto parts, food and online shopping showed robust spending versus restaurants and apparel.

Data from the Commerce Dept. Graphic provided by Federated Research.

More evidence suggesting investors need to remain selective in their approach to equities. There are “winners” that will continue to capitalize on these trends. The current “losers” will continue to struggle in a weakened economy.

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index posted 49.8 in June, up a record 10 points from 39.8 in May, to signal a marked easing in the overall manufacturing downturn. The latest figure was also slightly higher than the earlier released “flash” reading of 49.6.

Chris Williamson, Chief Business Economist at IHS Markit:

“U.S. manufacturers have reported a marked turnaround in business conditions through the second quarter, with collapsing production and demand in April at the height of the COVID-19 lockdown turning rapidly to stabilization by June. The PMI posted a record 10-point rise in June amid unprecedented gains in the survey’s output, employment, and order book gauges.”

“The record rise in the New Orders Index, coupled with low inventory holdings, bodes well for further improvement in production momentum in July. A record upturn in business sentiment about the year ahead likewise hints that business spending and employment will start to revive.”

“However, while the PMI currently points to a strong v-shaped recovery, concerns have risen that momentum could be lost if rising numbers of virus infections lead to renewed restrictions and cause demand to weaken again.”

U.S. ISM rose by a larger-than-expected 9.5 points to 52.6 in June from 43.1 in May and an 11-year low of 41.5 in April, leaving the highest level since April of 2019, and the largest gain since August of 1980. June gains were broad-based across components. The ISM survey revealed greater resilience to the shutdowns than the other sentiment surveys through April, as the bottom in April for the ISM never breached the prior recession-low of 34.5 in December of 2008, or the all-time low of 30.3 in June of 1980, and the ensuing rebound has generally outpaced the bounce in other surveys as well. Overall, the sentiment surveys are documenting a rapid climb as analysts recover from the huge April hits with mandatory closures.

Construction spending report sharply under-performed estimates with a -2.1% May drop, after declines of -3.5% in April and -0.3% (was flat) in March. Analysts saw annual revisions back through 2004 that sharply lifted the levels of all the major construction spending aggregates, though with less of a boost in more recent months that left a weak growth trajectory for the new home and nonresidential construction into Q2. Construction spending looks poised for an -18% contraction rate in Q2, following growth rates of 11.2% (was 15.3%) in Q1 and 6.4% (was 10.4%) in Q4.

Dallas Fed’s manufacturing index climbed another 43.1 points to -6.1 in June after rebounding 24.8 points to -49.2 in May. It’s a fourth straight month of contraction and is up from the record low of -74.0 in April as the region has been hit by the double whammy of COVID-19 and weakness from the collapse in the oil industry

Chicago Fed manufacturing PMI rose 4.3 points to 36.6 in June, weaker than forecast, after falling -3.1 points to 32.3 in May (a 38-year low) and tumbling -12.4 points to 35.4 in April. And it breaks a string of three straight monthly declines. It’s the highest since the 47.8 print in March. The 3-month moving average dipped to 34.8, however, from 38.5, and is down from 46.6 in March. But it’s a long way from the relative 67.3 peaks from the relative October 2017.

Consumer confidence surged 12.2 points to 98.1 in June, much better than expected, after edging up 0.2 points to 85.9 in May. The 33.1 point plunge to 85.7 in April was the steepest drop since 1973 and was the lowest level since May 2014. These compare to the 18-year high of 137.9 from October 2018, and the recession-low of 25.3 in February 2009. Both components improved measurably too. The present situation index climbed to 86.2 from 68.4 in May, though it was at 173.9 in January. The expectations index jumped to 106.0 from 97.6. It’s back near 108.1 in February which was the best since November 2018.

Source: Bespoke

Initial jobless claims fell -55k to 1,427k in the week ended June 27 following the -58k drop to 1,482k in the week of June 20. It’s a 13th straight weekly decline after the surge to a record high of 6,867k in the March 27 week. The 201k on January 31 was the lowest since 197k on November 14, 1969. The 4-week moving average was 1,503.75k from 1,621.25k.

