Markets “In a Nutshell” for June 23, 2020
Investment Week at a Glance
Stocks finished up for the week. The Dow Jones Industrial Average was up 1.04%, the S&P 500 rose 1.86%, the New York Stock Exchange Composite (2,000 stocks) rose 0.95% and the average investors index (Value Line Index) was up 0.94%. Foreign stocks (DJ Global ex U.S.) were up 1.86%. Bond prices were higher for the week, with the 10-year U.S. Treasury ending the week 1 basis point lower at 0.70%. (Data source: Wall Street Journal)
Stocks Cautiously Rise
U.S. stocks rose over 1% on many of the most commonly referenced indexes, but have begun to show their restraint after a sharp rise from the mid-March lows. Stocks, by many metrics, are only slightly below where their prices were at the beginning of the year and many technology stocks that have benefited from stay-at-home policies have soared this year. As states have begun the process of reopening, questions are now arising on how the recovery will look and affect different parts of the economy. Economic data has already begun to bounce back and show that a recovery is seemingly taking place, but the pace of the recovery won’t be able to be determined until for at least a couple of months. While there are a number of reasons why stocks have climbed higher in the past couple of months, an expectation that the economy will fully recover in the coming years is certainly one of the main reasons. (Barron’s)
Is Tech the New Defense?
With many investors having clear memories of the dot-com bubble in the late ‘90s and early 2000’s, it’s perplexing today how valuations for technology stocks can be so high, but still perform so well. The tech heavy Nasdaq index has actually generated a positive return for the year and are showing, in the midst of the worst economic downturn since the Great Depression, that they have some of the best defensive qualities in the market. Despite many of the stocks having actually benefited from the stay-at-home policies, much of the tech sector has greatly shored up their finances compared to the dot-com era and companies like Apple, Microsoft and Amazon have been able to back up the enormous returns they have generated in the past decade by greatly increasing sustainable revenues. It will be interesting to see how technology stocks perform coming out of the recession to see if the narrative of growth stocks outperforming value stocks will accelerate or if there will be a reversal of the cycle to value outperformance. (Barron’s)
In the World Bank’s annual report released last week, what percentage of countries are estimated to have a drop in economic output this year?
Have a Great Week!
4. The World Bank estimates that 93% of countries will see a drop in economic output this year. For comparison, 60% of countries reported drops in economic output in the financial crisis of 2009 and 80% did during the Great Depression. (Barron’s).