Signs that the economic recovery may be leveling off have not prevented corporate America from delivering earnings well above expectations. Leaders like Apple, Amazon, and Facebook reported extremely strong results in the second quarter, helping these influential stocks move significantly higher. FactSet consensus estimates of future earnings have ticked higher as well, suggesting corporate America may be confident in the eventual economic rebound.
At the July 29 Federal Open Market Committee meeting, Federal Reserve (Fed) 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. The economy has improved off the March lows, but it isn’t near the record-breaking levels we saw earlier this year. Powell also noted that further relief from Congress was “essential” to help support the economy.
Congress is inching closer to a new COVID-19 relief bill, but parties remain at odds over several key elements. Although the two sides appear far apart, a deal likely may be struck at the eleventh hour—consistent with typical Washington theater. At this time, Congress is expected to agree to a stimulus package in the neighborhood of $1.5 trillion, bringing the total US fiscal stimulus to more than $4 trillion.
Meanwhile, the S&P 500 Index has moved into positive territory for the year (as of August 5) after being down more than 30% in 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 stubbornly high 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 well-deserved break.
The battle versus COVID 19 continues. According to the World Health Organization 27 vaccines are in human trials and the chances of an approved vaccine by late this year or early next year are quite high. By staying on the side of scientists its possible to believe that in time we will beat this adversary.
Until then, please remain diligent, and contact me with any questions.
Bryan Foronjy, CFP®
Founder and Principal Wealth Manager
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