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Nonfarm payrolls increased 4,800k in June, better than expected, after the upwardly revised 2,699k (was 2,509k) bounce in May following the -20,787k (was -20,687k) collapse in April. The unemployment rate slide to 11.1% versus 13.3% (was 13.3%) previously, and April’s 14.7%. The rate was at a 50-year low of 3.5% in February. The labor force rose another 1,705k after the prior 1,746k gain, with household employment up 4,940k versus 3,839k. The labor force participation rate rose to 61.5% versus 60.8%.

I found the reaction from the pundits after these reports were announced quite interesting and absurdly disingenuous. There was plenty of disbelief. Most traders were somewhat skeptical of all payroll data, feeling that the sharp reopenings and then reopening rollbacks have distorted the data. Saying the numbers were not to be trusted. That commentary was followed by more stuttering about COVID. While the results signaling the rebound were being downplayed, no one seemed to remember the entire economy was CLOSED.

Funny how they believed the 20+million job losses, but the recovery numbers are in doubt.

The recovery will take time, no one is suggesting 4% GDP anytime soon, but if anyone is doubting a recovery has started, they need to turn over their money to someone else to manage, or lose the closed-minded approach to investing.

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Pending home sales index jumped a record 44.3% to 99.6 in May. That follows the -21.8% April plunge (second largest on record) to a historic low of 69.0, and the -20.8% drop to 88.2 in March. It’s the highest since February’s 111.4, which was the best since the 111.9 in February 2017. The index was at 105.0 last May.

Lawrence Yun, NAR’s chief economist:

“This has been a spectacular recovery for contract signings and goes to show the resiliency of American consumers and their evergreen desire for homeownership. This bounce-back also speaks to how the housing sector could lead the way for a broader economic recovery.”

“More listings are continuously appearing as the economy reopens, helping with inventory choices. Still, more home construction is needed to counter the persistent underproduction of homes over the past decade.”

“The outlook has significantly improved, as new home sales are expected to be higher this year than last, and annual existing-home sales are now projected to be down by less than 10% – even after missing the spring buying season due to the pandemic lockdown.”

NAR now expects existing home sales to reach 4.93 million units in 2020 and new home sales to hit 690,000. All figures light up in 2021 with positive GDP, employment, housing starts, and home sales. In 2021, sales are forecast to rise to 5.35 million units for existing homes and 800,000 for new homes.

Global Economy

The Final Markit PMI data reported this week shows why global stock markets have remained resilient. “Green shoots” are now part of the picture being seen across the entire globe.

The downturn in the global manufacturing sector eased sharply again in June. The J.P.Morgan Global Manufacturing PMI, a composite index produced by J.P. Morgan and IHS Markit in association with ISM and IFPSM rose by a record 5.4 points to 47.8, up from 42.4 in May.

Olya Borichevska, Global Economist at J.P. Morgan:

“June saw a further momentum shift in the global manufacturing sector after the economy started on the recovery path in May. The output PMI increased for a second consecutive month in June rising a total of 14.5-points. We look for the PMI to continue moving higher as growth firms. This of course is premised on continued easing of activity restrictions. With demand rebounding, the focus is starting to shift to the labor market, with hopes that the current process of job retrenchment proves shallower and shorter than expected.”

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The seasonally adjusted IHS Markit Eurozone Manufacturing PMI strengthened to a four-month high of 47.4, up from 39.4 in May and an improvement on the earlier flash reading. All countries recorded a relative improvement in their PMI readings during June, with the majority recording their best numbers since February.

Chris Williamson, Chief Business Economist at IHS Markit:

“The final PMI numbers for June add further to signs that the eurozone factories are seeing a strong initial recovery as the economy lifts from COVID-19 lockdowns. The rise in the June survey is indicative of output falling at an annual rate of just 2%. That compares with a near 30% rate of contraction seen at the height of the lockdowns in April. This remarkable turnaround implies very strong month-on-month gains in the official production numbers for the past two months.”

“Expectations for the year ahead have also rebounded sharply as hopes grow that the economy will continue to find its feet again in the coming months. “However, even with these gains, production and sentiment remain below pre-pandemic peaks, and persistent weak demand combined with ongoing social distancing measures are likely to act as a drag on the recovery. The focus therefore now turns to whether gains seen in the past two months can be built on, or if momentum fades again after this initial rebound.”

