Weekly Market Update

Greetings Friends,

I sincerely hope you are doing well and staying safe and are starting to really enjoy the summer.

Market Volatility

We experienced a lot of market volatility last week and this week. While the market finished last week in the red, the past three trading sessions have moved the indexes closer to positive territory for the year. “Both the S&P 500 and the Dow on Monday mounted their sharpest reversal to finish in positive territory since March 19, according to Dow Jones Market Data.” DeCambre, Mark and Joy Wiltermuth. “Dow ends 526 points higher, extending the win streak to three days, but Powell says more Congressional spending may be needed.” Market Watch. June 16, 2020. The moves have been positive but market volatility is likely to continue with the COVID-19 still spreading, trade tensions with China, and with general economic uncertainty. Fortunately, a lot of the data coming in is positive.

Some people are using volatility to their advantage. “Volatility trading has grown so big that trading on expected market moves can itself move markets. Bets on lower volatility can spur a cycle that magnifies periods of calm. At other times, the strategies can worsen downturns once they begin…Today’s economic uncertainty means that volatility trading, and therefore also volatility itself, is likely to stay elevated as investors seek to either protect themselves from it, or, increasingly, to make money from it.” Banerji, Gunjan. “Investors Bet on Volatility, Making Markets Even Wilder.” WSJ. June 13, 2020. Investors trading on volatility could wreak additional havoc on the market’s continued recovery. Gold performs well in volatile markets. Fidelity recommends equity investors consider having five percent of their portfolio in hard assets and/or currencies.

In the meantime, a lot of investors are sitting on the sidelines in cash. They are preferring to wait out the volatility in the market and the economy’s recovery. “Investors have rarely been this flush with cash. Grappling with the most economic uncertainty in decades and a head-spinning stretch of volatility in the U.S. stock market, many investors have rushed into money-market funds. Assets in [money market] funds recently swelled to about $4.6 trillion, the highest level on record, according to data from Refinitiv Lipper going back to 1992.” Banerji, Gunjan. “Investors Are Sitting on the Biggest Pile of Cash Ever.” WSJ. June 16, 2020. I think that bodes well for a continued recovery. Once more investors feel more comfortable shopping and investing, deploying those funds will aid for a speedier economic recovery and yield additional job creation.

Hopefully, more people will soon resume spending and investing with the improved outlook on the economy. “Americans’ view of the economy improved in early June as the country continued to reopen while trying to contain the coronavirus pandemic, according to a University of Michigan survey released Friday. The survey’s index of consumer sentiment rose to 78.9 in the two weeks ended June 10, from 72.3 for the previous four weeks. Economists surveyed by The Wall Street Journal had expected a reading of 75.0.” Guilford, Gwynn. “US Consumer Sentiment Rebounded in Early June.” WSJ. June 12, 2020. Here in Dallas, restaurants are picking up steam by being able to attain 75% capacity while bars are at 50% capacity, traffic is picking up on roads, and stores are getting busier.

Stock Market

The past few days have generated significant green for the stock market with potential infrastructure spending, a successful steroid to help with coronavirus symptoms, and strong retail sales numbers. “Stocks had already been buoyant amid reports that President Donald Trump is backing a $1 trillion infrastructure spending package to add more fiscal stimulus to help the economy recover from the coronavirus pandemic. Gains for stocks deepened on Tuesday after a report from the BBC said that dexamethasone, a cheap and widely available steroid, is being seen as a success in low doses to combat patients who are suffering serious symptoms from the illness derived from the novel strain of coronavirus. The BBC report cited a study from Oxford University, which included 2,000 hospital patients who were given the steroid and were compared with more than 4,000 who didn’t get the drug. The report indicated that for “patients on ventilators it cut death risk from 40% to 28%,” and for “patients needing oxygen it cut death risk from 25% to 20%....U.S. retail sales jumped by 17.7% in May, the government said Tuesday. Economists polled by MarketWatch had forecast an 8.5% increase.” DeCambre, Mark. “Dow surges 700 points amid retail sales recovery and report on potential coronavirus treatment.” Marketwatch. June 16, 2020. The stock market has been consistently reacting positively to news of any successful vaccine or treatment news for treating COVID-19. Combine that with positive data news, the stock market successfully erased the pullback from last week.

