Market showing resiliency in some sectors

Posted by Michael Aloian on Aug 3, 2020 10:31:08 AM
    

Despite the concerns about strained relations with China, increased COVID infections, social protests, weaker earnings, high U.S. unemployment and the November election, the S&P 500 Index is up 1% for the year while the Nasdaq Index is up 19.7%. The increasing spread of the virus is suppressing a healthy economic recovery as consumers and businesses remain conservative in their spending. U.S. leadership in Washington is debating another stimulus package. Most likely this new stimulus will lengthen unemployment benefits, provide potential small business support and may even offer state and municipal government aid. Even in a divisive election year, the probability is that some stimulus package will be negotiated before Congress goes on August recess.

The Federal Reserve has indicated that they are willing to support the economy in any way they can citing the strong headwinds of the virus. They will undoubtedly buy more bonds and support the liquidity of the markets. Their support of the short-term and long-term fixed income market has kept interest rates below the subdued 1.2% inflation rate with the 10-Year U.S. Treasury bond now yielding 0.55%.

Equity investor sentiment has improved, also due to better than expected corporate earnings reports. Recent earnings releases for high-quality technology, discretionary and healthcare sector stocks have demonstrated resiliency to the economic lockdown. Energy, basic materials and utility company earnings have been generally disappointing. Metals like gold and silver are rising based on investors seeking safe-haven assets.

The S&P 500 Index has gained 46% since the March 23 bottom and this move should moderate until we see more corporate revenue and earnings growth. The rotation to value stocks may become more prevalent over the summer since growth and momentum stocks have stretched valuations. The S&P 5 (Apple, Amazon, Alphabet, Facebook and Microsoft) all have had strong equity performance and earnings reflecting the success of the digital economy. The banking, real estate and industrial sectors are lagging, but likely will have a better second half of the year. Since bonds offer little real return after inflation, these sustainable, high-quality dividend stocks will become more important to investors.

Although it is too early to consider the November election effects on the markets, we have to ask what will happen if there is a Democratic sweep? The presidential election is most likely going to be close and there will undoubtedly be some uncertainty about the vote count. We should remember that over the past 100 years, stocks have performed better under Democratic presidents than Republican presidents. Nevertheless, this is an unusual year with progressive discussions focused on more corporate regulation, higher corporate taxes, new social programs, police reform and sustainable energy. The next 100 days will undoubtedly be an interesting time.

I hope you and your family stay healthy and have a great remainder of the summer!

Posted by Michael Aloian

Michael oversees the people and policies of the Trust and Investment Management Services Department and manages the individual investment holdings of Crews Bank & Trust’s Trust clients. His clients include individuals, families, foundations, and institutions throughout the state of Florida.

Michael's education includes:
Bachelor of Arts in Economics, Harvard University, Cambridge, MA, 1982
Investment Portfolio Manager and Research Analyst since 1983
Graduate of the Florida Bankers Association Trust School, University of South Florida, Tampa, FL
Series 65 - Registered Investment Advisor
Series 52 - Municipal Securities Representative

Board member:
Florida Bankers Association, Florida Bankers Educational Foundation
Member, CFA (Chartered Financial Analyst) Institute

Michael serves on the Tampa Bay Committee on Foreign Relations and is a member of the CFA (Chartered Financial Analyst) Institute. He is immediate past-chairman of the Board of Directors for the Historic Bok Tower Gardens in Lake Wales, for which he now serves on the Investment Committee. He is a former president of both the Harvard Club of Central Florida and the Harvard Club of the West Coast of Florida. Michael is a 2005 Graduate of Leadership Tampa Bay.

Topics: Market Update, Investment, Retirement, Business, Real Estate, COVID-19