The Great 2020 Stock Market and Economic Comeback

One of the greatest Super Bowl comebacks of all time happened when the New England Patriots defeated the Atlanta Falcons to win Super Bowl LI. After being down 28-3, very few expected the Patriots to come back and win in overtime. Nonetheless, Tom Brady and each player on that Patriots team pressed on with the attitude that they were going to come back and win that game (did I mention that I’m a Patriots fan?).

It has often been said that “attitude determines altitude.” It is much easier to accomplish goals with a positive attitude than it is without. If the Patriots players and coaching staff would not have believed in themselves and the game plan, do you think they would have completed that miraculous win?  A similar power of positive thinking takes place in the markets: sentiment most often drives prices. When investor sentiment is positive, it leads toward higher stock prices.

Proverbs 17:22 provides great wisdom on this topic, “A joyful heart is good medicine, but a crushed spirit dries up the bones.”

God has given each of us the ability to choose whether we will see positivity or negativity in our circumstances. As Christians, we are called to be salt and light, even when things don’t go our way. Paul, throughout the book of Acts, despite getting kidnapped, beaten, threatened, ridiculed, and arrested many times, stood firm in his attitude and love for Christ.

Paul wrote, “Always be joyful. Never stop praying. Be thankful in all circumstances, for this is God’s will for you who belong to Christ Jesus” (1 Thessalonians 5:16-18). He knew we would be faced with trials and challenges in our daily lives. We can choose to be thankful and positive, no matter what life throws our way.

As investors, we have these same choices – to focus on what is going wrong in the economy or focus on the path forward. Over the last few months, as you can probably guess, investor sentiment has been overwhelmingly (and somewhat surprisingly) positive.

Though many wrote off the U.S. economy and stock market, even going as far as predicting another Great Depression, the truth is that many investors were able to see past the scoreboard.  This foresight has helped propel one of the greatest market wins in our lifetimes.

As of Friday, since the March 23 low:

• The S&P 500 has risen 41%
• The Dow has advanced 42%
• And Nasdaq has soared 50%

In tough and uncertain situations, it can be difficult to look beyond the current economic circumstances and see any kind of victory at the end of the game. That’s why so many sold their stocks at or near the bottom of the sell-off.  These people threw in the towel, because they were convinced that the markets would take a long time to bounce back and the game was “over!”

Yet, here we stand three months later and, looking at the scoreboard, stocks have made an amazing comeback. Like any team trying to mount a comeback, we, as investors, must take one “play” at a time. There will be days filled with great news and other days filled with pain and defeat. Our actions or inactions when this news hits will ultimately determine our success.

Investor emotions like greed and fear can often get in the way of achieving optimal results. Many investors get too greedy and take too much risk when stocks are rising, and then others get too fearful when stocks are falling and then sell at or near the bottom. Instead, like a football quarterback, we need to remain calm and collected and focus on maintaining a disciplined approach in good times and bad.

Right now, after a big rally in stocks, we need to maintain that same discipline and focus. Instead of dwelling on what’s going wrong, we need to shake it off and focus on what’s going right. The good news is that U.S. economy is also making a great comeback, particularly in automotive industry and housing market.

The Federal Reserve (the Fed) has committed to keeping interest rates near 0 percent for the foreseeable future. This is igniting the possibility of a V-shaped recovery for these two industries. May was a great month for auto and home sales.

Last month, consumer spending came roaring back, with retail sales increasing 17.7% in May (more than double what economists had forecasted). This comeback trounced the previous monthly record of 6.7%, set back in October 2001. Auto sales were one of the biggest drivers, as they were up over 44% in May. Vehicle sales and auto parts came in at over $104 million, which represented a 50% increase over April numbers, and only $7 billion less than May 2019. All things considered, this was quite an amazing comeback.

In addition to autos, there has been an amazing comeback in refinancing and new mortgage applications. Over the past ten weeks, the Mortgage Bankers Association (MBA) reported a whopping 76% increase in mortgage applications. Believe it or not, that’s the largest 10-week advance since March of 1991!

With the 30-year fixed rate sitting around 3.4%, it’s no surprise many Americans are looking to buy homes. New home construction also saw a healthy rebound in May with a 4.3% increase. Building permits also climbed 14.4% in the month of May.

With Americans overwhelmingly reopening their wallets for “big ticket” items, this is a very encouraging sign that the U.S. economy is poised for a great comeback in the third and fourth quarters of 2020. This also opens the possibility that a V-shaped economic recovery may be underway.

Last week, the markets cheered the latest round of encouraging economic news, with both the S&P 500 and Dow up more than 1% on the week. The stock market has been in comeback mode, since the March bottoms, and now the economy is starting to do the same. The strength of the market has been very encouraging. However, the fact that the tide lifted all boats does not mean that trend will continue.

A flight to quality is clearly underway, as money continues pouring off the sidelines into stocks. Much of this money is going into companies with strong earnings and superior financial strength. As a result, many of our “Proud to Own” stocks climbed higher last week.

We continue to sort through the various parts of the economy, focusing on the areas showing the greatest promise in today’s economy. Like Paul’s God-focused attitude and Tom Brady’s methodical drive and motivation, we remain focused on staying positive despite the challenges that are still to come. No matter what may happen in the weeks and months ahead, our team is ready to rise to the challenge and be ready to lead a game winning drive!

Sources: Yahoo Finance, Reuters.com, and JP Morgan Market Insights

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