Neutral. July is the best month of the third quarter, but bulk of gains are in first half of month. July is historically weaker in election years. NASDAQ’s midyear rally lasts until July 14 this year. July is the first month of NASDAQ’s “Worst Four Months” and the third month of DJIA & S&P 500 “Worst Six Months.”
Disconnected. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors are up to 57.3%. Correction advisors stand at 24.3% while Bearish advisors have slipped to 18.4%. Shortest bear market in history, unprecedented amounts of fiscal and monetary stimulus are key reasons to be bullish. What if the Fed’s projections are right and the economy doesn’t sharply rebound? What about spiking covid-19 cases? Markets appear priced for the best case scenario while paying little attention to anything else.
Fuzzy. Weekly jobless claims are still running in the millions even as the economy is broadly reopening. Q2 GDP is estimated to have fallen 46.6% according to the Atlanta Fed’s GDPNow model. Despite these numbers, the worst is most likely over. That’s the good news. The bad news is the economic recovery is not likely going to be as quick as the market’s rebound. Covid-19 is still spreading and still impacting the economy.
Divergent? NASDAQ trading at new all-time highs while DJIA and S&P 500 struggle. This time the divergence is indicative of the overall economy. Some areas have held up nicely and even flourished while other areas are still on life support. As the economy mends the divide is likely to close. Until that time additional gains could be limited, and the major indexes could find themselves range-bound.
0 – 0.25%. At its June meeting the Fed reaffirmed its commitment to using its full range of monetary policy tools to support the U.S. economy. The nearest the Fed got to surprising its followers was in its Summary of Economic Projections material were its median and central tendency for Fed funds was projected to remain near zero through 2022. Expectations of a “v-shaped” economic recovery don’t fit that projection well.