Maybe too many people read our eLetter of a couple of weeks ago. At that time, we remarked how a number of things were setting up to support an extended rally in the markets and boy were we right! What we did not expect was that the enthusiasm would grow quite to the level that it did – resulting in a bit of an overshoot and with it the reminder that ‘what the markets giveth…”

Yesterday (and so far, today) screens were running red at all the major indexes. As I write this (on Friday morning) I’m thinking things may turn around before market close today. Maybe they will find a footing or maybe they’ll stay red and go for an under-shoot — just to make up for the overshoot. Before we let the bearish bit ruin our holiday let’s review a few salient points.

  • In the last five and a half weeks the Nasdaq had advanced over 16 percent. A pullback was in order for the sake of a healthy market. (Remember that earlier this week, Zoom (ZM) increased by 40% in a single day! Other displays of exuberance include Apple (AAPL) whose market cap reached the equivalent of the entire FTSE 100, Britain’s most important equities market.)
  • It is very common for stocks to sell down in front of a three-day weekend.
  • Pelosi and Mnuchin are still nowhere close to a Covid19 stimulus bill. (The airlines in particular are getting quite antsy waiting for some direction.)
  • OTOH, Pelosi and Mnuchin have reached an agreement on a Continuing Resolution to fund the government’s normal operating cost.
  • Fridays Jobs Report was mixed. 1.37 million jobs added was just under the expected 1.4M. The stinky part is that about 230K of these were temp workers hired by the government to work on the census. So, the economic recovery is doing well but short of great.

As I point out below in today’s Market Minute, there is a strong set of economic data afoot which broadly affect the real economy. We plan on enjoying the weekend and we hope you plan to enjoy yours too.

Ron’s Market Minute — Or Perhaps ‘Market 20 Years’

You probably remember Washington Irving’s story of Rip Van Winkle – the man who fell asleep in the Catskills and woke up some 20 years later. A lot had changed in those two decades but some things remained just as he knew them. Now, If YOU fell asleep eight months ago and YOU woke up this morning and glanced at the newspaper, you could easily be unaware of any economic slowing. But perspective can be tricky.

Many businesses and families are struggling. The number of families filing for initial jobless claims this week, while decreasing, is still nearly at a million, and the number of deaths attributed to the virus, while slowing, still remains high.

There remains much to do but we are making meaningful progress, to wit: 

  • Business activity in this country popped to a post-pandemic high in August. The preliminary Composite Purchasing Manager’s Index (PMI), (a measure of both the manufacturing and services sectors), hit an expansionary 54.7, the highest since February 2019. The strong upturn was due mostly to stronger exports and new orders as overseas economies continue to reopen. China is also currently positive, which means that over 40 percent of the world’s economy is once again in expansion.
  • U.S. homebuilders are incredibly bullish right now. This month’s National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index climbed to 78, matching a previous all-time record set in December 1988. AND, sales of existing homes soared almost 25 percent in July from June, the strongest monthly gain in U.S. history, on near-zero interest rates.
  • The S&P 500 closed at a new record high last week, ending the shortest bear market in U.S. history. The pandemic-induced pullback lasted only 33 days, compared to the median bear market length of 302 days based on data going back to the 1920s, as Reuters reports.

It’s this final point I’d like to focus on. Is the U.S. stock market’s incredible recovery justified, or is it “irrational exuberance” all over again? Year-to-date, the S&P has outperformed equities in nearly every other major economy, including the European Union (EU), United Kingdom (UK), Hong Kong and Japan. A lot of this has to do with the performance of technology stocks. 

Friday Morning Add – After the huge rebound from the bottom of the market in March, it seems somewhat reasonable that the market should have a bit of time to digest those gains, and perhaps give some of them back. That appears to have started yesterday. Will it continue? Will the strength in the rest of this year be in the same sectors? We don’t know, but for now I’m grateful for the strength of the US consumer and the US economy.  

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

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Ron Denk is a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Mr. Denk is also an Advisory Representative offering services through Denk Strategic Wealth Partners, a Registered Investment Advisor. Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation.

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