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Monthly Market Compass: Turning A Corner In July?

by Garrett Kunz   ·  Jul 07, 2020  
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The July Fourth holiday was different for many of us this year. Although we hope you enjoyed time with family and friends, and maybe even caught some fireworks, we all know the effects of the COVID-19 pandemic can still be felt. We all continue to believe our doctors and medical community will help us conquer this disease; however, with more than 10 million confirmed cases of COVID-19 around the globe (Johns Hopkins), this fight is far from over. Meanwhile, the US economy appears to be turning a major corner, and better times may be ahead later in 2020.

Economic Data Fireworks

Recent economic data has created some fireworks itself, coming in significantly better than what economists had expected, and in some cases, beating previous records. For example, the May US Bureau of Labor Statistics employment report showed a record 2.5 million jobs created—10 million more than economists expected, according to Bloomberg. Additionally, retail sales soared nearly 18% in May, according to the US Census Bureau, again much better than what was expected. Even though these rebounds are coming off historically low levels, it has been encouraging to see how quickly the economy may be coming back.

When Will the Economy Return to Normality?

The big question, though, is when will the economy get back to normal? Although parts of our economy are coming back quickly, other areas may take years to come back fully. Industries like hotels, restaurants, and airlines are going to be under pressure for a long time. In fact, in the 10 US recessions since 1950, it took nearly 30 months on average for all of the jobs that were lost to come back. More recently, it took four years for all the jobs to return after the tech bubble recession in the early 2000s, and more than six years for all of the lost jobs to return after the financial crisis of 2008–09. Our economy has lost nearly 20 million jobs in the past three months, and even with re-hiring activity in May and June, it may take years to recover all of those job losses. (Jobs data from US Census Bureau).

Wild Card of a Second Wave

A major second wave of COVID-19 is the big wild card. Although most of us don’t expect to go into full lockdown mode again like we did in March and April, more restrictions may be put in place, which could hinder the economic recovery. But it isn’t all bad news. On June 22, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Disease, said at a congressional hearing that a vaccine may be available by early 2021. He noted that in the past it has taken years to develop a vaccine against viruses, but with the entire world working together to beat COVID-19, this vaccine may be the fastest to market ever produced.

Human-Like Qualities of the Stock Market

Voltaire said, “History never repeats itself. Man always does.” Given the stock market is driven by fear and greed, it has very human-like qualities, which means history may be a guide for what may happen next. In March 2003, stocks hit a major low before a huge spike into early summer, when stocks consolidated—or sat on their gains—during the summer months, followed by an eventual move higher later in the year. There was a very similar reaction in the summer of 2009 after the March 2009 bear market lows. So far in 2020 we’ve had the March lows and a huge rally, so historically, a summertime pullback or consolidation would be normal—and maybe even healthy.

While we’ve faced several health, social, and economic crises this year, summer holidays are a good time to think about how lucky we are to live in this great country and remember the resilience and perseverance we’ve demonstrated over the past 244 years. History has shown us that better times will come.

We hope everyone had a wonderful and safe July Fourth with a pleasant summer to follow. If you have any questions, let’s chat.


Important Information

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All data is provided as of June 30, 2020.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All index data from FactSet.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

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