China’s national bureau of statistics said profits at China’s industrial firms in May rose 6% year-on-year to 582.3 billion yuan ($82.28 billion), according to a statement on June 28th. The rebound followed a 4.3% fall in April and is its sharpest monthly gain since March 2019. The purchasing managers’ index for China’s manufacturing sector ticked up to 50.9 in June from 50.6 in May.

The headline seasonally adjusted China Caixin Purchasing Managers’ Index, a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy, increased from 50.7 in May to 51.2 in June, to signal a second successive monthly improvement in the health of the sector. Though modest, the rate of improvement was the strongest recorded since December 2019.

Dr. Wang Zhe, Senior Economist at Caixin Insight Group:

“The Caixin China General Manufacturing PMI stood at 51.2 in June, the highest reading so far this year. The manufacturing sector continued to expand, as most of the country had the epidemic under control and the economy continued to recover.

1) Overall manufacturing demand recovered at a fast clip, but overseas demand remained a drag. Production expanded for the fourth straight month in June, but the pace was slower than the previous month. In contrast, demand improved remarkably. The subindex for total new orders expanded for the first time since January, as the gradual lifting of epidemic control measures allowed production to return to normal. New export orders continued to fall amid weak external demand, as the epidemic situation overseas remained uncertain in many places and the number of new daily infections remained high.

2) The improvement in demand led to a decline in stocks of finished goods. Stocks of purchased items grew as companies increased purchases. The subindex for stocks of purchased items and the gauge for the quantity of purchases both hit the highest levels since the first quarter of 2018, reflecting manufacturers’ growing willingness to expand production. Suppliers’ delivery times lengthened slightly, probably due to flare-ups of the epidemic in some places.

3) Employment remained weak. Although the manufacturing sector as a whole recovered in terms of supply and demand in June, employment did not improve. The employment subindex remained in negative territory for the sixth consecutive month, even running weaker than the previous month. Manufacturers remained cautious about increasing hiring. Some companies still had layoffs planned and were in no hurry to hire new workers to fill vacancies.

4) Input costs and output prices both rose. The gauge for input costs returned to expansionary territory, as the recovery of production and a rise in raw material prices pushed up costs. The gauge for output prices edged up further into positive territory. Respondents said that the market was in the process of recovering, and that the sell side was facing relatively large competition and had limited pricing power.

Overall, the manufacturing sector continued to recover in a post-epidemic period, and both supply and demand improved. Around mid-June, the epidemic flared back up in some parts of China, but its impact on the overall economy was limited. The gauge for future output expectations continued to rise in June, reflecting manufacturers’ confidence that there would be a further relaxation of epidemic controls and a normalization of economic activities. Meantime, we should still pay attention to the pressure on employment. Top policymakers have repeatedly stressed the importance of expanding employment channels. For some time to come, increasing employment will remain an arduous task.”

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Japan’s industrial production fell 8.4% in May due to the impacts being felt from COVID-19. Last month’s report showed minimal improvement indicating the road back to normalcy may take a lot of time.

The headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index – a composite single-figure indicator of manufacturing performance – edged up slightly to 40.1 in June from 38.4 in May. Despite increasing, the index remained noticeably below the 50.0 no-change level and therefore indicated a further deterioration in the health of the goods-producing sector.

Joe Hayes, Economist at IHS Markit:

“We’re still awaiting signs of meaningful improvement in Japan’s manufacturing sector, with the PMI for June failing to stage a substantial recovery despite the state of emergency ending and many key trading partners peeling back lockdown measures.”

“The chance of a V-shape recovery in the manufacturing sector appears slim at this stage, which opens up the possibility of a two-speed economy if the domestic-focused service sector shows more signs of activity.”

“It will be important to monitor the forward-looking components of the survey such as new orders and export sales, which are likely to drive the direction that operating rates take over the coming months. It will likely take a sustained pick-up in global demand conditions before factories start committing more resources into production volumes.”

At 47.2 in June, the seasonally adjusted IHS Markit India Manufacturing PMI surged from 30.8 in May. Despite the rise, the latest reading pointed to a third successive monthly decline in the health of the manufacturing sector, albeit one that was far softer than registered in April and May.

