Insights

Top News:

6/22: With existing home sales in May down 26.6% annually, the largest decline since 1982, the National Association of Realtors is hopeful that the cyclical low may have been reached.

 

6/23: May’s rebound in new home sales bolstered expectations of a housing recovery, given the tight supply of existing homes for sale, low rates, and pent-up demand.

 

6/24: Following fresh highs at the NASDAQ yesterday, investors paused to consolidate gains in light of new Covid-19 cases, IMF’s further downward projections for the global economy, and renewed trade tension with Europe.

 

6/25: While both sequentially lower, stubbornly high numbers of new and continuing claims were confirmed by the weekly jobless claims report.  Separately, May’s durable goods orders snapped two straight months of decline as states initiated gradual loosening of social distancing measures.

 

6/26: The Fed ordered moves to preserve the capital of major U.S. banks, after its annual “stress tests” showed the group would collectively lose about $700 billion in a worst-case scenario.  Meanwhile, a lower final reading in the University of Michigan’s June consumer sentiment survey, a dip in personal income last month and the halting of reopening plans by some states kept bulls in check.

 

 

Heard on the Street:

“Overall we see the second-wave and U.S. election stories as contributing to market volatility as headlines feed investors’ hopes and fears about the speed and strength of the economic recovery. But it is the Fed story that will endure over the medium term.”

—  Mark Haefele, CIO of UBS as quoted by MarketWatch on 6/22/2020

 

“Bubbles are always an issue, and I do keep my eye on it, but I am just not seeing things that are on the same magnitude as what happened in the late 1990s, the so-called dot com bubble that blew up on us and then the much more serious housing bubble in the mid-2000s.”

— St. Louis Fed President James Bullard in a Bloomberg TV interview on 6/23/2020

 

“Although the Nasdaq hit a new high and has been on a spike, less than 50% of its constituents are trading above the 200-day moving average. That’s the biggest divergence since 2001… It’s hard to paint a rosy picture when that’s your classic story of the generals advancing and the soldiers falling behind. I think you add the virus stuff to more attention given to these technical divergences and sentiment being stretched and you have a recipe for a pullback.”

— Liz Ann Sonders, Charles Schwab chief investment strategist as quoted by CNBC on 6/24/2020

 

“I think the market is probably a little ahead of itself at this time, because I still believe we are witnessing real tragedies in the small and medium businesses… The most important question I ask everybody is: do you believe earnings are going to be in 2021 at least as good as in 2019? And only a fraction of business leaders believes their business will be as robust as in 2019. But the marketplace is not saying that.”

— Larry Fink, CEO of BlackRock as quoted by CNBC on 6/25/2020

 

 

Longer Game:

In a webinar sponsored by the CFA Institute, Prof. Elroy Dimson of Cambridge University provided a sobering outlook of diminished real returns of only 2% for a “typical” 60/40 (stocks/bonds) portfolio, based upon his analysis of investment returns in 23 different countries spanning 120 years through 2019.

 

Mohamed A. El-Erian, chief economic adviser at Allianz, lays out priorities for domestic policymakers in a world still “heavily influenced by US economic growth, financial stability, and policy spillovers.”

 

 

Bonus:

Contrary to the expectations of some, a Chicago Fed study finds that those currently collecting unemployment benefits search for work at least twice as intensely as those who have exhausted their benefits.

 

According to a Deloitte report, US oil independence has been dealt a major setback as the shale industry is expected to write down $300 billion in assets, due to “low commodity prices, reduced demand, capital constraints, debt loads, and health impacts of COVID-19.”