As the dog days of summer come to an end, our battle against COVID-19 continues. While the spread in some of the recent hotspots such as Texas and California are slowing, States in the Northeast and Midwest are now experiencing an increase in cases. According to the World Health Organization, 31 COVID-19 vaccines are in first and second phase human trials, with Moderna, Pfizer and AstraZeneca/University of Oxford’s vaccines in third phase human trials. As I mentioned in my July note, we believe a vaccine could be approved by the FDA as early as December.
The S&P 500 Index has moved into positive territory for the year (as of August 5) after being down more than 34% in late March, making 2020 one of the largest reversal years ever. Going back to 1950, however, August and September historically have been the two worst months of the year for stocks. In addition, signs of recent weakening in the job market based on increased jobless claims, combined with evidence of reduced consumer mobility from several high-frequency data points suggest the stage could be set for stocks to take a slight breather and trade sideways for a bit.
At the July 29th Federal Open Market Committee meeting, Federal Reserve Chair Jerome Powell made it very clear that the Fed has additional tools to support the recovery, and that low interest rates may be here to stay well beyond this year and next. Yes, the economy has improved off the March lows, but there are still 16.3 million Americans unemployed. Powell also noted that further relief from Congress was “essential” to help support the economy.
Although on recess, Congress is inching closer to a new COVID-19 relief bill, but the parties remain at odds over several key elements. The two sides appear to be far apart, but we believe a stimulus package will be approved in early September for roughly $1.5 trillion.
Signs that the economic recovery may be leveling off has not prevented corporate America from delivering earnings well above expectations. Portfolio holdings such as Apple, Amazon and Microsoft (just to name a few) reported extremely strong earnings in the second quarter, helping these influential stocks move significantly higher. FactSet consensus estimates of future earnings have ticked higher as well, suggesting corporations are confident in the eventual rebound.
While some of the economic data appears good, other data appears troubling and this wild ride isn’t over yet. There will be more twists and turns before society and the economy can fully recover from COVID-19. But like all journeys, this one has an end date and it coincides with a vaccine approval. We will get there and it may be sooner than anticipated.
Until then, remain diligent and strong and please reach out to us with any questions or comments you may have regarding your specific situation.
As always, please have a great Friday evening and enjoyable weekend.
Jaran Day Chief Investment Officer
Griffin Dalrymple, CFP®, Chief Strategy Officer