Market Briefing Monday 06-01 — When Will Spending Kick In?

U.S. consumers are gearing up for massive spending this summer.

Thanks to the CARES Act and other government stimulus, Americans have received direct payments, bigger unemployment checks, and other benefits that are all adding up.

As this cash adds up (and as lockdown restrictions are eased), we can expect to see more consumer spending across the country. And that’s great news for key retailers positioned as recipients for this cash.

Dow June Futures: Down 90 (0.35%)
S&P June Futures: Down 12 (0.41%)
Nasdaq June Futures: Down 53 (0.55%)

Equity Markets have been mixed this morning with a number of different cross currents on investors’ minds.

The U.S. protests over the weekend continue to weigh on all of our hearts and minds. Meanwhile, China is using the social unrest in the U.S. as justification for their actions in Hong Kong.

While I am very hopeful that we will soon find more unity here in the U.S., it’s looking more and more like we’ll re-enter a protracted trade war with China. Fortunately, the U.S. is better prepared to handle this trade uncertainty than we were a couple of years ago when this became a more important economic issue.

Gold June Futures: Down 7.60 (0.44%)
Silver June Futures: Up 0.065 (0.41%)

Silver appears to be playing “catch-up” to gold’s previous advances.

Many believe that silver could have more room to run than gold, as silver is trading at a discount to historical ratios when compared to gold prices.

Also, silver has many industrial uses, making it an important metal for the economy — on top of its wealth-preservation qualities. Strong demand for silver from electronic manufacturers, the medical industry and some alternative energy processes could keep demand for silver strong even in more stable economic periods.

10-Year Yield: 0.674%  
2-Year Yield: 0.164%

Rates and corresponding treasury bonds continue to trade in a tight range.

Logically, it appears there is risk for bonds to trade lower, simply because rates have been pushed to historically low levels. (Remember, bond prices trade in the opposite direction as bond yields — or interest rates).

Still, if the U.S. gets uber-aggressive and begins to think about instituting a negative rate policy, we could see bonds trade even higher. My expectation is for bonds to ultimately trade lower. But it may take some time for that breakdown to occur.

Breaking Morning News

Citigroup’s head of investing went public this weekend suggesting that clients should raise as much cash as possible. He believes the market is over-valued and could have a lot of risk. One thing to realize, however, is that clients already have a lot of cash on the sidelines and every time the market pushes higher, these investors feel pain from not participating. I don’t think we’re ready for a re-test yet.

The death of George Floyd has led to massive protests and violence across the U.S.. The National Guard has been called in to help keep the peace in 15 states as well as in Washington D.C.. While I’m hopeful we can heal quickly as a nation, this is an issue that will continue to weigh on our hearts and minds for some time.

On a more positive note, it was inspiring to see the first private ferry of astronauts to the International Space Station. This major milestone moves us closer to a period where space travel may be more available to civilians.

Chart of the Day

 

The CARES Act has had a huge effect on personal income this year. But at the same time, we have yet to see that income translating into a surge in consumer spending.

Over the next few months, that should change. With lockdown restrictions slowly easing, consumers will be able to go out and spend the extra money they’ve received, helping to boost the economy.

This is an important transition as 70% of our economy has historically been driven by consumer spending.

Quote of the Day

You can’t control what the market does, but you can control your reaction to the market. ~Steve Cohen

Final Thoughts

We’ve got a lot to process at this point in history — both on a personal level and in the financial markets.

Let’s remember that our greatest strength comes from working together, helping those in our communities, and using compassionate capitalism to improve the lives of everyone throughout the economy.

Talk to you tomorrow!

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Zach Scheidt