The Guidance Wealth Office will be closed for Independence Day beginning on
Thursday, July 2nd at 3:00 pm. We will reopen Monday, July 6th at 9:00 am.
 
 ​The Markets
 
Blame it on the coronavirus.
 
Stock markets in the United States and Europe retreated last week as the number of new COVID-19 cases increased steadily in America. On Thursday, there were more than 44,000 new cases, the highest daily total to date, according to data from the Centers for Disease Control.
 
“The turn has created a new puzzle for investors, many of whom had started focusing on 2021 earnings expectations as the next performance-driver for stocks. The old market gauges, like manufacturing surveys, jobs tallies, and retail sales, feel like lagging indicators. The new leading indicators deal with the disease. Yet tracking its progress is tricky even for epidemiologists who have studied these issues for decades,” reported Avi Salzman of Barron’s.
 
Another piece of the investment puzzle was reshaped when the Federal Reserve (Fed) released bank stress test results last week. It found most banks were likely to remain well-capitalized if economic growth rebounds relatively quickly. However, in a worst-case economic recovery scenario, banks did not fare as well. Consequently, the Fed suspended share buybacks and capped the dividends banks can pay investors, reported Alexandra Scaggs of Barron’s.
 
“The Fed…also said future payouts would depend on bank earnings – and bank earnings will start to look worse as pre-coronavirus quarters drop out and are replaced by COVID-impaired results. Even that decision might not have been a problem if the market believed the spread of COVID was under control. Then the numbers started coming out. Florida’s seven-day average of cases grew 7.8 percent, up from the previous day’s 4.1 percent. Arizona’s jumped to 5.4 percent, from 2.9 percent. In Texas, the positivity rate – that is, the number of tests divided by positive results – hit 11.8 percent,” reported Ben Levisohn of Barron’s.
 
Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, dispelled the notion this is a second wave of the virus. He told The Wall Street Journal, “People keep talking about a second wave…We’re still in a first wave.”

The Guidance Wealth Office will be closed for Independence Day beginning on
Thursday, July 2nd at 3:00 pm. We will reopen Monday, July 6th at 9:00 am.
 
 The Markets
 
Could it be the upside surprises?
 
U.S. stock markets have marched higher despite a pandemic, an economic downturn, and social justice protests – and a lot of people have wondered why.
 
Greg Rosalsky of Plant Money spoke with Nobel Prize-winning economist Robert Shiller about, “…the mass psychology of a gazillion buyers and sellers, who each are telling themselves their own stories about why they're making the trades they're making.”
 
Rosalsky and Shiller discussed some narratives that purport to explain recent market performance, including:
 

• Quarantine boredom. Matt Levine of Bloomberg has postulated “…a lot of individual investors buy stocks mainly because it’s fun, and that the more fun stocks are, and the less fun everything else is, the more they’ll buy stocks. In a pandemic, when people can’t really leave their house and sports are canceled, there is a lot less fun to be had elsewhere…so people buy more stocks.”

 

• Big, publicly-traded companies are safe. This theory suggests businesses hit hardest by the economic downturn often are not traded on stock exchanges. In a separate article, Rosalsky cited former technology executive Eric Schmidt who wrote, “Gigantic corporations, which have deep pockets, fancy accountants, huge legal teams, and access to international financial markets, are also better equipped to weather shocks than your local hardware store or small manufacturing company.”

 

• Don’t fight central banks. “The Fed is using its unlimited money-printing machine to single-handedly prop up the stock market. ‘The Fed is itself an important narrative,’ Shiller says. In reality, he says the Fed's magic over the real economy is limited. But its statements clearly move markets, and it has lots of power as a storyteller,” reported Rosalsky.

 
On Saturday, Lisa Beilfuss of Barron’s offered another narrative. She reported:
 
“…upside economic surprises over the past two weeks – mortgage applications hit the highest level since 2008, retail sales rose at the fastest pace ever, and U.S. businesses added 2.5 million jobs in May instead of cutting an anticipated eight million, to name a few – are even better than they look and offer at least some proof that the stock-market rebound was driven by expectations for improving fundamentals…It’s about the magnitude of the surprises versus Wall Street’s expectations.”
 
We don’t know which narratives were responsible, but major U.S. stock indices moved higher last week.

The Guidance Wealth Office will be closed for Independence Day beginning on
Thursday, July 2nd at 3:00 pm. We will reopen Monday, July 6th at 9:00 am.

The Markets
​
​The Nasdaq Composite dipped its toes into record territory last week before retreating.
 
Stock indices in the United States rallied early last week on optimism about the reopening of businesses across the country. The Nasdaq Composite rose to 10,000 for the first time ever, before tumbling lower.
 
