Market Condition: The Market is in a confirmed uptrend, as the market continues to trend along its shorter term moving averages. The Market is now up 42% from the March 23rd low, so naturally the question remains what is going on? Currently, the market was moving ahead of economic data, and last Friday everyone got a huge surprise with the May non-farm payroll report showing an increase of 2.5 million jobs. No one was expecting this except of course for Mr. Market. Consensus expectations were for a loss of 7.5 million jobs. Which is why it is healthy to view the market as the leading indicator. Yes markets can overshoot to the downside or to the upside at any one time, but overall it does have the uncanny ability to discount what is coming down the road.
Things we are watching, which gives us some information to the next move in the market.
-Earnings reactions continue to be favorable for most stocks. Widely held institutional favorites continue to hold key levels, these include names like Apple (AAPL), Amazon (AMZN), Facebook (FB) Microsoft, (MSFT) Tesla (TSLA), Alphabet (GOOGL), and many others.
-Recently value stocks which were left for dead, started to perk up in the airline, leisure, and banking sectors. Names that started moving included United Airlines (UAL), American Airlines (AAL), Jet Blue (JBLU), Boeing (BA), Royal Caribbean Cruise (RCL), Carnival Corporation (CCL), Bookings Holdings (BKNG), Bank of America (BAC), Wells Fargo (WFC) Fifth Third (FITB) and many others.
-As mentioned the non-farm payrolls rose 2.5 million easily beating the expected loss of 7.5 million. The private sector did better adding 3.1 million jobs. Equally surprising was the unemployment rate dropped to 13.3% expectations were for 19.0%.
-The ISM manufacturing and no-manufacturing numbers naturally still are showing contraction, however the data came in better than expected in the month of May rising from the April lows.
-Worries remain in the minds of investors, as talk of a second wave of outbreaks from Covid -19 looms in the news, concern over civil unrest, and rhetoric with China over trade and other issues is heating up.
-As stated by economist Scott Grannis “the most expensive self-inflicted injury in the history of mankind” is no longer a source of concern from the market’s perspective. Markets are moving past the shutdown.
Summary: The market loves surprising the crowd. We are in the midst of a V shaped recovery, which at times perplexes everyone and does not make sense. Yes, that is the market. Which is why we listen to what the market is telling us, moving along and rotating along with the market as it dictates. We are seeing market breadth expand as the rally continues a very healthy sign. While most of the focus has been on the 1930 or 1987 crash, for now it looks more like a summer of 1980 V shaped recovery. At some point the market will have to pause and digest some of these gains, but thus far it is not happening. For now we are invested and staying tuned!
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