[Market Madness] Edition 0055
Good News on a Friday
Nothing like a ‘strong’ jobs report
Well folks, I hate to call it strong, but the jobs report released this morning from the Bureau of Labor Statistics (BLS) was much stronger than expected by Wall Street analysts. For the month of May, the BLS reported an unemployment figure of 13.3%, which is significantly lower (and stronger) than the expected 19.5% by analysts. Since the markets hadn’t opened yet, we saw a large trend upward in the futures. We saw this positive momentum carry markets well into the green throughout the day.
Other areas of confidence appear, as airlines begin adding more summer flights, a signal of recovery in the industry. Elsewhere, retail stocks appear to be making a comeback as they look to take the spotlight in their reopening phase. These signals have sparked an uptick in crude prices, which are starting the day just under $40.00/barrel. Stay-at-home essentials, like Netflix and Zoom are seeing negative price action as the ‘lock down’ fad is waning.
Cautions still loom over top of the market gains as more market professionals are warning of the growing disconnect between Wall Street (stock market) news and Main Street (economic) news.
As the S&P continues its upward trek back to all-time highs, many are still wondering what is driving these gains if the economic data isn’t. That being said, many also want to know how sustainable the upward momentum is on this current stock market trend.
Are we out of the worst, or are we gravely ahead of ourselves when pricing in recovery? That, my friends, is the million dollar question for the day.
Did you miss yesterdays’s piece? No worries! Get it right here and catch up on the madness.
Fundamentals
Friday Close:
Dow Jones Industrial Avg: +3.15%
S&P 500: +2.62%
NASDAQ: +2.06%
US 10 YR: 0.889% | 97 5 / 32
Crude OIL: $39.34
Market Madness Portfolio: +1.80%
COVID 19 Global Cases: 6,789,321
Indices Overseas:
FTSE 100: +1.52%
Nikkei: +0.74%
Hang Seng: +1.66%
Print the payroll
The much awaited May jobs report from the BLS gave us a treat before the weekend. Not only did we see a much lower unemployment rate than expected (13.3% versus expected 19.5%), but we also saw the biggest one-month jobs gain ever as payroll rises by 2.5 million. This is great news, suggesting that many workers are being invited back to their workplaces and many businesses are flipping over their ‘closed’ signs for an ‘open’ one.
There is no reason to dismiss this good news, but we must recognize that the road ahead is much longer than just one month’s set of supporting data. A trend needs to be established of several months in the right direction before we can more accurately determine the speed and scope of the overall economic recovery.
We can, however, try to anticipate, or even model, when the so called ‘dash for demand’ will come. Many industry experts early on were anticipating a strong rebound come reopening due to the fact that consumers will be eager to get out and return to the activities they missed out on while in lock down. Many businesses are expecting to see their demand gradually increase as consumer leave their homes and venture back out into the world. Eventually, the herd mentality will take consumers out of the grocery store aisles, fighting over non-perishable goods and sanitizing wipes, and have a nice outdoor dinner at their favorite local restaurant or go bowling and see a movie. Once this comes into play, consumers will return to some of their old spending habits, circulate fresh money into local economies, and get the U.S. economy back on the treadmill moving forward.
Businesses will still need to grapple with a lot as time moves forward, between balancing their payroll and supporting employees as they seek re-employment and keeping up with the changing rules and regulations governing the PPP loans hovering over many businesses’ heads. As we continue to see large corporates file for bankruptcy protection, we can only imagine what is happening back stage with many small businesses.
In times like these, its important to celebrate the small steps forward, recognize the long road ahead, and do our best to do our part in getting our small businesses back off life support.
Read more here: https://www.wsj.com/articles/may-jobs-report-coronavirus-2020-11591310177?mod=hp_lead_pos1&mod=hp_lead_pos1 and here: https://www.cnbc.com/2020/06/05/jobs-report-may-2020.html
Quick Takes
U.S. exports and imports both saw record monthly declines amid COVID 19 disruptions. (via WSJ)
World-wide upticks in COVID 19 cases are being recorded in the wake of reopening processes. (via CNBC)
COVID 19 stimulus funds are nearly extinguished in the U.S. (via WSJ)
U.S. 10 Year Treasury surpassed 0.9% yield as investors sell treasuries and seek riskier investment opportunities. This yield did not hold by the market close. (via WSJ)
We-Work co-founder, Miguel McKelvey, leaving at the end of the month. (via CNBC)
Google and Apple coming under scrutiny after COVID 19 tracing app had in-app advertisements. (via WSJ)
Apple ($AAPL) shares reach an all-time high today, valuaing the company past $1.4 trillion. (via ATOM+)
Deutsche Bank analyst sees Amazon’s stellar performance during COVID 19 is here to stay, presenting the company with a ‘new normal.’ (via CNBC)
Governments relaxing the regulations around using long-term investment money for emergencies. (via WSJ)
Trump says the U.S. has ‘2 million’ COVID 19 vaccine doses ‘ready to go’ if it passes health and safety checks. (via CNBC)
U.S. eases flight ban on Chinese airlines, allowing two flights weekly following China’s allowance of some U.S. air service. (via WSJ)
Trump directs pentagon to remove thousands of U.S. troops stationed in Germany amid new U.S. - German tensions. (via WSJ)
Reader’s Corner
The reader enjoyed the Get Think Tanked virtual happy hour yesterday (hosted by Michael A. Gayed, CFA, portfolio manager at Toroso Asset Management). This week, the hosts talked about trend and thematic ETF strategies and the art of rebalancing, especially in market conditions like what we are seeing now.
I look forward to next weeks, and you can join too! Use this link to sign up the day of (Thursdays at 5:00PM EST) the next virtual happy hour.
Market Madness portfolio updates
I sold out of the FLYT position on the Market Madness Portfolio because it was posing a drag. It was not a large position, only 8% of the total allocation. I have replaced with another cool ETF I’ve been watching that is a ‘fallen angel’ bond etf, ANGL. Here is the description from VanEck Vectors, the ETF issuer:
The VanEck Vectors® Fallen Angel High Yield Bond ETF (ANGL®) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the ICE US Fallen Angel High Yield 10% Constrained Index (H0CF), which is comprised of below investment grade corporate bonds denominated in U.S. dollars, issued in the U.S. domestic market and that were rated investment grade at the time of issuance.
Here is the prospectus and the fact sheet.
I think this will be a cool fund to follow instead of the FLYT - as FLYT is much newer and only issued back in February. With these adjustments, the portfolio will have an adjusted beta of 0.88, and an expected return based on CAPM of 7.6%. Updates will follow as adjustments are made.
General Banter
The theme of the day goes to Director of Research at Ritholtz Wealth Management, Michael Batnick:
Behind the Madness
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