Eliot Kerr, Economist at IHS Markit:

“India’s manufacturing sector moved towards stabilization in June, with both output and new orders contracting at much softer rates than seen in April and May. However, the recent spike in new coronavirus cases and the resulting lockdown extensions have seen demand continue to weaken. “Should case numbers continue rising at their current pace, further lockdown extensions may be imposed, which would likely derail a recovery in economic conditions and prolong the woes of those most severely affected by this crisis.”

The headline ASEAN Manufacturing PMI registered a record one-month gain of 8.2 points, rising from 35.5 in May to 43.7 in June. The figure indicated that the current downturn eased notably at the end of the second quarter. Nonetheless, the index remained firmly in contraction territory and signaled a fourth successive monthly deterioration in the health of the ASEAN manufacturing sector. Helping to lift the headline figure were slower reductions in both output and new orders, but the drops remained sharper than their respective pre-coronavirus records. With demand remaining muted, firms continued to cut staff numbers sharply.

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Lewis Cooper, Economist at IHS Markit:

“The downturn in the ASEAN manufacturing sector continued for a fourth successive month in June. The deterioration in operating conditions was the softest in the aforementioned sequence, however, with output and order book volumes falling at much slower rates as larger swathes of the sector reopened and production lines restarted. ‘However, demand conditions remained notably weak, and in light of this firms reduced their workforce numbers again. The rate of job shedding softened slightly, but remained sharp.’

‘Encouragingly, the 12-month outlook for output picked-up, with sentiment the highest since February. Still, the sector has a way to go to recover from the COVID-19 pandemic. Although the rates of contraction in output and new orders have eased from the unprecedented drops in April and May as restrictions related to the virus have generally been loosened, ASEAN goods producers still face weak demand conditions at home and abroad. Until there is a meaningful recovery in customer demand, it’s unlikely the sector will see any notable improvements in conditions in the months ahead.'”

The seasonally adjusted IHS Markit/CIPS UK Purchasing Managers’ Index rose to 50.1 in June, up from 40.7 in May and unchanged from the flash estimate. Although the 9.4 month-on-month increase in the PMI beat May’s record (8.1), the reading was only slightly above the neutral 50.0 level, indicating a stabilization in operating conditions.

Rob Dobson, Director at IHS Markit, which compiles the survey:

“June completed a marked turnaround in momentum in UK manufacturing, as the sector switched from April’s record contraction back to stabilization in the space of two months. Output edged higher and domestic demand firmed as lockdown restrictions loosened, factories restarted and staff returned to work. Business optimism also recovered to a 21-month high.”

“The planned loosening in COVID-19 restrictions on the 4th July should aid further gains in the coming months. Although the trend in new export business remains weak, that should also strengthen as global lockdowns and transport constraints ease further.”

“The main focus is now shifting towards the labor market. Concerns are rising about the potential for marked job losses, especially once the phase-out of government support schemes begins. The news on that footing is less positive, with June seeing a further reduction in staffing levels and, although easing sharply since April’s record, the rate of job loss remains among the steepest in the 29-year survey history. Economic conditions will need to improve markedly across the UK, or some support retained if the labor market downturn is to avoid becoming more entrenched through the remainder of the year.”

The headline seasonally adjusted IHS Markit Mexico Manufacturing PMI registered 38.6 in June, up slightly from 38.3 during May. The latest reading indicated a sharp decline in business conditions faced by Mexican goods producers, albeit the rate of deterioration eased to the softest for three months. Eliot Kerr, Economist at IHS Markit:

“The latest PMI data for the Mexican manufacturing sector suggest the country is still struggling in its fight against the coronavirus outbreak. Production continued to decline sharply, with demand conditions subdued and many factories remaining closed.”

The said, on the whole, the data was trending in the right direction, with the rates of decline for activity, new orders and employment all easing. Moreover, sentiment improved slightly despite remaining negative overall. “Going forward, demand will be the key driver in any recovery on the new orders index in the coming months. Only when demand begins to rebound will the Mexican manufacturing sector see a sustained rise in output.”

If a “Blue Wave” sweep plays out, corporate tax rates most likely will meaningfully increase, more than offsetting potentially more market-friendly immigration and trade policies. Wolfe Research says it doesn’t think investors have even begun to factor in the potential for corporate profits to take a significant hit.

