Market Strategy 6/29/2020

Key Takeaways

• A holiday-abridged week is jam packed with key economic reports and the appearance of the Fed Chairman and Treasury Secretary to advocate for another fiscal policy initiative.
• Last week stocks gave back some of their recent gains on a resurgence of the Covid-19 virus in several states.
• Markets are likely to remain dependent this week on economic data and any progress in tamping down the virus flare ups.
• Last week’s economic data suggested resilience in the US economy that in our view was not fully appreciated in news headlines.

With the benefit of hindsight officials and constituencies in several states may conclude that as right as it seemed to reopen their economies over the last few weeks those re-openings may simply have been too much, too soon, and at a pace and scale that failed to recognize the contagious tenacity of the cursed Covid-19 virus.

The re-openings that have turned problematic in our view will require reassessment of how and what needs to be done to avoid the surges in the virus that have met these first efforts. So far shutting down the taverns in a number of locales, requiring social distancing and the wearing of masks in public places appears to be the first response by officials dealing with challenged re-openings.

As residents of New York City and the immediately adjacent metropolitan region we have been humbled by the virus even if so fortunate as not to have become ill with it (so far). From our experience as citizens of “Coronaville” (our nickname for our beloved city since March of this year) we’ve heard many stories from colleagues and friends who have loved ones who have fought the dreaded virus too close to home to not practice caution. We are not epidemiologists or physicians but have spoken with enough healthcare professionals since Covid-19 emerged on the global landscape to remain alert and cautious, to wash our hands frequently, and to wear a mask and practice social distancing in public places. “Stay safe” is our mantra as well as that of members of our households, among our colleagues in business and in the community in which we live. We wish our readers all the best in coping with the challenges that remain to be navigated before we see the dream of a “post-Covid” world become a reality.

To our thinking, one thing that stands out in the stories of the re-openings is that folks were eager to get back to life as they knew it pre-Covid-19. Americans came out of sheltering in place not bowed or bent but eager to visit their favorite watering hole or restaurant, get a haircut or shop for something other than household staples. Beyond that? Many of us are looking forward to seeing our colleagues at the office at some point in the not-too-distant future (even if at a social distance).

If the news on the proverbial tape about the resurgence of Covid-19 seems too grim to bear of late we suggest that you consider watching the June 15, 2020 interview conducted by David Rubenstein (denizen of the world of private equity and creator and host of the show “Leadership Live”) of a CEO who heads one of five leading companies that are working on developing a vaccine to stem the spread of the pandemic. We found the quality and depth of the interview from a business and societal perspective not only informative but a welcome positive offset to much of the minute to minute breathless and ever so dark commentary and projections on the pandemic that has gripped the flat screen of late.

It’s a jam packed holiday abridged week for investors to contend with as Friday, July 3 is the designated “weekday off” in observance of US Independence Day, making for a long holiday weekend.

Pending home sales data and the Federal Reserve Bank of Dallas manufacturing activity gauge are scheduled to be released this morning.

Tuesday finds Fed Chair Jerome Powell and Treasury Secretary Steve Mnuchin testifying before the House Financial Services Committee; they’re looking to gain support for another round of bipartisan fiscal policy relief before the current rescue programs expire at the end of July.

Also on Tuesday a number of reports are scheduled for release including S&P Case/Schiller 20-City home prices for the month of April as well as the Conference Board’s Consumer Confidence and Consumer Expectations numbers for June.

On Wednesday investors will consider MBA mortgage application figures for the week ending June 26 and a brace of other economic data that includes the Challenger Job Cuts YOY for June and the ADP employment change figure (not always but of late a pretty good indicator of what the nonfarm payroll number might look like when it is released on Thursday, July 2).

Also on Wednesday investors will parse through the ISM manufacturing and the ISM new orders numbers for June, Construction spending for the month of May, the Fed’s FOMC minutes from the June 10th meeting, and Wards vehicle sales figures.

Thursday is the main event in the holiday abridged week with the change in nonfarm payrolls, change in private payrolls, the unemployment rate, the underemployment (U6) rate, labor force participation, average hourly earnings (YoY), initial jobless claims and continuing claims, durable goods and capital goods orders scheduled for release. It is indeed going to be a busy week

Last week’s “risk off” reaction to the resurgence of Covid-19 in Texas, Arizona, Florida and other locales in which reopenings of significant scale had begun will serve as a reality check to officials and their constituencies in the affected communities that should result in better managed reopenings and more voluntary compliance with mask protocol and social distancing.

This pandemic is a crisis unique and without precedent in which a contagious and sometimes deadly virus must be stemmed and shuttered economies must be reopened. It’s no small challenge but one that the contemporary world empowered by readily accessible technologies can likely successfully navigate if not as easily or as quickly as we’d all like.

We remain diversified in our investment portfolios; we maintain an overweight position in equities versus fixed income; and favor cyclical sectors over defensive sectors.

Our favorite sectors remain: Information technology, consumer discretionary, industrials and our contrarian pick, Financials.

From a global perspective we remain overweight US equities while maintaining meaningful exposure to both developed and emerging markets on expectations that an economic recovery stateside coming out of the Covid-19 shutdown will help boost economic growth around the world and lead to a global economic recovery similar to the one the world was experiencing just prior to the trade war between the US and China.

We wish our readers a festive and peaceful Independence Day holiday weekend. Happy July 4th!