Nicholas Jasinski of Barron’s reported, “What caused the rally to sputter this past week? Nothing particularly new or unexpected. On Wednesday, Federal Reserve Chairman Jerome Powell emphasized the long, slow path back to previous levels of employment and economic activity, in contrast to the market’s lightning-fast recovery. Shocking.”
 
On Wednesday, the United States Federal Reserve (Fed) economic projections showed U.S. economic growth declining 6.5 percent this year with unemployment receding to 9.3 percent. In 2021, the Fed expects economic growth to improve, increasing by 5 percent, while unemployment ebbs to 6.5 percent.
 
Fed Chair Jerome Powell said:
 
“The extent of the downturn and the pace of recovery remain extraordinarily uncertain and will depend in large part on our success in containing the virus. We all want to get back to normal, but a full recovery is unlikely to occur until people are confident that it is safe to reengage in a broad range of activities. The severity of the downturn will also depend on the policy actions taken at all levels of government to provide relief and to support the recovery when the public health crisis passes.”
 
Powell indicated low income workers have been hit hardest in this recession and Congress may need to take additional action to help improve the labor situation in the United States.
 
News that the number of confirmed coronavirus cases had risen in several U.S. states, as well as other countries, coupled with the Fed’s modest outlook for the pace of recovery, appeared to kindle investor anxiety and U.S. stocks sold off sharply on Thursday.
 
By Friday, major indices had recouped some losses, but finished lower for the week.

​The Markets
 
The employment report electrified U.S. stock markets last week.
 
American stock markets responded enthusiastically to the news U.S. unemployment was 13.3 percent in May. If it seems inexplicable double-digit unemployment would thrill investors, there is a reason. The unemployment rate in April was higher at 14.7 percent, and analysts had forecast the rate in May would jump to 19.1 percent. All in all, that makes 13.3 percent look pretty attractive.
 
There were some caveats.
 
First, “If the workers who were recorded as employed but absent from work due to ‘other reasons’… had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported,” explained the Bureau of Labor Statistics (BLS). The same would have been true of April’s numbers, so it’s a wash. Month-to-month, the numbers dropped.
 
Second, there is more than one measure of unemployment. U3 measures people who are unemployed and seeking work. U6 includes unemployed, underemployed (part-time workers who want to be working full-time), and discouraged workers. It’s usually a higher number. The May Employment Summary Report showed U6 unemployment was 21.2 percent, down from 22.8 percent in April. That suggests about one-in-five Americans is not working as much as they would like to be.
 
The BLS wrote the improvement in unemployment reflected, “…a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic and efforts to contain it.” The biggest job gains were in leisure and hospitality, construction, education and health services, and retail trade.
 
The lower month-to-month numbers may be a sign the Paycheck Protection Program (PPP) worked:
 
“…give some credit to the government relief efforts, especially the [PPP], for bringing back jobs. The program gave relief to small businesses…through loans that would not have to be paid back if most of the money went to rehire and pay employees. PPP money had to be used right away, and a lot of it started hitting small businesses’ bank accounts in late April and early May, which ended up triggering a net gain of 2.5 million jobs in May,” reported Heather Long of The Washington Post.
 
Eurozone stocks rallied last week, too, after the European Central Bank increased its quantitative easing program and extended support to June 2021, reported Dhara Ranasinghe and Yoruk Bahceli of Reuters.
 
Major U.S. indices and U.S. Treasury yields finished the week higher.

The Markets
​
Are those green shoots?
 
In economic terms, green shoots are signs of improvement. If you were paying close attention, you might have seen some in economic data released last week.
 
They weren’t apparent in the Bureau of Labor Statistics report on the United States economy. Gross domestic product (GDP), which is the value of all goods and services produced in our country, shrank by 5 percent during the first quarter of 2020. The contraction reflected lower spending by Americans and American businesses due to COVID-19. The Congressional Budget Office (CBO) estimated:
 
“…from March 21 to March 31, when many social distancing measures were in place, spending may have been down by almost 28 percent as a result of the pandemic; spending on accommodations and restaurants declined by 60 percent to 80 percent; and spending for some goods (such as clothing) dropped by similar amounts.”
 
Spoiler alert: The numbers for the second quarter are expected to be far worse. However, economic growth is expected to bounce as consumer spending, which accounts for two-thirds of GDP, resumes.
 
The green shoots were found in unemployment. As businesses reopened and shelter-in-place orders eased, the U.S. unemployment rate dropped to 14.5 percent during the week of May 16 from 17.1 percent the previous week, according to the Department of Labor.
 
Green shoots were also sprouting from the University of Michigan’s May Consumer Sentiment Survey, which reported “…a growing number of consumers expected the economy to improve from its recent standstill…” The Index of Consumer Sentiment ticked higher from April to May.
 