New Generation of Day Traders

Shelter in place created an interest in day trading for new 20 and 30 something investors. With the additional time on their hands and additional funds from the stimulus checks, many have found an opportunity to invest. “A new generation of day traders is having an impact on the market. The “free trading app Robinhood has added more than three million accounts in 2020, and now has over 13 million. The median age of its customers is 31. The Covid-19 lockdowns and the plunge in markets in March persuaded millions of new investors to open accounts…Schwab says it has been signing up younger clients in large numbers for the past year, with those under 40 making up more than half of the additions since early 2019. But the latest surge seems to be coming from all age groups, a spokesman said.” Salzman, Avi. “The Young and Restless Roil Stocks in Lockdown.” Barron’s. June 15, 2020. Hopefully, more of the 20 and 30 somethings that are opening accounts now will become long term investors.

China

Things are looking up for China. “Official Chinese economic data released Monday showed improvement across a variety of indicators, including in its headline jobless rate, raising optimism for the global economy even as recessionary anxieties loom over much of the developed world and as fears of a second wave of infection in China are intensifying. An official gauge of unemployment in Chinese cities showed a slight fall to 5.9% in May, a tick down from April’s 6.0% figure and a further improvement after the national surveyed unemployment rate surged to a record 6.2% in February. Value-added industrial production, a measure of output in manufacturing, mining and utilities, grew 4.4% in May from a year earlier, following a 3.9% year-over-year expansion in April, the National Bureau of Statistics said Monday.” Cheng, Jonathan. “Chinese Consumers Add Fuel to Factory-Led Economic Recovery.” WSJ. June 15, 2020. That is certainly good news for the global economy.

However, China is now having to cope with a second wave of COVID-19. “Authorities in Beijing have imposed a soft lockdown on the entire city, after the Chinese capital reported more than 100 new locally transmitted coronavirus cases in the past five days.The city raised its alert level from Level 3 to Level 2 -- the highest alert being Level 1 -- the Beijing government's Deputy Secretary Chen Bei announced in a press conference Tuesday night. The move comes as the city's latest coronavirus outbreak continued to spread Tuesday, with at least 106 new infections since Thursday following an outbreak at Xinfadi, the city's largest wholesale food market. Officials had earlier locked down more residential compounds, ordered more than 30,000 restaurants to be disinfected and tightened outbound travel.” Gan, Nectar. “Beijing imposes soft lockdown citywide and tightens outbound travel as coronavirus infections spread.” CNN. June 16, 2020. China is very proactive with their lockdowns, so it is likely that they will be successful in curbing the additional spread quickly.

Trade issues between the US and China remain. China is likely to face additional scrutiny in every US business segment going forward from IT to healthcare. This week concerns arose over 1,300 Chinese companies having the same US agent and address of record causing concerns over the legitimacy of those medical devices being sold and distributed. “All foreign manufacturers of medical devices are required to have a representative with a real address in the U.S. and somebody available during business hours…At least 1,300 registered Chinese companies have listed CCTC Service Inc. as their U.S. agent. No company by that name exists in the U.S., according to databases of corporate records.” Hufford, Austin, et. al. “Over 1300 China Medical Suppliers Gave FDA Same US Address.” WSJ. June 13, 2020. Government and corporate databases will need to improve their ability to catch and reduce such discrepancies and redundancies.

Interest rates

Fortunately, the economy and stock market doesn’t have to worry about interest rates rising any time soon. That is a great tailwind to help the economy recover. “The one key takeaway from last week’s Fed meeting is that monetary policymakers are set to keep short-term interest rates near zero for as far as the eye can see. Not forever, but at least until 2023.” Wesbury, Brian. “The Fed is Committed to Low Rates.” First Trust: Monday Morning Outlook. June 15, 2020. Rates are so low now that the dividend yield from stocks signficantly outperforms bond yields making stocks much more attractive to purchase than bonds. Low interest rates also translate into negligible money market rates creating another reason to invest in equities instead of hoarding cash.

The Federal Reserve is also bullish on the year end employment rate. “The Fed’s economic forecast shows they think the unemployment rate will finish 2022 at 5.5%...At present the Fed expects the unemployment rate to finish this year at 9.3%, next year at 6.5%, and 2022 at 5.5%.” Wesbury, Brian. “The Fed is Committed to Low Rates.” First Trust: Monday Morning Outlook. June 15, 2020. Federal Reserve Chairman Jerome Powell is committed to using every tool in his toolbox to help the economy recover.

