June 8, 2020
I hope all of you are keeping healthy and staying safe during this COVID-19 pandemic. Over the last month, we have seen a significant drop in new cases of COVID-19 in most states, but now that most establishments of business have opened, there is some speculation that we may see a rise in COVID-19 cases again.
Over the last month, as COVID-19 cases have dropped, the stock and bond markets have risen dramatically. As of last Friday, however, most of the indexes are still slightly to moderately down. The technology-laden companies in the NASDAQ are the beneficiaries of this “stay at home” policy with returns up 10% this year.
The value sector, which contains the small to midcap companies, banks, energy companies, the retail sector, the airlines, telecommunications, restaurants, and more, are still down by 6-23% for 2020, but are rising dramatically as speculators try to get in now to buy cheap shares. The growth sector has done relatively well, but only a few large companies have contributed.
I continue to like the large tech and health care companies, however, the very large-cap NASDAQ stocks like Apple and Google should start to slow. If the market DOESN’T have a correction in the fall, then we should see the markets continue to recover, then the midcap to small-cap stocks may show a continuation of its upward trend. I am recommending clients move the large-cap growth profits towards the midcap sector somewhat. The Midcaps are down 6.7-11.76% depending on if its growth or value, and particular issues have more of a potential to move upward, in my opinion. A year or two out from this point, I think this sector and the markets should continue the trend nicely higher.
Can it go down from here into the fall and winter if we have a second wave down? Absolutely, but it is an excellent time to add money to your equity side in a diversified portfolio over the next 6 -12 months I like the corporate bond sector better than the government sector going forward. Many people are doubling up their contributions monthly. If you are more than five years before retirement, you may want to think about doing something similar. If stocks are cheap, then isn’t it smart to buy when they are reasonably priced if, over the long term, the market should be higher? But over the short term. I think the markets have risen too fast and over the short-term, I can see up to another 5% more but not much after that. If you are in or nearing retirement, this may be an excellent time to take a little money out of the stock market over the next few weeks.
Some of the INDEXES of the markets both equities and interest rates are below. The source is Morningstar.com up until June 8, 2020. These are passive indexes.
Dow Jones -4.0%
S&P 500 -.50%
EQUAL WEIGHTED S&P 500 -4.0%
NASDAQ Aggressive growth +10%
Large Cap Value -12.5%
I Shares Russell 2000 ETF (IWM) Small cap -9.0%
Midcap stock funds -6.7-11.76%
International Index (MSCI – EAFE ex USA -8.2%
Financial stocks -14%
Energy stocks -23.53%
Healthcare Stocks +1.8%
Moderate Mutual Fund Investment Grade Bonds (AAA) Long duration -2.5%
High Yield Merrill Lynch High Yield Index -3.8%
Floating Rate Bond Funds -4.4%
Short Term Bond +1.1%
Fixed Bond Yields (10 year) .95% Yield
Classicalprinicples.com and Robert Genetskis Excerpts:
Stocks continued to move higher this past week. The major indexes added 2%-3%, while small-cap ETFs led with gains of 4%-6%. The S&P 500 is now within 3% of my estimate of its value. A replay of the failed Occupy Wall Street lawlessness will drive more support for law and order. Rather than hurt Trump, it should help to reelect him. There is also some good news on the virus. Despite the reopening of the economy, active cases have begun declining. Up to now, my expectation that stocks would begin consolidating has not materialized. The stock market assumes my forecast for a rapid recovery will occur without any setbacks. Hope so. Nonetheless, with both cautious state Governors and fed policy paying people not to work, a temporary setback can always arise. Although the market is fully-valued, the outlook for stocks remains mostly bullish.
