The stock market and the economy are sending mixed messages. The Dow Jones Industrial Average is up 31% from the March lows while the economy is posting depression era numbers. 20.5 million people lost their job in April, and the unemployment rate spiked to 14.7%. Despite the terrible economic news, investors are optimistic about a potential vaccine and the possibility of returning to work. The market is a leading indicator, and it is looking past the recent data – hopefully, there is good news on the horizon.
Our investment models were quiet this week as volatility continues to drop. The volatility index (VIX) is down 66% from its peak, and the lower it goes, the better it is for investors.
The American Association of Individual Investors (AAII) tracks several indicators. The percentage of individual investors who are bullish, or expect stocks to rise, fell to 23.67% – a low rating. This AAII indicator is a contrarian indicator. When individual investors are pessimistic about the future direction of the stock market, the market usually rises and vice versa. For example, the index reading on January 23, 2020, was 45.6%, before the Dow Jones fell 36%. The thirty-three-year average AAII indicator is 38.23%.
The NASDAQ is now positive, and it’s up 14.5% for the past year as Microsoft, Amazon, and Apple lead the way. The S&P 500 is also trading in positive territory for the past year.
Shanghai Disneyland is reopening on Monday, and tickets sold out within minutes. Starbuck’s is planning to open 85% of its stores here in the U.S., and Walgreen’s is returning to regular operating hours.
Retailers continue to struggle as Neiman Marcus and J.Crew file for bankruptcy protection. Nordstrom’s is permanently closing 16 stores (sorry Mom).
Several pharmaceutical companies, including Gilead, Pfizer, Amgen, Johnson & Johnson, and Regeneron, are racing to produce a vaccine for the Coronavirus.
The Thunderbirds will fly in formation above San Antonio and Austin on Wednesday to show their support for healthcare workers, first responders, and essential personnel.
Here’s how stocks, bonds, and other asset classes performed this past week.
- The S&P 500 rose 3.74%
- The NASDAQ rose 5.77%
- International Stocks rose 2.82%
- Emerging Markets rose 4.46%
- Long-Term Bonds fell 2.36%
- Gold fell .18%
- Energy Stocks rose 7.85%
- Chinese Stocks rose 5.79%
Despite the recent performance of the market, we do remain cautious on stocks in the near term, so diversify your portfolio, follow your plan, think long-term, and be patient.
Here is the story of The Tortoise and The Hare, a great reminder about being patient and following your plan – enjoy: http://read.gov/aesop/025.html
Patience and perseverance have a magical effect before which difficulties disappear, and obstacles vanish. ~ John Quincy Adams
Have a great weekend, and keep the faith!
May 9, 2020
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets. http://www.parrottwealth.com
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and are not suitable for every investor.