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Weekly Market Commentary (June 18, 2020)

 
The Markets
 
The Nasdaq Composite dipped its toes into record territory last week before retreating.
 
Stock indices in the United States rallied early last week on optimism about the reopening of businesses across the country. The Nasdaq Composite rose to 10,000 for the first time ever, before tumbling lower.
 
On Wednesday, the United States Federal Reserve (Fed) economic projections showed U.S. economic growth declining 6.5 percent this year with unemployment receding to 9.3 percent. In 2021, the Fed expects economic growth to improve, increasing by 5 percent, while unemployment ebbs to 6.5 percent.
 
Fed Chair Jerome Powell said:
 
"The extent of the downturn and the pace of recovery remain extraordinarily uncertain and will depend in large part on our success in containing the virus. We all want to get back to normal, but a full recovery is unlikely to occur until people are confident that it is safe to reengage in a broad range of activities. The severity of the downturn will also depend on the policy actions taken at all levels of government to provide relief and to support the recovery when the public health crisis passes."
 
Powell indicated low income workers have been hit hardest in this recession and Congress may need to take additional action to help improve the labor situation in the United States.
 
News that the number of confirmed coronavirus cases had risen in several U.S. states, as well as other countries, coupled with the Fed's modest outlook for the pace of recovery, appeared to kindle investor anxiety and U.S. stocks sold off sharply on Thursday.
 
By Friday, major indices had recouped some losses, but finished lower for the week.
 

Data as of 6/12/20
1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) -4.8% -5.9% 5.6% 7.8% 7.8% 10.8%
Dow Jones Global ex-U.S. -3.5 -12.5 -5.2 -1.4 -0.6 2.3
10-year Treasury Note (Yield Only) 0.7 NA 2.1 2.2 2.4 3.3
Gold (per ounce) 3.0 13.8 30.1 11.0 7.9 3.5
Bloomberg Commodity Index -1.5 -21.2 -17.4 -7.9 -8.7 -6.7
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
 
How does volatility impact your choices? When it comes to investing, people tend to have short memories. During bull markets, as stock values push higher, many investors want to increase their exposure to stocks. Why wouldn't they? When volatility is relatively low, it can be difficult for investors to recall why they limited their exposure to higher risk assets.
 
Similarly, when a bear market arrives and volatility increases, investors often want to retreat to the safety of more conservative investments. After all, when volatility increases and stock values fluctuate dramatically, it can be difficult for investors to recall why they chose to invest any portion of their portfolios in stocks.
 
The fact is, investors often fall prey to a phenomenon known as recency bias. People tend to believe what is happening now will continue to occur in the future. It won't. The economy tends to cycle from expansion to contraction and back to expansion. Stock markets tend to cycle from bull markets to bear markets and back to bull markets. Periods of high volatility tend to be followed by periods of low volatility.
 
We are all susceptible to recency bias and other behaviors that can undermine investment success. In their research paper, The Behavior of Individual Investors, Brad Barber and Terrance Odean concluded:
 
"The investors who inhabit the real world and those who populate academic models are distant cousins. In theory, investors hold well diversified portfolios and trade infrequently so as to minimize taxes and other investment costs. In practice, investors behave differently. They trade frequently and have perverse stock selection ability, incurring unnecessary investment costs and return losses. They tend to sell their winners and hold their losers, generating unnecessary tax liabilities. Many hold poorly diversified portfolios, resulting in unnecessarily high levels of diversifiable risk, and many are unduly influenced by media and past experience."
 
Recent volatility could cause you to question your investment choices. We maintain that our strategy and portfolio allocation support your goals and risk tolerance. Rest assured we have our eye on the prize for you.
 
Weekly Focus - Think About It
 
"The psychology of individuals - warts and all - must be a central consideration in the formulation of any practical investing approach. The good news here is that others' misbehavior will consistently and systematically create opportunities for you. The bad news is that you are prone to all of the same quirks and are just as likely, in the absence of strict adherence to the rules, to create the same opportunities for others."
                                                                                                                                                                                                              --Daniel Crosby, Psychologist and author
 
Best regards,
 
Lee Barczak
President
 
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate. *Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features. * The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index. * The Standard & Poor's 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. * The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index. * The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market. * Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce. * The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. * The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones. * Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. * Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. * Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. * Past performance does not guarantee future results. Investing involves risk, including loss of principal. * You cannot invest directly in an index. * Consult your financial professional before making any investment decision.
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Weekly Market Commentary (June 11, 2020)

The Markets
 
The employment report electrified U.S. stock markets last week.
 
