By comparison to previous weeks, not as much has happened this week and it’s a moment of respite for many, a chance to catch our breaths.
Last Friday the new jobs report announced 2.6 million new jobs were created and the stock market rallied again. Protests for racial justice continue with hundreds of thousands of mostly young demonstrators making their feelings known all across the country. Protests were orderly and emotional during the day and a few instances of looting were reported after dark. However, over the past week demonstrations have been largely peaceful and have resulted in some reform.
The Stock Market:
Up until the jobs report was released, the stock market continued to rally until the beginning of this week. The Nasdaq continued climbing higher setting a new high while other averages pulled even for the year.
One theory on the stock market advance is that since online sports betting is not happening gamblers have found a new platform - the stock market. Retail accounts at TD Ameritrade and Schwab have increased at a much greater rate than the same time last year. How about that!
Wednesday, the Federal Reserve projected unemployment will remain very high throughout 2022 and the economy will need more fiscal and monetary help to continue recovering. Unemployment is projected to remain close to 10% through the end of 2020. GDP growth predicted by the Fed at the end of 2021 is 6.5%. The Fed’s estimate is more optimistic than the Congressional Budget Office. The Fed will keep interest rates at 0% through at least 2022. Central banks worldwide are keeping the spigot open to support markets. Projections are difficult even when the economy is strong, so who knows?
The issue of the novel coronavirus and racial justice converge around income inequality with efforts to make sure any further fiscal and monetary action emphasize Main Street and communities of color. American corporations are making statements and developing plans to take more action than increasing their profitability alone. Lots of talk and we will see if it turns into action.
American businesses continue opening up. We are moving to Phase II of the reopening which means that restaurants with outdoor seating can serve meals beginning Friday, June 12. Childcare centers are re-opening, and some school districts are discussing opening public schools in the fall. There is some caution because cases of Covid-19 are increasing in some states and in some counties in CA.
What does this mean for portfolios and expected returns? Interest rates increased last Friday with the employment report and earlier this week, they returned to last week’s yield as the stock market declined two days in a row. SAS has continued buying some Southwest Airlines bonds and some Boeing bonds where appropriate. Both offer attractive yield due to credit concerns in both cases. CA municipal bonds continue to be attractive vs. other fixed income choices. Otherwise, the strategy remains - don’t sell and nibble very selectively and in small amounts. Risk outweighs upside gains right now.
The light at the end of the tunnel is that change is in the air. ‘We can do better,’ is the future of America and shines as our beacon moving forward. Change happens over time but we are hopeful that time is now.
Quick note on the TD Ameritrade Schwab merger. Shareholders of both companies and the Department of Justice (DOJ) have approved and the merger is moving forward. Not much additional detail is available, but we expect the merger to happen before the close of the year.
Stay safe as you begin to expand your exposure to loved ones, friends and patron local businesses and places of work. We are phasing the re-opening of our local economies and should all still follow protocol for our own safety and the safety of others. Mask wearing and social distancing still appears to be our best shield against overexposure. We will get through this!
Ira and the SAS Team