The United States experienced highs and lows last week. A NASA public-private partnership launched the Dragon capsule into orbit. Its astronauts are headed for the International Space Station. Meanwhile, down on Earth, protests for justice in the death of George Floyd devolved into rioting.
 
Major U.S. indices finished the week higher.

​The Markets
 
It was a good week for stock markets in the United States, but there was trouble in Asia.
 
U.S. stock markets rallied last week. The Dow Jones Industrial Average, Standard & Poor’s 500 Index, and Nasdaq Composite all gained more than 3 percent, reported Ben Levisohn of Barron’s.
 
Investors had plenty of fuel for optimism early in the week. On Sunday, Federal Reserve Chair Jerome Powell struck a positive tone during his 60 Minutes interview stating, “The big thing we have to avoid…is a second wave of the virus. But if we do, then the economy can continue to recover. We'll see GDP move back up after the very low numbers of this quarter. We'll see unemployment come down. But I think though it'll be a while before we really feel well recovered.”
 
On Monday, there was news early testing of a potential vaccine had delivered promising results, and the vaccine company’s stock shot higher. The report was tarnished when top executives sold shares the next day, and a respected medical website indicated the published results meant little, reported John Authers in Bloomberg Opinion.
 
Positive momentum slowed later in the week when China indicated it will impose national security laws on Hong Kong. Reshma Kapadia of Barron’s reported, “While the risks have ratcheted higher, it isn’t clear yet whether the new security laws will destroy Hong Kong’s ability to act as a financial center. What that could mean for investors will probably play out over the next couple of months.”
 
Hong Kong’s Hang Seng index closed down 5.6 percent, reported Financial Times (FT). That was the index’s worst one-day performance in almost five years.
 
China’s leadership also declined to set a gross domestic product (GDP) target for the first time ever. GDP is the value of all goods and services produced in a nation. The decision led to a decline in mainland China’s CSI 300 index of Shanghai and Shenzhen-listed stocks, reported FT.

​Guidance Wealth will be closed Monday, May 25th in Observance of Memorial Day
 
 
The Markets
 
America is reopening, state by state.
 
That’s welcome news for many businesses, but we’re far from business as usual. Last week’s economic news included unemployment hitting an 80-year high, a record drop in retail sales (-16.4 percent), and an unprecedented decline in industrial production (-11.2 percent).
 
Weak consumer demand is also a concern, according to Matthew Klein of Barron’s. “…The pandemic has lowered consumer demand much more than it has damaged productive capacity. It’s much easier to bring factories back online than it is to get customers back into shops and auto dealerships…Unless consumption rebounds quickly, the world will soon be faced with an unprecedented glut of goods that can’t be sold.”
 
Some households may be able to sustain or increase consumption because of generous unemployment benefits. The Coronavirus Aid, Relief, and Economic Security (CARES) Act increased unemployment benefits by $600 per week. The intent was to provide Americans, who were out of work because of the pandemic, with income equal to the national average salary of $970 per week, reported Amelia Thomson-DeVeaux of FiveThirtyEight.
 
As it turns out, about 68 percent of those filing for unemployment – teachers, construction workers, medical assistants, food service workers, and others – are receiving more money through unemployment than they did from employers.
 
An analysis conducted by economists at the University of Chicago, and cited by FiveThirtyEight, found, “…the estimated median replacement rate – the share of a worker’s original weekly salary that is being replaced by unemployment benefits – is 134 percent, or more than one-third above their original wage.”
 
In recent weeks, the number of unemployed workers has grown to about 36 million, according to CBS News. Unusually high unemployment combined with unusually high unemployment benefits may mean some Americans may have more money to spend than they might have had otherwise. The combination could improve demand for goods. It also could make it more difficult for employers to persuade employees to return to work.
 
Last week, major U.S. stock indices finished lower.

Guidance Wealth will be closed Monday, May 25th, in Observance of Memorial Day
  
The Markets
 
The stock market is not the economy.
 
It’s an important point to remember when headlines marvel that U.S. stock markets are moving higher while the U.S. economy is contracting. Stock markets are not mindful of the present moment. They are forward-looking, reflecting expectations about what will happen in the months and years to come, explained Mark Hulbert in a MarketWatch opinion piece.
 
In the present moment, the pandemic-induced recession is producing some brutal economic statistics. Lisa Beilfuss of Barron’s reported the unemployment rate rose to 14.7 percent last week. One-in-five Americans was out of work, and household income might be down 10 percent for the first six months of 2020.
 