American stock markets responded enthusiastically to the news U.S. unemployment was 13.3 percent in May. If it seems inexplicable double-digit unemployment would thrill investors, there is a reason. The unemployment rate in April was higher at 14.7 percent, and analysts had forecast the rate in May would jump to 19.1 percent. All in all, that makes 13.3 percent look pretty attractive.
 
There were some caveats.
 
First, "If the workers who were recorded as employed but absent from work due to 'other reasons'... had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported," explained the Bureau of Labor Statistics (BLS). The same would have been true of April's numbers, so it's a wash. Month-to-month, the numbers dropped.
 
Second, there is more than one measure of unemployment. U3 measures people who are unemployed and seeking work. U6 includes unemployed, underemployed (part-time workers who want to be working full-time), and discouraged workers. It's usually a higher number. The May Employment Summary Report showed U6 unemployment was 21.2 percent, down from 22.8 percent in April. That suggests about one-in-five Americans is not working as much as they would like to be.
 
The BLS wrote the improvement in unemployment reflected, "...a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic and efforts to contain it." The biggest job gains were in leisure and hospitality, construction, education and health services, and retail trade.
 
The lower month-to-month numbers may be a sign the Paycheck Protection Program (PPP) worked:
 
"...give some credit to the government relief efforts, especially the [PPP], for bringing back jobs. The program gave relief to small businesses...through loans that would not have to be paid back if most of the money went to rehire and pay employees. PPP money had to be used right away, and a lot of it started hitting small businesses' bank accounts in late April and early May, which ended up triggering a net gain of 2.5 million jobs in May," reported Heather Long of The Washington Post.
 
Eurozone stocks rallied last week, too, after the European Central Bank increased its quantitative easing program and extended support to June 2021, reported Dhara Ranasinghe and Yoruk Bahceli of Reuters.
 
Major U.S. indices and U.S. Treasury yields finished the week higher.
 

Data as of 6/5/20
1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) 4.9% -1.1% 9.5% 8.8% 7.6% 11.8%
Dow Jones Global ex-U.S. 7.1 -9.3 0.0 -0.6 0.3 3.2
10-year Treasury Note (Yield Only) 0.9 NA 1.9 2.1 2.4 3.2
Gold (per ounce) -2.6 10.5 26.1 9.6 7.7 3.3
Bloomberg Commodity Index 1.8 -20.0 -15.4 -7.6 -8.4 -6.2
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
 
Necessity is the mother of invention. The silver lining of the COVID-19 cloud may be innovation. From healthcare to retail, people and companies have been identifying problems and finding ways to solve them:
 
  • How much toilet paper is enough toilet paper? As consumers cleared shelves of toilet paper, a company in Germany developed a toilet paper calculator to help determine how much is enough. "A person with a stockpile of 10 rolls, who uses the typical amount of paper three times a day, should survive for 53 days...39 days longer than the recommended 14-day quarantine for those with symptoms," reported Reuters.
 
  • Ingenious respirator solutions. Early in the crisis a dearth of respirators handicapped healthcare workers' ability to support patients with serious cases of COVID-19. Many companies developed alternatives. One company, "...built a simple but effective ventilator from a windshield wiper motor and a pliable [hand-operated resuscitator]," reported Eric Haseltine in Psychology Today.
 
  • Where's Waldo's fever? An artificial intelligence firm that creates tools to detect threats of violence revamped its analytics software so thermal cameras can measure the temperature of a person's forehead and send out an alarm when a fever is detected.
 
  • Gear 'Q' would have loved. A California company held a month-long contest, asking participants to suggest practical devices for a COVID-19 world. Entries "...poured in, including a wrist-mounted disinfectant sprayer, half gloves for knuckle-pushing of buttons and a device that lets you open car doors without touching the handle, aimed at cab users," reported Reuters.
 
Weekly Focus - Think About It
 
"A rock pile ceases to be a rock pile the moment a single man contemplates it, bearing within him the image of a cathedral."
                                 
                                                     --Antoine de Saint-Exupéry, writer and poet
 
Best regards,
Lee Barczak
President
 
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate. *Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features. * The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index. * The Standard & Poor's 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. * The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index. * The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market. * Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce. * The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. * The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones. * Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. * Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. * Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. * Past performance does not guarantee future results. Investing involves risk, including loss of principal. * You cannot invest directly in an index. * Consult your financial professional before making any investment decision.
Morgan Kenwood Advisors
5130 West Loomis Road, Greendale, Wisconsin 53129
Phone: (414) 423-4020
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Weekly Market Commentary (June 5, 2020)

The Markets
 
Are those green shoots?
 
