Today’s Market Report: What You Need to Know
Many factors are at play as we look to today’s market report. In June, the Dow Jones and many Energy stocks were negative, while Technology stocks and the S&P 500 were positive. Overall, it was a mixed month for the major indexes. Our Stock Rotation portfolio is invested in stocks and stock-based ETFs, and that experienced some volatility because of how heavily it was invested in Energy stocks. On the other hand, our Conservative and Moderate portfolios were positive for the month. Since we updated our trading strategy on 4/1/2021, our portfolios have performed well. We encourage you to review your personal investments statements, read today’s market report, and call us with any questions.
Is This Typical “Year 2” Behavior?
The stock market dropped very quickly after Covid shut down the economy in February of 2020. Afterward, the stock market rebounded fairly quickly. Many economists believe that the Covid drop was the conclusion of a bear market, and a new bull market started in April of 2020. In our experience and based upon our research, the first year of a bull market is typically perfect for the stock market, and most areas of the stock market tend to perform well. However, the second year of a bull market generally is a more challenging environment. History has shown there to be clear winners and losers, and leadership can change very quickly. Simply put: It’s usually messy.
Making Sense of Today’s Market Report
For example, from 6/4/2021 until 6/18/2021, the Dow Jones index dropped 1,466.31 points, or 4.2% (Source: https://finance.yahoo.com/quote/%5EDJI?p=%5EDJI). During that same time, the technology-heavy Nasdaq index rose 1.56% (Source: https://finance.yahoo.com/quote/%5EIXIC?p=%5EIXIC). Technology had been underperforming for months before these two weeks. That is a vast disparity, but this sort of movement is unfortunately common during the second year of a bull market, in our opinion. Despite all of this, since we changed our research process on 4/1/2021, our portfolios have performed well, given the circumstances. We encourage you to look at your statements to review the performance and give us a call to discuss it if you have any questions.
More to Consider About Today’s Market Report
There will be a point when the stock market needs to take a breather. It may lose 5-10% quickly, and that may very well happen at some point this summer, but we’re most likely going to view that as a buying opportunity as we are optimistic about the fall and holiday shopping season. So here is an updated list of our reasons to be optimistic, despite short term volatility:
- President Biden and congress appear to be getting closer to a bipartisan infrastructure plan that would include one billion in new spending. He is also open to not raising taxes on corporations as previously planned. Since the assumption is that taxes would increase, this is a positive development. Between the additional spending and pause on corporate tax increases, this could be a tremendous stimulus package for the stock market.
- Compared to the highest peak on January 10th of 2021 (252,166 infections), the current 7-day average has decreased 95.5% (11,343 infections) (Source: https://www.cdc.gov/coronavirus/2019-ncov/covid-data/covidview/index.html). While there is a lot of concern in the medical community about the new Delta variant, the vaccines appear to help prevent both ICU visits and death. At the same time, some people may experience mild symptoms despite being vaccinated. Overall, the US is experiencing nothing like what India experienced a couple of months ago when the Delta variant expanded rapidly. The economy continues to re-open as more people get back to work, dine out, shop, travel, and generally spend more. In addition, younger age groups nationwide now have the opportunity to get vaccinated, which can reduce both infections and deaths moving forward.
- Corporate profits are calculated year over year. Corporations will begin reporting their earnings for 2021 versus the Covid ravaged 2020 numbers in the next three months. We are optimistic the results for the 2nd quarter will be good.
- The Federal Reserve has been printing money and buying investments with it, commonly called Quantitative Easing. This is very accommodative to investors and is one of the reasons the market rebounded last year after Covid first hit. We’re watching the Federal Reserve and the Federal Government for signs that they will tighten the money supply to likely influence the markets.
- Demographics will continue to be a tailwind for the next 15-20 years, the same way the stock market roared up in the 1980s and 1990s. Generation X is firmly in its peak spending years, and the Millennial generation (which is larger than the baby boomer generation) is entering its peak spending years. When we study this data over hundreds of years, we find that a country that has a significant portion of its population in its peak spending years is perfect for the economy and stock markets. As a result, we believe this tailwind will aid the stock market in 2021 and years to come.
What This Means for Your Investments
There are many interesting points to consider when analyzing today’s market report. Because of these optimistic points, we hold stock positions in our portfolio. In addition, recent market activity points to the potential for new all-time highs in the market. However, if you’d like to discuss how your portfolio is positioned from a risk standpoint, please reach out to us right away. In addition, if you’ve had any changes to your income, job status, 401K options, address, or any other financial changes, please get in touch with Summit Financial right away.
We Are Here to Help
If you found this article helpful, consider reading our recent posts on Inflation, Capital Gains Tax, and Meme Stocks. We’ll continue to monitor your investments daily and do everything in our power to protect and grow your accounts.
Bob, Ken, Jim, and Zach