Market Briefing 2020-05-28 — Summer Strength

What happens when investors have cash on the sidelines and keep watching the market trade higher?

Fear of missing out (or FOMO) is causing both individual and institutional investors to steadily add capital to the market… capital that was supposed to be deployed during the next pullback.

At this point, any short-term pullback in the market will almost certainly be met with buying, simply because investors regret missing out on buying during the brief coronavirus bear market.

This buying should support the market for now as we wait for more clarity on how the U.S. economy will reopen.

Dow June Futures: Up 215 (0.84%)
S&P June Futures: Up 11 (0.36%)
Nasdaq June Futures: Down 59 (0.63%)

This week, the Dow broke above a key resistance area and is now trading above the key 25,000 mark. Similarly, the S&P 500 has crossed above 3,000.

Of course there’s nothing special about these numbers except for the fact that they give an additional measure of confidence to investors.

The Nasdaq composite is under pressure this morning largely because of pressure Trump is putting on social media companies (see news links below). But this index already cleared a key level for investors last week by crossing into positive territory for the year.

Overall, the action continues to be bullish. And while there are certainly economic concerns to be wary of, the trend continues to be higher.

Gold June Futures: Up 11.7 (0.68%)
Silver June Futures: Up 0.103 (0.58%)

With so much stimulus being pumped into the economy, there is concern that we could finally trigger inflation. The more cash the government prints, the more danger of that cash losing its value.

Of course, precious metals offer protection and historically have been a stable storage of value.

After breaking to a new multi-year high in April, gold has been stuck in a consolidation period. Yesterday’s action was bullish with gold trading lower initially but then reversing the losses later in the day.

Silver is playing catch-up to its more traditional counterpart. There are some good theories as to why silver should actually perform better than gold because the metal is both an industrial metal and a precious metal.

10-Year Yield: 0.703%  
2-Year Yield: 0.182%

Interest rates are slightly higher, showing some confidence in the market as investors move some capital out of the “safe haven” of treasury bonds into more speculative areas of the market.

For the past several weeks however, treasuries and the corresponding interest rates have been in a tight trading range. Aggressive Fed purchases are keeping a lid on rates with the hope of giving businesses and individuals an incentive to use capital in the economy rather than saving cash.

Breaking Morning News

The coronavirus crisis continues to take a toll on the American workforce. Thankfully, this 2.1 million data point is an improvement from what we’ve seen in previous weeks. But the crisis is still claiming more jobs despite the reopening of some economic areas.china

Tensions are heating up between the U.S. and China as the Trump administration declares that the city of Hong Kong is no longer autonomous. With many different issues at stake including human rights, a major global financial hub, and political tensions with China at stake, this issue will prove to be an important area to be closely watched.

President Trump is set to sign an executive order that could expose social media firms to lawsuits based on how information is shared (or not shared) on their platforms. This rift is causing some morning weakness for shares of TWTR, FB and other social media companies.

Chart of the Day

The housing market is alive and well!

While some homes have been taken off the market because existing owners don’t want to risk coronavirus exposure, demand is still very strong.

This chart (from WSJ) shows that applications for home purchase mortgages just hit a multi-year record.

Low interest rates, government stimulus checks, a strong desire to move out of crowded cities, and a demographic wave of millennial buyers should keep home prices on the rise!

Quote of the Day

I never used to finish anything but now I… ~unknown

Final Thoughts

With the overall market trend higher, it pays to stay invested in companies that continue to generate profits and have the potential to grow. I’m a fan of consumer staples companies with solid businesses and great dividend yields, 5G plays with tremendous growth opportunity, and work-from-home plays as this trend will continue long after the coronavirus crisis has passed.

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Zach Scheidt