In economic terms, green shoots are signs of improvement. If you were paying close attention, you might have seen some in economic data released last week.
 
They weren't apparent in the Bureau of Labor Statistics report on the United States economy. Gross domestic product (GDP), which is the value of all goods and services produced in our country, shrank by 5 percent during the first quarter of 2020. The contraction reflected lower spending by Americans and American businesses due to COVID-19. The Congressional Budget Office (CBO) estimated:
 
"...from March 21 to March 31, when many social distancing measures were in place, spending may have been down by almost 28 percent as a result of the pandemic; spending on accommodations and restaurants declined by 60 percent to 80 percent; and spending for some goods (such as clothing) dropped by similar amounts."
 
Spoiler alert: The numbers for the second quarter are expected to be far worse. However, economic growth is expected to bounce as consumer spending, which accounts for two-thirds of GDP, resumes.
 
The green shoots were found in unemployment. As businesses reopened and shelter-in-place orders eased, the U.S. unemployment rate dropped to 14.5 percent during the week of May 16 from 17.1 percent the previous week, according to the Department of Labor.
 
Green shoots were also sprouting from the University of Michigan's May Consumer Sentiment Survey, which reported "...a growing number of consumers expected the economy to improve from its recent standstill..." The Index of Consumer Sentiment ticked higher from April to May.
 
The United States experienced highs and lows last week. A NASA public-private partnership launched the Dragon capsule into orbit. Its astronauts are headed for the International Space Station. Meanwhile, down on Earth, protests for justice in the death of George Floyd devolved into rioting.
 
Major U.S. indices finished the week higher.
 

Data as of 5/29/20
1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) 3.0% -5.8% 9.4% 8.1% 7.6% 11.0%
Dow Jones Global ex-U.S. 4.4 -15.4 -5.3 -2.5 -1.4 2.2
10-year Treasury Note (Yield Only) 0.7 NA 2.2 2.2 2.1 3.3
Gold (per ounce) -0.3 13.5 35.9 11.0 7.7 3.5
Bloomberg Commodity Index 1.3 -21.5 -20.0 -8.6 -8.8 -6.5
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
 
FYI: It's June! One side effect of COVID-19 quarantine is losing track of days. When routines are disrupted and recurring activities that distinguish one day from the next are discontinued, it can be difficult to know whether it's Monday or Thursday.
 
Fortunately, the United States has enough national holidays to clearly delineate one day from the next. Here is a list of some June holidays to help you keep track of days:
 
June 1: World Reef Awareness Day
June 2: National Bubba Day
June 3: National Running Day
June 4: National SAFE Day
June 5: National Doughnut Day
June 6: D-Day - remembering the day Allied troops landed on the beaches of Normandy
June 7: National Cancer Survivor's Day
June 8: National Best Friends Day
June 9: National Earl Day
June 10: National Iced Tea Day
June 11: National Making Life Beautiful Day
June 12: National Loving Day
June 13: National Kitchen Klutzes of America Day
June 14: National Flag Day and the Birthday of the U.S. Army
June 15: National Smile Power Day
June 16: National Fudge Day
June 17: National Eat Your Vegetables Day
June 18: National Go Fishing Day
June 19: Juneteenth - commemorating the end of slavery
June 20: Summer Solstice - the start of summer in the Northern Hemisphere
June 21: Father's Day - celebrating dear old dad
June 22: National Chocolate Eclair Day
June 23: National Pink Day
June 24: National Parchment Day
June 25: National Leon Day
June 26: Take Your Dog to Work Day
June 27: National PTSD Awareness Day
June 28: National Logistics Day
June 29: National Waffle Iron Day
June 30: Social Media Day (As if that weren't every day!)
 
By the end of June, we should be on our way to a new normal and able to use the coronavirus lockdown as a point of reference for tracking events.
 
Weekly Focus - Think About It
 
"Whenever any American's life is taken by another American unnecessarily - whether it is done in the name of the law or in the defiance of law, by one man or a gang, in cold blood or in passion, in an attack of violence or in response to violence - whenever we tear at the fabric of life which another man has painfully and clumsily woven for himself and his children, the whole nation is degraded."
--Robert Kennedy, Former U.S. Attorney General
 
Best regards,
Lee Barczak
President
 
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate. *Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features. * The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index. * The Standard & Poor's 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. * The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index. * The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market. * Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce. * The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. * The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones. * Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. * Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. * Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. * Past performance does not guarantee future results. Investing involves risk, including loss of principal. * You cannot invest directly in an index. * Consult your financial professional before making any investment decision.
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Weekly Commentary (May 26, 2020)

The Markets
 
It was a good week for stock markets in the United States, but there was trouble in Asia.
 