I have, and it remains a big concern.

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The Fed

FOMC minutes to the June 9, 10 meetings showed a long discussion on policy tools, including its forward guidance, asset purchases, and yield curve caps or targets (YCT). The various pros and cons were discussed.

On YCT, all participants agreed that it would be useful for the staff to conduct further analysis of the design and implementation of YCT policies as well as of their likely economic and financial effects. The Committee generally favored forward guidance, having extensive experience with that, as well as large scale asset purchases. In terms of guidance, participants generally supported an “outcome-based” forward guidance, while “a number of participants” favored forward guidance tied to inflation outcomes. And a couple of participants preferred forward guidance tied to the unemployment rate, and a “few others” liked a calendar-based outcome. And “a couple” were concerned that whatever method adopted could lead to significant risks to financial stability. Remember Fed Chair Powell did not seem to be thrilled to employ yield curve control in recent comments.”

The 10-year Treasury bottomed at 0.40% over the worldwide fears that are present. The 10-year note yield rallied off those lows to 1.18%. A trading range under 1% was then established. After making a run to the top of that range earlier in the month, the 10-year drifted back down as COVID fear gripped the market and closed trading at 0.68%, rising 0.04% for the week.

The 3-month/10-year Treasury curve inverted on May 23rd, 2019, and remained inverted until mid-October. The renewed flight to safety inverted the 3-month/10-year yield curve once again on February 18th, and that inversion ended on March 3rd. The 2/10 Treasury curve is not inverted today.

Source: U.S. Dept. Of The Treasury

The 2-10 spread was 30 basis points at the start of 2020; it stands at 52 basis points today.

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Sentiment

More money sitting around gaining little to no interest since the Great Financial Crisis.

AAII weekly sentiment shows there aren’t many bulls around as optimism among individual investors about the short-term direction of the stock market is at a nine-month low. Bullish sentiment, expectations that stock prices will rise over the next six months, declined 2.0 percentage points to 22.2%. That makes it three weeks below 25%. Bullish sentiment is below its historical average of 38.0% for the 17th consecutive week and the 22nd week this year.

This week’s bullish sentiment reading is tied for the 83rd lowest level recorded by the survey out of more than 1,700 weekly results. While optimism remains at an unusually low level, pessimism is at an unusually high level. The current level of pessimism reflects concerns about the coronavirus pandemic and the economy.

Crude Oil

WTI remains trapped in a range between ~$35 and ~42.50 and until that range breaks it’s difficult to get a fix on where it might head next. Not surprisingly, Energy has been one of the worst-performing sectors over the past month as oil has stalled.

As is the norm for this time of year on account of seasonality, crude oil inventories (including SPR) experienced their largest decline of the year falling by 5.5 million barrels. That was the largest inventory draw since the last week of 2019. Excluding strategic reserves, that was the first inventory draw in three weeks though the actual level of inventories remains in the 99th percentile of all weeks since 1982 at 533.5 million barrels.

That draw came on unchanged production and much weaker imports which fell to 5.97 million barrels/day; the weakest reading since mid-May. As for petroleum products, gasoline demand pulled back slightly. That makes for just the 4th time of the past 13 weeks in which gasoline demand was not higher.

Meanwhile, refinery throughput rose for a seventh straight week though it remains much lower than average just like gasoline demand.

The price of crude oil traded at $40.26 midday on Friday, which represented a gain of $2.00 for the week. Despite the 8+% gain in price during June, WTI is down 72% in 2020.

The Technical Picture

The S&P 500 hit an intraday high of 3165 on Thursday and closed the week at 3,130 just shy of a new “recovery” high.

The trading range remains in place as it appears sideways consolidation of the rally off the lows continues.

No need to guess what may occur; instead it will be important to concentrate on the short-term pivots that are meaningful. However, the Long Term view, the view from 30,000 feet, is the only way to make successful decisions. These details are available in my daily updates to subscribers.

Short-term views are presented to give market participants a feel for the current situation. It should be noted that strategic investment decisions should NOT be based on any short-term view. These views contain a lot of noise and will lead an investor into whipsaw action that tends to detract from the overall performance.

A popular “talking” point these days:

“The Payroll Protection program is ending. Watch out the payroll protection program is ending.”