Private employment increased by 3 million in May, close to my estimate of 4 million. The rebound was well above the widely predicted loss of 81⁄2 million jobs. Private payrolls remain 18 million less than at their peak in February. Earlier in the week, the ISM business surveys show the economy grew modestly going into early May. The improvement appears to have brought the economy from 80% of its peak performance to 85%. Auto sales went from 50% of normal levels in April to 70% in May. New orders for manufacturing and service companies also improved in May. Orders in May were 30% below their peak compared to 40% below in April. My forecast for job gains in May was based on Weekly insured unemployment claims which were 50% less than the number in April.
Dr. Genetski’s opinion is that every person and circumstance is different. Please call me to address your holistic goals to strategize. There are no guarantees expressed or implied in any part of this correspondence.
As you can see the Dow Jones is now only down 4% for 2020. I do not see more than a 5% upward move before it is fully valued. There are three resistance points to the left, the first level of resistance is 27424 area, the second is 28404 area, and the third level is the 29000 area. You may be shocked that the market has gone this high. Remember, the stock and bond markets NEVER accommodates the majority of thinking. So when everyone that the markets are going lower it doesn’t, and when everyone it will continue higher it tops out.
The Momentum indicator signal of a BUY is when the pink line crosses above the blue line and a Sell signal is when it crosses on the downside. Currently it still is on the buy side. But it is getting long in the tooth and overbought.
The indicator to the lower left is call the SD-SK Stochastics indicator. When both of the lines go over 88 the market is very overbought and could be setting up for a fall. It is almost very overbought, but not yet.
Summary: I am still long term bullish, but only see the rally to continue for a short period more before I see a flattening or decline of the markets.
The true Champ this year again has been the NASDAQ. These stocks include, Facebook, Amazon, Docusign, Paypal, Mcrosoft, Netflix, etc. All of the stocks that benefit by you and your businesses being home. The NASDAQ is now up 10% for the year while everything else in the normal world is down 6-33%. The NASDAQ is now getting a little OVERBOUGHT so I would not go out and buy a bunch of ultra large tech stocks here. In fact, the NASDAQ is right at its high for the year and if I had a lot of my money in the ultra large NASDAQ stocks I would probably redeploy some towards the midcap stocks with go balance sheets and prospects for a bright future. I will also get VERY CAUTIOUS if the NASDAQ closes below the lower trend line currently at the 9505 level. This trend line rises daily so please call me for a strategy session.
The MACD or momentum indicator is still positive, so as long as the trend is up, I am somewhat positive , but it is now getting over bought. Retirees may want to reduce a little at this point.
The SK-SD Stochastics is overbought just like it was in the Dow Jones.
On Balance Volume is showing great conviction. That is a Bullish signal as it has broken to a new high
- Support levels on the S&P 500 area are 3140, 3070, 2944, and 2796. These might be accumulation levels, especially2649, or 2500. 2936 and 3015 is resistance.
- Support levels on the NASDAQ are 9675, 9513, and 9326 Topping areas 9845 and 10000 On t
- The Dow Jones support is at 25245, 24,900, and 23951. Topping areas 27377 and 28419, 29020 and 29561.
- These may be safer areas to get into the equity markets on support levels slowly on the accumulation areas.
THE BOTTOM LINE:
The market has rebounded nicely over the last month, mainly on the decline in Covid19 cases, and the economy is reopening. The NASDAQ has done the best and should continue to do well IF the market continues higher, the Midcap and Small caps, both growth and value side would probably outperform if the rally continues from here. My thinking is that the market continues to rally a little more, but as the Euphoria continues, I feel the market may stall a little above where we are now. If there is a significant rise in the number of new cases of COVID-19 before any successful treatment or vaccine, then the market would probably selloff, not to new lows but down to a support level listed above. There are trend-lines right below the markets, and if they are broken and close below those areas, then the markets could start a correction again. Trend-lines are essential to hold. If they don’t hold, then there could be a setback to support the levels stated above. I still like the USA market better than the international one.
Best to all of you,
Joe Bartosiewicz, CFP®
Investment Advisor Representative
92 High Street
Thomaston, CT 06787
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