U.S. stock markets rallied last week. The Dow Jones Industrial Average, Standard & Poor's 500 Index, and Nasdaq Composite all gained more than 3 percent, reported Ben Levisohn of Barron's.
 
Investors had plenty of fuel for optimism early in the week. On Sunday, Federal Reserve Chair Jerome Powell struck a positive tone during his 60 Minutes interview stating, "The big thing we have to avoid...is a second wave of the virus. But if we do, then the economy can continue to recover. We'll see GDP move back up after the very low numbers of this quarter. We'll see unemployment come down. But I think though it'll be a while before we really feel well recovered."
 
On Monday, there was news early testing of a potential vaccine had delivered promising results, and the vaccine company's stock shot higher. The report was tarnished when top executives sold shares the next day, and a respected medical website indicated the published results meant little, reported John Authers in Bloomberg Opinion.
 
Positive momentum slowed later in the week when China indicated it will impose national security laws on Hong Kong. Reshma Kapadia of Barron's reported, "While the risks have ratcheted higher, it isn't clear yet whether the new security laws will destroy Hong Kong's ability to act as a financial center. What that could mean for investors will probably play out over the next couple of months."
 
Hong Kong's Hang Seng index closed down 5.6 percent, reported Financial Times (FT). That was the index's worst one-day performance in almost five years.
 
China's leadership also declined to set a gross domestic product (GDP) target for the first time ever. GDP is the value of all goods and services produced in a nation. The decision led to a decline in mainland China's CSI 300 index of Shanghai and Shenzhen-listed stocks, reported FT.
 
Data as of 5/22/20 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) 3.2% -8.5% 3.5% 7.3% 6.8% 10.7%
Dow Jones Global ex-U.S. 2.3 -18. -10.5 -3.9 -2.7 1.9
10-year Treasury Note (Yield Only) 0.7 NA 2.4 2.3 2.1 3.2
Gold (per ounce) -0.1 13.8 36.1 11.3 7.6 3.9
Bloomberg Commodity Index 1.8 -22.4 -20.5 -9.7 -9.4 -6.6
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
 
HOW IMPORTANT ARE SMALL BUSINESSES? In April, the Federal Reserve Bank of New York (FRBNY) surveyed U.S. small businesses. It reported, late in 2019, before the coronavirus crisis, 35 percent were healthy, 35 percent were stable, 23 percent were at risk, and 6 percent were in distress.
 
Having a preponderance of healthy and stable small companies is a positive economic sign because, as Lisa Beilfuss of Barron's explained, small companies: 
  • Employ about 50 percent of American workers
  • Produce about 50 percent of U.S. GDP
  • Generate 40 percent of total business revenue
 Simply put, small businesses are an essential part of the American economy.
 
The FRBNY survey also noted few small businesses had deep cash reserves. In fact, it estimated just one in five healthy small companies could survive a two-month revenue loss. In such circumstances, "A majority of small businesses would be likely to reduce their workforce and operations, or delay payments. Many firms would rely on personal funds or debt to bridge the gap."
 
As you might imagine (and may have experienced), the coronavirus crisis has exacted a heavy toll on small businesses. Forty-three percent were temporarily closed by April 2020, according to a survey conducted by the National Bureau of Economic Research (NBER). Others had modified operations to meet social distancing and other COVID-19 safety guidelines.
 
In an effort to help small businesses, Congress, the President, and the Small Business Administration have passed fiscal stimulus measures. The Federal Reserve is providing monetary stimulus. Despite these efforts, the future of small companies remains uncertain.
 
Byrne Hobart of The Diff, a newsletter that tracks inflection points in finance and technology, believes diverse outcomes are possible:
 
"The pessimistic one is front-end corporatization: small businesses just evaporate, their real estate is taken over by big companies, and (some of) their employees find new jobs at these companies...Here's the good one. Those same local businesses are running down their cash reserves, but lenders are banging down the door with a crazy offer: borrow enough to meet payroll now, pay nothing - until business starts coming back...[Lenders get] more involved in the borrower's business - get them good bookkeeping software and a modern point-of-sale system. Band together a bunch of borrowers and start negotiating with suppliers and landlords. In short, use software economics to give small businesses the same economies of scale that large ones already benefit from."
 
It's possible we could see both situations occur.
 
