July 2020 Market Commentary

Last month we suggested the market rebound off the March lows was starting to run out of steam.  That does indeed still appear to be the case.  Even though July was an “up” month for the index, year-to-date, the S&P 5001 is still just barely above break-even at +1.72% as of Thursday, July 30th (FastTrack Data).
 
Historically, we’re in the “worst 6 months” of the year for stock market performance (Stock Trader’s Almanac), with September and October being two of the most challenging months for the market.  I wouldn’t be surprised to see market volatility pick back up in that period, especially going into the November election.
 
On a positive note, we’ve seen sector strength grow and broaden across more than just Technology and Health Care.  We believe this has the potential to give the market a boost higher in the near future – before we get to the volatile fall months.
 
Also promising are the positive earnings reports today (Thursday 07/30, after the market close) from Apple, Facebook, Google, and Amazon.  Those four companies alone make up almost 35% of the NASDAQ 100 Index (SlickCharts.com).  The NASDAQ 100 has been a core holding in several of our models this year.  And if technology companies, like these, can still make money in this difficult environment then at least the Technology Sector (and the NASDAQ) have a chance to continue their upward movement.
 
The VIX (Volatility Index) has been relaxing a bit, but it is still high for a typical “bull” market.  It is currently around 24, when one month ago, it was around 32.  A “normal” (if you can call it that) bull market has a reading somewhere between 12 and 15.  So the VIX seems to be improving but still suggests caution. 
 
But even with caution, the big picture has had us more fully allocated than we’ve been since January of 2020 (long, long ago when things were more “normal”).  All of our equity strategies also appear to be positive year to date, with some doing quite a bit better than the S&P 500 Index.  Currently, our main three signals are all saying it is reasonable to be in the market.  As always, that is for today and could completely change for tomorrow.  So, we’ll remain focused on our metrics and be ready to jump if/when the next leg down in the market begins. 

In this month’s chart, I want to share something we look at daily.  The NYSE New Highs-New Lows chart graphs the sum of all New York Stock Exchange stocks, and gives a count of how many are hitting new highs minus how many are hitting new lows.  We find it helps provide context of where the market is currently heading, indicated by color (green = positive count / and purple = negative count) and the steepness of the line (up or down).  Since mid-May, we’ve seen a continual positive count (continual green line) with the steepness continuing to move upwards.  To us, it seems to suggest positive momentum in the markets and improving participation with more stocks hitting new highs.

Bonds – the bond market seems to be steadily recovering from its tantrum in March.  The Aggregate Bond Index AGG is up around 1% for the month of July, and up just over 7% year to date.  Other bond segments, like High Yield, are still flat on the year, but recovering quickly.
 

The Federal Reserve also met this week and decided to leave interest rates unchanged.  This means interest rates will remain low until they are confident this policy is no longer needed (CNBC). Our takeaway is that their commitment to stability should be reasonably positive for the U.S. economy in the short term.  In the Long-Term, there are still many factors and unknowns that could shake things up.
 

Hope you are staying safe and having a great summer,