No one is expecting great things from the economy in 2020. The Conference Board forecasts the U.S. economy will contract between 3.6 percent and 7.4 percent this year. However, the economy’s poor showing doesn’t mean stock markets will decline. John Rekenthaler of Morningstar explained:
 
“…neither employment statistics nor GDP [Gross Domestic Product] growth directly affect equity prices. The primary drivers are instead two sets of expectations: 1) future earnings and 2) future interest rates, with the latter being used to discount the former.”
 
Let’s consider earnings. There’s not a lot to celebrate in 2020, but the outlook for 2021 is positive. John Butters of FactSet reported, “Looking at future quarters, analysts predict a (year-over-year) decline in earnings in the second quarter (-40.6 percent), third quarter (-23.0 percent), and fourth quarter (-11.4 percent) of 2020. However, they also project a return to earnings growth in Q1 2021 (12.2 percent).”
 
The Federal Reserve is doing all it can to keep interest rates low. However, one of its most potent tools, the fed funds rate, has already been cut to near zero. Rekenthaler wrote:
 
“Government intervention is the new and updated version of “The Fed Put”: the idea that the Federal Reserve could always support equity prices, whenever it desired, by cutting short-term interest rates. Those rates are currently at zero, so that game can no longer be played. But the Federal Reserve can continue its newer technique of buying bonds in the open marketplace and flooding the banks with liquidity, and Congress can pass new stimulus bills…Whether such activity will benefit investors more than workers remains to be seen. Thus far, it has.”
 
Last week, the Standard & Poor’s 500 Index finished up 3.5 percent. The Dow Jones industrial Average gained 2.6 percent. The Nasdaq Composite rose almost 6 percent, putting it in positive territory year-to-date, according to Barron’s.

The Markets
 
There are signs COVID-19 may be in retreat.
 
Last week, the Centers for Disease Control reported, overall in the United States, for the week ending April 25 (officially week 17 of the coronavirus), the number of:
 

• People visiting healthcare providers with COVID-19 symptoms declined.
• Positive tests at public health, clinical, and commercial laboratories declined or remained similar.
• Deaths attributed to pneumonia, influenza, or COVID-19 declined, too, although the percentage remains above normal.

 
This is good news since some states are beginning to reopen.
 
Last week, the Bureau of Economic Analysis reported on the early economic impact of COVID-19 and shelter-in-place orders, which were implemented to prevent healthcare systems from being overwhelmed by COVID-19 patients. The U.S. economy contracted 4.8 percent during the first quarter of 2020.
 
The contraction is expected to be more significant for the second quarter. FactSet estimates the U.S. economy will shrink 27.0 percent, quarter-to-quarter, and finish the year down 3.0 percent overall. That suggests a strong rebound in economic growth as the country gets back to work.
 
Despite the economic contraction, U.S. stocks finished April with the biggest monthly gain since 1987, reported Colby Smith and colleagues at Financial Times (FT). April’s gains were partly the result of fiscal and monetary support, according to FT. The publication cited a global markets strategist who, “…attributed [April’s] rally in part to the U.S. Congress and the Federal Reserve extending enormous support to the economy and financial markets in the form of relief packages and emergency lending measures.”
 
The Fed isn’t the only central bank providing unusual support in these uncertain times. The European Central Bank and the Bank of Japan also announced significant lending and bond buying programs last week, reported Dion Rabouin of Axios.

​The Markets
 
We live in interesting times.
 
There is discussion about whether the saying, “May you live in interesting times,” is a blessing or a curse. At this point in 2020, we all understand why.
 
Last week, the world watched in consternation as the price of oil, specifically West Texas Intermediate crude oil, dropped into negative territory. The price moved below zero because a purchase date coincided with a lack of storage space. As a result, the owners of the oil had to pay to have it taken off their hands, reported Ben Levisohn of Barron’s.
 
Oil prices recovered on Wednesday. Global oil producers have promised to reduce output, which would realign supply and demand, but it has yet to happen, reported Evie Liu of Barron’s. The delay may reflect a hope that coronavirus restrictions will ease, economies will begin to reopen, and demand for oil will increase.
 
Investors were understandably unsettled by oil prices, and U.S. stocks lost value early in the week. As oil stabilized, U.S. stocks pushed higher. The rebound in stocks stalled on news that trials for a potential COVID-19 treatment had produced disappointing results.
 
Thursday’s unemployment data showed 4.4 million people filed for unemployment benefits the previous week. That brought the number of unemployed Americans to more than 26 million, according to Jeffry Bartash of MarketWatch.
 
Earnings, which reflect companies’ profits, remained less than robust, as expected. “The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings decline for the first quarter is -15.8 percent...” reported John Butters of FactSet.
 
The energy sector finished the week in positive territory.