As everybody knows, the financial markets are quick to wince at the sight of uncertainty. Unfortunately, events this week brought a fresh supply of things good as well as less good. Let’s start with the things less good.

Covid-19 is giving us a mixed bag.

Cases are up noticeably and most of that is a result of huge gains in testing. The US is now reporting over 700,000 tests per day. Based on the experience of other countries, the percent positive needs to be well under 5% to really push down new infections. The daily report for last Wednesday actually showed nearly 800,000 tests in twenty-four hours.

Fortunately, there has been a shift in the demographics in the newly reported cases with the 18-44 cohort growing rapidly. The good thing here is that younger people have an excellent chance of full recovery. Many in this age group while having been tested positive had no symptoms.

There is also some encouraging info on vaccine development with several companies and researchers reporting very positive trials. One, or more, vaccines may be available before year’s end.

Sino-US relations getting rockier.

Investing.com reports: “Another factor weighing on risk assets is the latest diplomatic spat between China and the U.S.  Beijing ordered the U.S. to close its consulate in Chengdu in a tit-for-tat response to Washington’s closure of the Chinese consulate in Houston at the start of the week. Chinese stocks reacted badly to the threat, the Shanghai Shenzhen CSI 300 falling 4.4% to its lowest in three weeks.” 

Other factors:

  • Republican senators leaving for weekend without obvious progress on another stimulus bill.
  • The civil disobedience currently in several US cities really needs to be put under control.

As we said at the top, it’s not all bad.

The Nasdaq is taking a breather from its recent very strong upward trend and that’s actually a good thing. The tech-oriented index has set a series of record highs over the past couple of weeks so a bit of retracement is no surprise. And, consolidation contributes to market health.

Meanwhile, the S&P 500 Index has turned positive for the year. That’s saying something, in light of how far the drop was back in March. Who can argue with a thousand-point gain?

Other bright points across the economy:

  • Retail sales easily exceeded expectations in May and June following a record drop in April.
  • May and June were the best performing months on record, with data beginning in 1992.
  • Credit business re-openings, stimulus money (including generous jobless benefits), and pent-up demand.
  • Spending on autos hit a record in June.
  • Sales of Existing Homes had a M/M increase of 21%
  • New Home Sales (Latest figure) =7%, beating expectations.
  • The Chicago Fed National Activity Index, which is comprised of 85 monthly economic reports, recorded a record +4.11 in June versus +3.50 in May (a record at that time), which follows a record collapse of -18.09 in April.
  • Key figures in EU also above forecasts.

Ron’s Market Minute – Intermediate Term Bullish, but…

Our charts show that intermediate term, all of the major indexes are bullish.  They have been showing higher highs, and higher lows as they move up in the market indicators.  This is positive and bodes well for the second half of the year. 

There are a couple things that temper our enthusiasm in the shorter term, however. 

  1. Although this year has been anything but typical, the summer months beginning in August have a tendency to be a bit weaker than the rest of the year.
  2. The Euro has been gaining strength vs. the US Dollar, and a weaker dollar tends to coincide with a weaker domestic market. (But a relatively stronger European market, of course!) A weaker dollar encourages investment in foreign markets with stronger currencies, and also encourages precious metals. 
  3. See the chart below. It shows IWF (an exchange-traded fund) that tracks the trend of growth stocks vs. IWV (an exchange-traded fund) that tracks the trend of value stocks. It’s pretty easy to see that the trend favors growth and has done so since the markets bottomed in March. You will notice that although the trend has definitely favored growth stocks (and we have heavily weighted client portfolios toward growth stocks) there has been, as usual, some back-and-forth interplay between growth and value. The past two weeks have clearly favored value stocks.

Source: Stockcharts.com

So…  It’s never easy to find the relative bottom when we’re having growth stocks trend down as we have been for about 2 weeks. As we move lower, I believe the reward to risk improves significantly in terms of accumulating and holding growth stocks.  Perhaps the growth run is over, but I highly doubt it.  Historically-low interest rates and a strengthening economy typically bode quite well for companies that can grow their earnings rapidly. That said, we do need to balance this enthusiasm with the somewhat bearish trend of the Euro and the weaker summer season. 

That’s how the markets look from my chair.

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com

This weekly article reflects news, commentary, opinions, viewpoints, analyses and other information developed by Denk Strategic Wealth Partners and/or select but unaffiliated third parties. DSWP provides Market Information for illustrative and informational purposes only. If you wish to receive this weekly commentary by email please contact us at 602-252-8700 or by e-mail at lindaw[@]denkinvest.com. If you are receiving this commentary via email and would prefer not to please let us know either by email or phone.

Ronald Denk is an Advisory Representative offering services through Denk Strategic Wealth Partners, A Registered Investment Advisor. He is also a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

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