Now That Main Street Has Done Wall Street, Who’s Next?

Commentary

Investor sentiment toward risk is definitely shifting. Although mixed economic data was skewed towards “better than expected”, it hardly mattered. This itself is noteworthy as equity markets have consistently ignored any negative data and responded with gains, regardless of Covid19 spikes and civil or geopolitical discord. To emphasize my point, the tech-heavy Nasdaq-100 index and the Information Technology ETF (VGT) have respectively outperformed the SP-500 benchmark index by 22% and 16%. Yet, both have lagged the SP-500 for past 4 consecutive trading sessions.

Furthermore, rebalancing has been and could continue to be a factor. In March-2020, markets were oversold to such an extent that institutional portfolio managers and private family offices were left with little choice but to allocate capital to equities. Other factors influencing the V-shaped recovery in equities has been the Federal Reserve stimulus and its commitment to maintain orderly markets. If these were not enough, then one can blame CV19 pandemic-quarantined millenials with more than sufficient time to learn how to play the what has recently become the hottest video game out there, i.e. Main Street versus Wall Street.

Market Summary

Market Moving Events

Bullish

  • Financials: Morgan Stanley (MS) reported record Q2 earnings with actual @ 2.04 vs estimates @ 1.12; and Bank of America surprised analysts with actual @ 0.37 vs estimates @ 0.29.
  • Central Banks / Federal Reserve: Respective New York and Chicago Fed Presidents, Williams and Evans, both emphasized that downside risks to the US economy are concerns whic support currently dovish monetary policies.
  • Consumer / USA: Core Retail Sales (mth/mth) in June-2020 advanced 7.3% vs forecasts @ 5.0%. Retail Sales (mth/mth) in June-2020 increased 7.5% vs forecasts @ 5.0%.
  • Business Outlook / USA: The July Philly Fed Manufacturing Index was @ 24.1 vs 20.0, which evidences a potential V-shaped recovery. (However, the 30-point drop to 36.0 for the 6-month outlook underscores the uncertainty that the rising number of Covid19 cases is imposing upon business planning.
  • Real Estate / USA: The NAHB Housing Market Index for July-2020 increased 12 points to 72 vs consensus range @ 55 to 65, which represents a level preceding the pandemic lockdown.

Bearish

  • Coronavirus Pandemic: Now that the US is reporting new case numbers at daily record levels, many are starting to realize that the uncontrolled Covid19 will lead to more lockdowns again and thwart economic growth.
  • Retail Sales / Asia: From a monthly perspective, China’s consumer activity appears to be stabilizing @ 1.34% vs prior revised @ 0.84. However yr/yr data @ -1.8% was less than the forecasted 0.4%.
  • Central Banks / Europe: ECB President Lagarde mentioned “elevated uncertainty” and “balance of risks to the Eurozone growth outlook to remain on the downside”, of which neither translated into positive news.
  • Employment / USA: Weekly Unemployment Claims were expected to be @ 1.25mm but actual new claims filed reach 1.3mm. It should be noted that more than 51mm jobless claims have been filed since mid-March-2020 when the pandemic virus began to surge.

Summary Analysis

So there you have it. Not much has changed. Economic data is conflicting at best and businesses still operate under clouds of uncertainty as Covid19 cases spike upward as predicted by many reputable medical professionals. Meanwhile millenials, especially those averse to stock market risks after witnessing the carnage of the last Great Recession, have discovered an alternative to digital entertainment and they are doing Wall Street and some of its fund managers every which way imaginable, thus breaking all the rules and making it more difficult to manage investments in this environment.

And… The real kicker is that no one knows who’s next.

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