As of the middle of June, there was 130 Billion left in round 2 of the PPP program.

Many are wondering why the stock market isn’t overreacting to the COVID flare-up in the “hotspots” that are making the daily headlines.

Bespoke Investment Group reports:

“As of Wednesday, the hospital surge capacity looks to be okay in some of the worst-hit states. Texas is one example: while the state has been adding 349 hospital patients per day over the past week, Texas HHS data has over 13,000 available hospital beds including 1,405 available ICU beds.”

“Death rates from this new acceleration in case counts remain very low; total death counts continue to fall.”

The spike in hospitalizations that took place in mid-May in Florida saw the number of daily cases reported at about 1,000. In early July we hear that 10,000 cases are being reported daily, while the hospitalization numbers have yet to surpass the spike we saw in May.

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Charts courtesy of Tallahassee Reports

The U.S. has suffered fewer COVID-19 deaths per 1M of the population (397) than its European counterparts. Italy (576), France (458), Spain (607), and the U.K. (648) all have higher death rates. Germany (108) is the only Euro entity with a lower death rate.

The institutional money managers are looking at the stats posted above (along with others) and dismissing the hysterical ramblings of the “talking heads”.

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Individual Stocks and Sectors

Here is the perfect example of what has been discussed here for well over two months. Nike (NYSE:NKE) reports earnings and misses “estimates” badly. Not a great surprise as the retail giant had many of its stores closed for most of the quarter. That news made headlines and many analysts point out how bad the economic situation might be.

FedEx (FDX) reported this week and beat estimates handily. One company affected by COVID, the other (FDX), a beneficiary of the new economy.

For those that want to remain entrenched in the idea that this is a stock market that has an “issue” instead of a “market of stocks” that has “opportunities”, you will continue to be left wondering what went wrong.

We now hear that some companies are making a “statement” by suspending their ad purchases on Facebook’s (FB) social media platform. Some believe that the company should be assigned the task of protecting all of us from bad words or what is deemed a bad “opinion”.

I wish all of those companies the best of luck. As far as the notion of investing in Facebook in light of this new “stance” that is being adopted, consider this. FB closed at $233 on Thursday, a stone’s throw from its 52-week high of $242. The average FB user isn’t leaving nor are they concerned about the various opinions that are overwhelming society these days. It’s a free platform where they continue to share information in this “new” digital economy.

Facebook will weather this tempest in a teapot because it has the audience that other companies only wish they could possess. I suspect those that have fled to make a “statement” will be sneaking back to the ad platform in short order.

Full Disclosure: I am long FB and don’t plan on selling anytime soon.

I wasn’t a seller of equities in May despite the huge gains recorded in April, and I decided to stay on board this equity market in June as well. Some didn’t understand my logic because there was a very large contingent that proclaimed the stock market rally had ended in May.

Instead, I was looking for opportunities, and when you shock the economy as profoundly as we did to try to tamp down the contagion of the virus, there were many dislocations. The market is bifurcated now more than ever and the door to finding those opportunities was wide open.

Certain sectors and industries have had the good fortune of being market favorites not only during the shutdown but also during the early stages of the recovery. Why? Because they are part of the bifurcated stock market that is comprised of the “New COVID economy” names versus the Old economy “reopening” stocks.

The virus health scare formed new “macro” trends, and they will change the landscape for both the economy and the investment scene. This will further enhance the prospects of the “winners” that have already been identified. One thing that will become apparent:

Any investor that refuses to follow this sea change and dismiss the companies that are now drivers in macro trends that are new and developing will be left behind. The wind has changed; it’s time to adjust your sails.

The environment around investors has been so toxic lately that it adds to the confusion of how to navigate the equity market. Not only do we have a bifurcated stock market, but we also have a tale of two agendas. The one that says all is horrible versus facts showing a rebound in place and back to back employment reports that seem to be confirming that. The bottom line, investors are being told to believe one thing while the data is saying something different. There is no need to pick sides. If you don’t want to listen to the narrative or believe the data, you better be watching the price action in the market.

There was plenty of banter this week from the many financial pundits explaining how they believe the bears have thrown in the towel. The recent AAII polling doesn’t agree with that conclusion. I have a different view of the situation. The bears have perished by inhaling too many “Greed” berries. They believed the market would remain in freefall and it would be months if not years before it recovered. It was a feeling of euphoria and they simply “overdosed”.