Federal Reserve Chairman Jerome Powell has also been very clear that they are comfortable with seeing inflation increase before raising interest rates. “Fed statements have been asserting that its 2.0% inflation target is “symmetric,” which means the Fed wants to see inflation be above 2% as much as it is below 2.0%. Given all this, we think the Fed would like to see inflation run higher than it did in the prior economic expansion and will be even more hesitant to raise interest rates…In the meantime, this week’s reports should show that the economy was healing before the Fed’s meeting. Retail sales, industrial production, and housing starts should all be up sharply for May, and we expect a continued decline in claims for unemployment insurance, as well. We are still a long way off from being fully recovered, but the process has to start somewhere. In May, the recovery began.” Wesbury, Brian. “The Fed is Committed to Low Rates.” First Trust: Monday Morning Outlook. June 15, 2020. So, with interest rates remaining low through 2022 and possibly 2023, it is a great time to refinance your home, buy a home, buy a car, etc. Please let me know if you would like the contact info for some great realtors, mortgage brokers, and/or a great car leasing company.

North Korea Bears Watching

Tensions are building between North and South Korea. “North Korea has blown up a joint liaison office used for talks between itself and South Korea, the latest sign that ties between the two longtime adversaries are rapidly deteriorating…The liaison office had been closed since January 30 due to the novel coronavirus pandemic, according to the South Korean Unification Ministry. South Korean staff had not been to the building since, the ministry said. But the destruction of a building meant to facilitate dialogue, paid for by South Korea and sitting on North Korean soil, is highly symbolic. It may mark a turning point in the relations between two countries that had committed themselves to "a new era of peace" fewer than three years ago.” Berlinger, Joshua, et. al. “North Korea blows up liaison office in Kaesong used for talks with South.” CNN. June 16, 2020. While at first glance, we may not be concerned about tensions between North and South Korea, their issues can have significant global implications. North Korea is potentially building and stockpiling nuclear weapons. And North Korea in doing so, is “in violation of UN Security Council resolutions. North Korea continues [to engage] in overt nuclear enrichment and long-range missile development efforts. Although the scale of North Korea’s uranium enrichment program remains uncertain, U.S. intelligence agencies estimate that it has enough plutonium to produce at least six nuclear weapons, and possibly up to sixty.” Council on Foreign Relations. “North Korea Crisis.” Global Conflict Tracker. June 10, 2020. Their weapons proliferation should be a serious concern for South Korea, China, Japan, and the US, especially since North Korea has an unstable and unpredictable leader in Kim Jong-un.

India and China are Having a Major Dust Up

China is also having escalating tensions with India in a border dispute. “India said 20 of its soldiers died in a clash with Chinese troops along the two countries’ disputed border in the Himalayan Mountains, the worst military confrontation between the nuclear-armed neighbors in decades… The confrontation further escalates tensions that flared in recent weeks along the 2,000-mile Himalayan border China shares with India. China has pressed other controversial territorial disputes in recent years, stoking anxiety among its neighbors by building military installations in the South China Sea, extending control over Hong Kong and moving to deny Taiwan, which it sees as part of China, legitimacy and participation in international forums… The increasing tensions between Beijing and New Delhi have drawn attention from U.S. officials and coincide with Trump administration efforts to build security ties with India as its own ties with China have frayed. Security cooperation also has grown among a group called the “Quad” that includes the U.S., India, Japan and Australia. Consequently, “this is going to strengthen India’s resolve to treat the U.S. as a partner and strengthen cooperation with the other Quad partners to better insulate itself against Chinese aggression,” said Jeff Smith, South Asia expert at the Heritage Foundation in Washington.” Roy, Rajesh. “India-China Border Standoff Turns Violent, with 20 Indian Soldiers Dead.” WSJ. June 16, 2020. It appears that both sides are now attempting to de-escalate the tension and violence.

