July Market Update - Preparing for More Challenges

The S&P 500 gained 1.84% in June ending at 3100.29. YTD through June 30, the S&P 500 is down 4.04%. Before we review price, sentiment and valuation, I'd like to highlight two quotes from a speech Vice Chair for Supervision and Chair of the Financial Stability Board at the Federal Reserve Randal K. Quarles gave at the Exchequer Club in Washington, D.C. on July 7, 2020:

"We know that the financial system will face more challenges. The corporate sector entered the crisis with high levels of debt and has necessarily borrowed more during the event. And many households are facing bleak employment prospects. The next phase will inevitably involve an increase in non-performing loans and provisions as demand falls and some borrowers fail." 

"According to the latest International Monetary Fund forecast, the global economy is projected to contract sharply by 4.9 percent in 2020, a much worse outcome than during the 2007–08 financial crisis. While some indicators suggest a rebound in activity, the path of recovery remains highly uncertain."

The high level of uncertainty over the medium term will allow the Fed to keep rates lower for longer. I'll share more thoughts on the market and economy after we review price, sentiment and valuation.

June Market Update - Temporary Euphoria

The S&P 500 gained 4.53% in May 2020, ending at 3,044.31. YTD  through May 31, the S&P 500 is down 5.77%. Financial conditions have changed considerably since the March low. Fiscal and monetary support have contributed to a spike in U.S. large cap stocks. The chart below highlights the performance of WTI crude. It provides an example, one of many, showing the volatility investors have recently experienced:

This chart  from MarketWatch shows the performance of Crude Oil WTI (NYM $/bbl) Front Month contract, updated as of June 7, 2020. Now let's review price, sentiment, and valuation for June 2020.

May Market Update - Non-Gaussian Planning

The S&P 500 gained 12.68% in April 2020, ending at 2,912.43. YTD the S&P 500 is down 9.85%. Market return data through May 1, reveals the S&P 500 is down 16.4% since its February peak. The S&P 500 had its best monthly gain since 1987. Outside of equities we see gold had its best monthly return in nearly four years. There's a lot to cover, so let's dig into price, sentiment, and valuation as we start May 2020.

Retirement Data: Fidelity Plan Balances Q1 2020

Please click on chart to enlarge
Source: Fidelity

Fidelity Investments has over 30 million 401(k), IRA and 403(b) retirement accounts. This makes them uniquely positioned to describe the retirement savings trends of investors.

From Fidelity's press release posted April 24, 2020:

• Market downturn caused average 401(k), IRA and 403(b) balances to drop. The average 401(k) balance was $91,400, down 19% from the record high of $112,300 in Q4 2019, but still higher than Q1 2010 balance of $71,500. The average IRA balance was $98,900, a 14% decrease from last quarter but higher than the Q1 2010 balance of $66,200. The average 403(b)/tax exempt account balance was $75,700, down 19% from last quarter but still above the average balance of $50,000 in Q1 2010.

April Market Update - A Full Credit and Employment Cycle with a Pandemic

The S&P 500 lost 12.51% in March 2020, ending at 2,584.59. YTD the S&P 500 is down 20%. Looking at this chart from Business Insider is extremely important this month.

Many Americans have been conditioned to believe that virus outbreaks can be contained "over there." Geographic separation was supposed to happen this time as well. For many Americans that logic lasted until February 29 when we learned of the first COVID-19 death in the U.S. For others this lasted until March 11 when the WHO declared COVID-19 a pandemic. Maybe the "over there" thinking ended later on the eleventh when the NBA suspended their season and folks heard Tom Hanks and Rita Wilson had COVID-19. This will be a longer post than normal, so let's jump right into price, sentiment and valuation for April 2020.

European Banks - More Questions than Answers

Please click on graph above to enlarge
Source (with a more interactive graph): STOXX® Europe 600 Banks

This is a chart of the STOXX Europe 600 Banks index from January 1987 to March 2020. Curiously, in the last few days, we've seen this index hit levels it last reached in the 1987 to 1988 time period.
As European bank stocks were falling, Neil Irwin wrote an article for The NY Times on March 12, 2020 titled Something Weird Is Happening on Wall Street, and Not Just the Stock Sell-Off. He wrote in his piece:

"Underneath the headline numbers were a series of movements that don’t really make sense when lined up against one another. They amount to signs — not definitive, but worrying — that something is breaking down in the workings of the financial system, even if it’s not totally clear what that is just yet."

March Market Update - Watch the C Suite

The S&P 500 lost -8.41% in February. The spread of the coronavirus --COVID-19-- accelerated supply chain disruptions (started with tariffs), caused demand shocks in multiple industries, and in general, slowed the entire global economy during (or pulling forward) a window of economic vulnerability.  Let's dig into price, sentiment and valuation as we start March.