Weekly Wealth Report

Could it be the upside surprises?

U.S. stock markets have marched higher despite a pandemic, an economic downturn, and social justice protests – and a lot of people have wondered why.

Greg Rosalsky of Plant Money spoke with Nobel Prize-winning economist Robert Shiller about, “…the mass psychology of a gazillion buyers and sellers, who each are telling themselves their own stories about why they’re making the trades they’re making.”

Rosalsky and Shiller discussed some narratives that purport to explain recent market performance, including:

• Quarantine boredom. Matt Levine of Bloomberg has postulated “…a lot of individual investors buy stocks mainly because it’s fun, and that the more fun stocks are, and the less fun everything else is, the more they’ll buy stocks. In a pandemic, when people can’t really leave their house and sports are canceled, there is a lot less fun to be had elsewhere…so people buy more stocks.”

• Big, publicly-traded companies are safe. This theory suggests businesses hit hardest by the economic downturn often are not traded on stock exchanges. In a separate article, Rosalsky cited former technology executive Eric Schmidt who wrote, “Gigantic corporations, which have deep pockets, fancy accountants, huge legal teams, and access to international financial markets, are also better equipped to weather shocks than your local hardware store or small manufacturing company.”

• Don’t fight central banks. “The Fed is using its unlimited money-printing machine to single-handedly prop up the stock market. ‘The Fed is itself an important narrative,’ Shiller says. In reality, he says the Fed’s magic over the real economy is limited. But its statements clearly move markets, and it has lots of power as a storyteller,” reported Rosalsky.

On Saturday, Lisa Beilfuss of Barron’s offered another narrative. She reported:

“…upside economic surprises over the past two weeks – mortgage applications hit the highest level since 2008, retail sales rose at the fastest pace ever, and U.S. businesses added 2.5 million jobs in May instead of cutting an anticipated eight million, to name a few – are even better than they look and offer at least some proof that the stock-market rebound was driven by expectations for improving fundamentals…It’s about the magnitude of the surprises versus Wall Street’s expectations.”

We don’t know which narratives were responsible, but major U.S. stock indices moved higher last week.

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.

WHAT DO YOU THINK?

“A public-opinion poll is no substitute for thought.”
–Warren Buffett, Investor and philanthropist

Best regards,

* These views are those of Carson Coaching, and not the presenting Representative, the Representative’s Broker/Dealer, or Registered Investment Advisor, and should not be construed as investment advice.
* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.
* 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.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* 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.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* 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.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.

Sources:
https://www.npr.org/sections/money/2020/06/16/877410547/what-is-the-stock-market-trying-to-tell-us
https://www.bloomberg.com/opinion/articles/2020-06-09/the-bad-stocks-are-the-most-fun (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/06-22-20_Bloomberg-The_Bad_Stocks_are_the_Most_Fun_Footnote_2.pdf)
https://www.npr.org/sections/money/2020/05/12/854278576/why-the-crisis-may-make-powerful-corporations-even-more-powerful
https://www.barrons.com/articles/good-omen-for-markets-recent-big-economic-surprises-51592600401?mod=hp_INTERESTS_economy-and-policy&refsec=hp_INTERESTS_economy-and-policy (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/06-22-20_Barrons-The_Economy_is_Improving_Much_Faster_than_Predicted-Footnote_4.pdf)
https://www.barrons.com/market-data (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/06-22-20_Barrons-Market_Data-Footnote_5.pdf)
https://www.investopedia.com/terms/e/economic-man.asp
https://www.investopedia.com/terms/c/confirmation-bias.asp
http://www.sca.isr.umich.edu
http://www.sca.isr.umich.edu/files/chicsr.pdf (Baseline is described on the vertical axis)
https://www.aaii.com/sentimentsurvey? (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/06-22-20_AAII-AAII_Investor_Sentiment_Survey-Footnote_10.pdf)
https://www.aaii.com/journal/sentimentsurveyarticle
https://www.cnbc.com/2020/06/16/a-record-number-of-investors-believe-stocks-are-overvalued-according-to-bank-of-america-survey.html
https://www.brainyquote.com/quotes/warren_buffett_125142

Information has been obtained from sources we believe reliable, however we do not independently verify the accuracy of the information.