Daily Capital

Markets Continue to Rally in July Despite Coronavirus Concerns

Craig Birk, Chief Investment Officer at Personal Capital, gives his monthly market recap and analysis.

Markets Continue Rise Despite Increasing Coronavirus Cases

Plunging GDP and accelerating COVID-19 infections failed to slow momentum in stocks in July even as several states paused re-opening measures and many schools announced they will not be starting in person. A mild resurgence in countries that peaked in early spring, such as Italy and Spain, as well as a rapid acceleration in Japan, were disheartening. Meanwhile, developments toward a potential vaccine continue to be largely encouraging.

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Earnings Beat Expectations

As the pandemic carries on, companies continue to adapt. While earnings are down, they are exceeding diminished expectations. With 63% of the S&P 500 reporting as of the end of July, 84% reported a positive earnings surprise, according to FactSet. This would be the highest proportion since at least 2008.

The very biggest stocks continue to support headline index returns, with investor enthusiasm for Apple, Amazon and Microsoft continuing to grow. The three companies account for all gains in US stocks this year, with the average company in the S&P 500 still down over 6% and small cap stocks down over 10% for the year. All three now trade at a multiple of sales at least 75% higher than their average for the last ten years.

Things to Consider

Most investors understand piling into the hot part of the market after a large rally has historically proven dangerous and often counterproductive. Even so, many
are unable to resist the temptation of high momentum technology stocks, regardless of price. In a pandemic world featuring heightened uncertainty, we believe the risks of concentrated portfolios are the highest in twenty years.

The biggest opportunities for a diversified approach arise when some parts of the market become adored while others are ignored and become cheaper.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk, CFP®
Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
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