Weekly Focus - Think About It
 
"Now the commencement speakers will typically also wish you good luck and extend good wishes to you. I will not do that, and I'll tell you why. From time to time in the years to come, I hope you will be treated unfairly, so that you will come to know the value of justice...I wish you bad luck, again, from time to time so that you will be conscious of the role of chance in life and understand that your success is not completely deserved and that the failure of others is not completely deserved either...Whether I wish these things or not, they're going to happen. And whether you benefit from them or not will depend upon your ability to see the message in your misfortunes."
--John Roberts, U.S. Supreme Court Chief Justice
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Weekly Market Commentary (May 21, 2020)

 
The Markets
 
 America is reopening, state by state.
 
That's welcome news for many businesses, but we're far from business as usual. Last week's economic news included unemployment hitting an 80-year high, a record drop in retail sales (-16.4 percent), and an unprecedented decline in industrial production (-11.2 percent).
 
Weak consumer demand is also a concern, according to Matthew Klein of Barron's. "...The pandemic has lowered consumer demand much more than it has damaged productive capacity. It's much easier to bring factories back online than it is to get customers back into shops and auto dealerships...Unless consumption rebounds quickly, the world will soon be faced with an unprecedented glut of goods that can't be sold."
 
Some households may be able to sustain or increase consumption because of generous unemployment benefits. The Coronavirus Aid, Relief, and Economic Security (CARES) Act increased unemployment benefits by $600 per week. The intent was to provide Americans, who were out of work because of the pandemic, with income equal to the national average salary of $970 per week, reported Amelia Thomson-DeVeaux of FiveThirtyEight.
 
As it turns out, about 68 percent of those filing for unemployment - teachers, construction workers, medical assistants, food service workers, and others - are receiving more money through unemployment than they did from employers.
 
An analysis conducted by economists at the University of Chicago, and cited by FiveThirtyEight, found, "...the estimated median replacement rate - the share of a worker's original weekly salary that is being replaced by unemployment benefits - is 134 percent, or more than one-third above their original wage."
 
In recent weeks, the number of unemployed workers has grown to about 36 million, according to CBS News. Unusually high unemployment combined with unusually high unemployment benefits may mean some Americans may have more money to spend than they might have had otherwise. The combination could improve demand for goods. It also could make it more difficult for employers to persuade employees to return to work.
 
Last week, major U.S. stock indices finished lower. A few of you have asked questions when noting the 10 years average of the S&P 500 is at a healthy 9.7%. Keep in mind to get this return on a portfolio, one would need to have 100% of your portfolio in this index. This is considered speculative.
 

Data as of 5/15/20
1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) -2.3% -11.4% 0.5% 6.0% 6.2% 9.7%
Dow Jones Global ex-U.S. -2.6 -20.7 -12.9 -4.5 -3.2 1.3
10-year Treasury Note (Yield Only) 0.6 NA 2.4 2.3 2.1 3.5
Gold (per ounce) 1.8 13.9 33.6 12.1 7.3 3.5
Bloomberg Commodity Index -1.1 -23.8 -22.6 -9.6 -10.2 -6.8
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
 
Öffnungsdiskussionsorgien. The German language boasts many unique words with oddly specific meanings. You may be familiar with some German words that have become part of the English language such as schadenfreude (finding joy in other people's trouble), wanderlust (an impulse to travel the world), and weltschmerz (sadness about the state of the world).
 
Amanda Sloat of ForeignPolicy (FP) reported the Germans have invented a new word to describe debates about when and how to reopen the world: Öffnungsdiskussionsorgien.
 
The goal of many leaders around the world is to minimize infection, minimize death, and minimize economic hardship. It's a tall order and there is no 'right' answer. One thing is clear, though. People who have been on lockdown, no matter which country they reside in, have cabin fever. FP reported:
 
"An American expat in Spain promised her teary tween that for her 12th birthday she could help take the trash 50 yards to a communal receptacle across the courtyard; that special gift was scrapped after a police car parked nearby. To take advantage of exemptions allowing owners to walk their pets, one person in Romania took his fish on a walk, while a young woman put her cat in a bag to justify a trip to the mall."
 
In the United States, Buzzfeed and BoredPanda have reported on an abundance of pandemic jokes and memes. Americans have watched Michigan's Father Tim Pelc use a squirt gun of holy water to bless Easter baskets from a socially safe distance. We've also been alerted to the possibility of a baby boom that will yield Quaranteens in 2033 and endless rounds of toilet paper jokes.
 
Weekly Focus - Think About It
 
"The future belongs to those who believe in the beauty of their dreams."
                   --Eleanor Roosevelt, Former First Lady, diplomat, and activist
 
Best regards,
Lee Barczak
President
 
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