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Daily Capital

Weekly Market Digest: Market Volatility is Back

A surge in new covid-19 cases swept across the country this week causing some states to put a pause on reopening efforts and a pullback in stocks. The U.S. hit a record number of new cases lead by California, Arizona, Florida, and Texas with total cases in the U.S. now exceeding 2.4 million per data compiled by John Hopkins University. The death rate has not climbed at the same rate, but it is not clear if this is due to a lag in the data or other demographic considerations. At the same time New York, the recent epicenter of the U.S. outbreak, continues to slow the spread. New restrictions are being put in place across the country around requiring mask wearing in public places indoors, and some states are mandating two-week quarantines for visitors coming from hotspots. The European Union is also considering restricting travel from the U.S. into the region even after travel restrictions plan to be lifted for some countries on July 1.

In summary, high levels of uncertainty around the recovery and reopening efforts are once again weighing on the stock market. After unprecedented levels of stimulus from the Federal government provided immediate support to both the greater economy and stock market, it is unclear how sustainable it is and what lies ahead.

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Weekly Returns

S&P 500: 3009.05 (-2.86%)
FTSE All-World ex-US (VEU): (-1.21%)
US 10 Year Treasury Yield: 0.64 (-0.06)
Gold: $1,770.40 (+1.54%)
EUR/USD: 1.1219 (+0.37%)

Major Events

  • Monday – An order was signed by President Trump temporarily restricting work visas like the H-1B for new immigrants which took effect Wednesday and is set to last through the end of 2020.
  • Tuesday – The former CEO of Wirecard, a German fintech company, was arrested for fraud after the company admitted that the $2.1 billion reported on its balance sheet did not exist.
  • Wednesday – The International Monetary Fund lowered its global economic outlook for the year, now expecting the global economy to shrink 4.9% compared with its 3% estimate in April.
  • Thursday – Weekly jobless claims came in at 1.48 million holding steady so far in June, while continuing claims totaled 19.5 million, slightly down from a week prior.
  • Friday – Consumer spending rose 8.2% in May, the highest amount on record, after falling the most on record in April.
  • Friday – Facebook dropped 8% and Twitter dropped 7% after consumer giant Unilever NV stated they would halt U.S. ads on social media platforms for the rest of 2020 due to concerns over hate speech and political polarization.

Our Take

Stock market volatility was back this week with a vengeance. Amidst the backdrop of major uncertainty around the pandemic, the market seemed especially vulnerable to headline risk. It started Sunday night with stock futures going haywire after confusion over comments made by White House trade advisor Peter Navarro. Initially stock futures fell sharply after concerning remarks were made by Navarro that the trade deal was “over”. Futures then quickly recovered all losses when President Trump tweeted the trade deal remained “fully intact”. Tuesday the Nasdaq rallied to another new all-time high driven by optimism in tech shares and a pickup in business activity. Wednesday stocks plunged as several states reported new daily case records. Thursday stocks recorded a strong rally lead by financials as regulators eased some restrictions on big banks around Volcker rule restrictions put in place after the Financial Crisis. This move was ahead of annual stress test results released after the close that although were positive at face value, new restrictions on buybacks and dividend payouts on banks by the Fed caused bank stocks to plug leading Friday’s sell off. The annual rebalancing of the FTSE Russell U.S. indexes also took place Friday, which tends to be one of the largest trade volume days of the year.

A common mistake many investors make is paying too much attention to the daily headlines and trying to constantly adjust their positioning based on the latest news. This is a tempting, but very poor approach to investing and one that should be avoided. As you can see, there is a lot of noise in daily trading and things move very fast in both directions. As we always advocate to investors, stay focused on your long-term goals and keeping yourself positioned appropriately to get there. There has been a lot of glorification of day trading in recent times making it look like easy quick money. We caution investors not fall victim to the masquerade, because what in life truly works out for most people with this mentality?

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.

Lacey Cobb serves as the Director of Advice Solutions at Personal Capital. She has 10 years of financial industry experience, with a background in portfolio management, trading, research, investment analysis, and financial planning. Prior to Personal Capital, she was the Head of Trading and Research at Polaris Greystone Financial Group, where she managed the portfolio management team and served on the investment committee. She started there as a financial planner and helped grow AUM from $250 million to $1.5 billion. Before that, she worked for State Street as a fund accountant. Lacey graduated from the University of California, Davis, and holds both the Chartered Financial Analyst® designation and Certified Financial Planner™ designation.

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