“Ain’t nothing gonna break my stride… nobody gonna slow me down, oh no… I got to keep on movin…”
I can honestly say that I never liked this 1983 mega-hit by Matthew Wilder, but it was catchy if nothing else. It’s also particularly applicable for the stock market these days. July marked the sixth consecutive month of positive performance for the S & P 500 Index. All major averages are trading near record levels and momentum continues its upward trajectory. It’s a bit counter-intuitive to believe that stocks are doing so well in the face of adversity. After all, the Delta variant of the Coronavirus is scaring most of us, and mask mandates are returning in many cities. It’s speculative to say that lockdowns will need to re-occur in the near-term, but the start of the school year may play a large role in this decision process. Unemployment numbers remain stubborn, and the landlord eviction moratorium ended two days ago unless extension action is quickly taken by Congress or President Biden. Supply chain woes continue to plague many major industries. Partisan bickering in Congress appears to be escalating even further than the normal rancor. Why are equities still rising?
As I’ve been positing for several months, the fact that the 10 Year treasury yield is so low is the over-arcing first premise. Why would anyone want to invest for a decade at a rate of roughly 1.25%? The dividend yield on the S & P 500 is greater than that, plus there’s a chance for appreciation. As long as there’s easy money available via a dovish Federal Reserve, this construct remains intact. Secondly, we’re most of the way through this quarter’s earnings season, and the results have been largely solid. Folks are out spending money again. Travel and leisure expenditures are increasing. Keeping the consumer in the game is critical for sentiment. It also seems like we’re going to get some sort of diluted infrastructure bill shortly. Finally, even though relations with some of the world’s major powers are fragile, there’s little international conflict per se. All of the above assertions keep giving investors’ confidence to purchase stocks.
I’m of the opinion that we’ll perhaps get a pause soon. There’s a bit of froth out there, and a simple swift correction might be around the corner. I know… I’ve been saying this for months as well and we haven’t experienced one yet. That doesn’t mean that it won’t or shouldn’t happen. As long as we stay out of lockdown, the appetite for risk sticks around. I remain cautiously optimistic for the long-term, but the near-term is murky because we’ve come so far already this year. Try to not panic if we get a downturn – as long as structural conditions don’t change, the dip should be re-bought.
Let’s hope that the market doesn’t break its stride anytime soon. Rc, Ruth and I are here to answer any questions that you have about your portfolio. Enjoy the “dog days” of summer…stay safe and stay sane. We look forward to seeing you soon.
The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. Indices are unmanaged and do not incur fees. One cannot directly invest in an index.
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