At the market lows in March, it was “get prepared, the worst is yet to come”. Then they inhaled more of these magic berries and told everyone that they should “get ready for the next leg down”. However, it wasn’t until they gobbled up the “valuation berries” that they started to choke, and many simply never recovered.

They never saw the big picture. They put the blinders on. After all, they had it all going for them with the doomsday scenarios that humanity was about to be destroyed similar to what occurred with the Spanish flu in 1918. Unbelievable to think that some investors would equate the medical community of 2020 to that of 1918! Week after week, anyone that remained steadfast in their approach stating this virus was not the “‘end” for the economy was called foolish.

The 22 new all-time highs that were being registered in the Nasdaq that represents the “new economy” were completely missed because the virus rhetoric overwhelmed the minds of many. The fate of the bears was then sealed and many are no longer with us.

No one is suggesting it is time to go chasing here. The time to act was back in the days when the bears were gorging themselves on berries. I wouldn’t be surprised if a cooling-off period ensues. The second half of 2020 could be a tale of two halves. The continuing reopening saga that meets up with a presidential election. Perhaps a difficult period ahead. It will be more difficult for anyone that didn’t squirrel away some profits during this rally off the lows.

After a brief pause that felt like an eternity, the Secular bull market reasserted itself. The price action was the data point that told savvy investors to stay invested. There were plenty of market pundits, analysts, and investors that didn’t “adjust their sails”. They refused to look at all of the data and now find themselves “wrecked, and on the rocks”.

With more money than ever before sitting in money market funds, money flows showing a preference to bonds, and bullish sentiment at nine-month lows with only 22% of investors feeling bullish, the bears that remain at sea might want to note that everyone is on one side of their boat. It may take more than a minor “sail adjustment” to right that ship.

The question every investor wants to have answered at the end of every week. Where does the market go next?

The Savvy Investor continues to provide those answers.

Please allow me to take a moment and remind all of the readers of an important issue. I provide investment advice to clients and members of my marketplace service. Each week I strive to provide an investment backdrop that helps investors make their own decisions. In these types of forums, readers bring a host of situations and variables to the table when visiting these articles. Therefore it is impossible to pinpoint what may be right for each situation.

In different circumstances, I can determine each client’s situation/requirements and discuss issues with them when needed. That is impossible with readers of these articles. Therefore I will attempt to help form an opinion without crossing the line into specific advice. Please keep that in mind when forming your investment strategy.

Thank you #2.jpg to all of the readers that contribute to this forum to make these articles a better experience for everyone.

To all of the Canadiens out there!

And a Happy July 4th to all of located here in the U.S.!

Best of Luck to Everyone!

Be well!

It’s a bifurcated market now, and the difference between the winners and losers widens. New macro trends are here and they affect the market in many different ways. My latest view on the Macro scene is published, which includes individual sector reviews of where the “winners” are today and where they will be tomorrow.

Next week I’ll take the first look at the upcoming election as EVERY investor needs to be be prepared for what could be waiting for them in the days /weeks leading up to November 3rd. It is all found at the Savvy Investor Market Place Service.

Please consider joining today.

Disclosure: I am/we are long EVERY STOCK/ETF IN THE SAVVY PLAYBOOK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: My portfolios are ALL positioned to take advantage of the bull market with NO hedges in place.

This article contains my views of the equity market, it reflects the strategy and positioning that is comfortable for me.

IT IS NOT A BUY AND HOLD STRATEGY. Of course, it is not suited for everyone, as each individual situation is unique.

Hopefully, it sparks ideas, adds some common sense to the intricate investing process, and makes investors feel calmer, putting them in control.

The opinions rendered here, are just that – opinions – and along with positions can change at any time.

As always I encourage readers to use common sense when it comes to managing any ideas that I decide to share with the community. Nowhere is it implied that any stock should be bought and put away until you die.
Periodic reviews are mandatory to adjust to changes in the macro backdrop that will take place over time.

The goal of this article is to help you with your thought process based on the lessons I have learned over the last 35+ years. Although it would be nice, we can’t expect to capture each and every short-term move.



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