Corona Virus Transmission

We are starting to get better information on how COVID-19 is contracted. Fortunately, we can now worry less about contracting the virus from surfaces alone. “It’s not common to contract Covid-19 from a contaminated surface, scientists say. And fleeting encounters with people outdoors are unlikely to spread the coronavirus…Instead, the major culprit is close-up, person-to-person interactions for extended periods. Crowded events, poorly ventilated areas and places where people are talking loudly—or singing, in one famous case—maximize the risk…These emerging findings are helping businesses and governments devise reopening strategies to protect public health while getting economies going again. That includes tactics like installing plexiglass barriers, requiring people to wear masks in stores and other venues, using good ventilation systems and keeping windows open when possible.” Hernandez, Daniela, et. al. “How Exactly Do You Catch COVID-19? There is a Growing Consensus.” WSJ. June 16, 2020. It will be interesting to see if the plexiglass remains once the pandemic ends. The plexiglass and masks also helps prevent the transmission of the flu, colds, and other transmittable illnesses. Such efforts increase our safety.

Asians commonly wore masks before the pandemic to prevent the transmission of illness when sick. Perhaps we should follow their lead post pandemic and wear masks when we go out in public and have a cold or other transmittable disease and are going on a plane or any other public transportation. It would be great if we were able to further mitigate the spread of the flu, etc. in the future.

Good News for Oil

Finally, an improved global oil market will have a positive effect on the global economy. The need for stability in oil prices helped solidify the agreement to reduce global supply. “The emergence in recent weeks of parts of the global economy from coronavirus lockdowns that did unparalleled damage to global economic growth has spurred a recovery in crude demand. China’s oil demand in April was almost back at levels seen a year previously and Indian demand climbed in May. If that resurgence persists and oil-producing nations stick to their plans to constrict global oil supply, “the market will be on a more stable footing by the end of the second half [of 2020],” the IEA said in its report… IEA forecasts demand in 2021 will rebound by a record 5.7 million barrels a day.” Hodari, David. “Oil Demand is Headed for Record Rebound in 2021.” WSJ. June 16, 2020. As the global economy recovers from the pandemic, demand for oil will also continue to recover. Pending the continued coordinated agreement to reduce the oil supply and increased demand, oil prices will continue to stabilize and eventually rise.

Financial Education for Kids of All Ages

Jackson National has some fun and financial educational cartoons/animated episodes as part of their Cha Ching series that you can share with the favorite young people in your life. Please click here for a link on my website to share those fun videos with your young family/friends.

Miss a Previous Email from the COVID-19 Pandemic Recovery Series?

Please click here for a link to all the previous emails that I've sent out during the COVID-19 Pandemic Recovery. Please share them with your friends and family. If anyone you know has questions about the market, their portfolios, saving, investing, etc., please let me know. With their permission, I would be honored to call them.

Upcoming Seminars

I hope you will join us for this month's virtual seminar on Tuesday, June 23rd from 11:30am - 1pm. Attached is a copy of the invitation. Mark Doremus, Regional Director with Hines Securities, will discuss Hines Global Income Trust REIT and Denise Davis, a Docent with the Dallas Arboretum, will present an update on gardens at the Dallas Arboretum.

In July, Brian Perkes, Vice President with Advisors Asset Management, will present the Power of e-Commerce and Rick Williams, a Texas Certified Nursery Professional & Texas Master Gardener, will present Trees at the Dallas Arboretum. The July seminar will be held on Tuesday, July 21st from 11:30am-1pm.

Steve Alley, President of Alley Company, will present the program on Tuesday, August 18th from 11:30am-1pm. Alley Company is my favorite outside money manager. We will have a second speaker, as well. I will be able to announce his presentation info soon. You won’t want to miss either presentation!

And I’m already working on September! Hopefully by September we will be able to resume live lunch seminars at the Park City Club. However, whenever we resume lunch seminars, we will continue to stream the seminar presentation virtually so you don’t have to be physically present to attend and participate.

Thank you for reading!

That's all for this week. I hope you and your loved ones are staying safe. Take care!

Best regards,

Happy Franklin

Financial Advisor

the uncommonly happy financial advisor

Best wishes for a happy, healthy, & prosperous summer! Cheers!

Best regards,

Happy Franklin

Financial Advisor

When the details matter...

 Happy Lane Franklin

Certified Divorce Financial Analyst

Accredited Asset Management Specialist 

Chartered Retirement Planning Specialist 

Accredited Wealth Management Advisor

Hilltop Securities Independent Network

https://www.happyfranklin.com/

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