07.06.2020 – Market Update

By Chris Perras.

The S&P500 cash index closed the week at 3130, up almost 4% (and down 3% YTD), from the Friday May 26th close which marks the timing for the normal summer rally.

Don’t tell the naysayers of a recovery in the economy and stocks but, in addition to the  Nasdaq finishing at a new all-time high, oil prices have also rallied with both WTI and Brent reaching levels not seen since early March at above $40. Copper prices, which lead global economic growth, have seen an even bigger rally, with supply issues and prospects of a global manufacturing recovery driving them above year-ago levels in a nearly perfect V from the March lows.  Meanwhile, the network news focuses on issues that lag the markets by weeks if not months.

The June jobs report topped expectations with a 4.8 million advance and a steep 2.2 ppt drop in the unemployment rate to 11.1%. The manufacturing ISM index also crushed expectations, jumping 9.5 points to above the 50 line, and to its best level in a year at 52.6. Auto sales also continued to recover, rising to 13.2 million units last month.  Used car sales are soaring.

Global economic data last week ignored by the financial press in favor of micromanaging daily state virus counts?  Euro Area manufacturing PMI … highest since February … France’s PMI … highest since September 2018 … German consumer spending surged 13.9% … Australia’s retail sales up a record 16.9% … China Caixin services PMI at a decade-high… and so on and so forth.  A “V” is a V…ignoring the true data for the past three months, in favor of headline “breaking news” has done nothing for your bank and investment accounts.

S&P 500 futures are up strongly this morning, by almost 1.5%.  European blue chips are up +1.8% and China’s CSI and Shanghai up +5.7%, Hang Seng up 3.8% and Japan up 1.8%.  Treasury yields are higher along the curve (steeper is better) and the dollar weaker (weaker is better).

The network news, almost always late to the true trend, ignored the virus data behind the scenes in June, now they are ignoring the favorable economic data everywhere. What you see on network news is lagging! Not leading!  It’s not “Breaking News”!’

The team at OHFG has pointed to a “V-bottom” in both the stock markets and economy for well over 3 months.  Providing early data and historic examples of it being far from “unprecedented”.  We have pointed to the normal symmetry in “V-bottoms” the last 10 major recessions over the past one hundred years.  Now what?  Well we point to a fantastic article penned by the team at Bespoke Investment Group.  It did not get a lot of press, hidden amongst the “breaking news” onslaught on CNBC, but we provide our readers a link to the article.

https://www.cnbc.com/2020/07/03/handicapping-the-market-from-here-what-history-tells-us-about-the-odds-the-comeback-continues.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Mail

Here are the main takeaways:

  • The S&P 500 rebounded almost 20% in the 2nd The 10th quarter since World War II when it gained more than 15%. Following the rallies, the index was alwaysup the next 3 months, for an average of 9%. Smallest advance? 4%!
  • “Breadth thrust” extensions. (When at least 90% of all S&P 500 stocks surpass their 50-day moving average). This measure was reached May 26. In the prior 19 times this has occurred since 1967, the S&P was alwaysup over the following year, by an average of 17%.
  • Election year concerns. Stocks usually do well in election years, it does not matter who wins!  Yes, they usually do quite poorly in the quarter leading up to an election in years when the incumbent party loses the White House, see attached chart. However, the big takeaway is they still have finished the year up!

S&P 500 Performance during election years

Week ending July 3 2020 Cumulative total returns

Weekly market updates contain general information and expresses views of Oak Harvest Investment Services. Data, Articles, and information cited are believed to be reliable at the time of creation, but is not guaranteed. Content should not be regarded as personalized investment advice. Views and opinions expressed may change without notice and do not constitute a recommendation, or an offer or solicitation to buy or sell securities. In addition, Oak Harvest makes no assurance as to the accuracy of any forecast made. Past performance is not indicative of future results. Investing involves the risk of loss