SAGE Global Market Perspective – Market vs. Economy

For the months of July and August, 2020, the global stock market continued its steady climb, with major domestic indices turning positive for the year. Much of the rebound can be attributed to the economy showing signs of repair. Understanding that economic activity is far from the peak witnessed in the earlier months of this year, many investors are skeptical of current market levels most notably because it appears to not reflect the actual health of the economy.

Although we believe there are significant challenges facing our economy, we do not believe that the market is irrational and we feel that there are major forces at work supporting current stock market levels. We also are mindful that any one of several potential disrupting forces can have a sudden and profound negative impact on the economy and on the capital markets, be they political, pandemic related, or other.

As the U.S. experiences a revived surge in COVID-19 cases, the fear of stepping backwards into shutdown mode threatens to stall consumer spending. To no surprise, data collected on airline and restaurant bookings remains weak and recent actions to slow the spread implemented by government leaders are reminiscent of lockdown measures taken this fall. However, although we expect COVID-19 to create recurring public health problems, we believe that we will see continued advances in treatment and vaccine development in the near future.

This swift recovery in the stock market has led some to believe that the market has decoupled from the underlying economy. A deeper understanding of the makeup of the market, using the S&P 500 as an example, provides a clearer picture. For instance the retail, travel and hospitality sectors, which have been hit hard by the pandemic, cumulatively makeup a relatively small component of the S&P 500 index, when compared to technology and healthcare, which have benefited from current conditions and represent a much larger part of the market. Together, technology and healthcare have led markets higher. Further, as we traverse the current earnings season, the relatively upbeat outlooks of major components of the stock market appear to provide good confidence in the overall earnings outlook and imply continued strength in equities.

With the constant flow of economic data, most reports appear to meet or exceed expectations, specifically the all-important consumer spending data. These surprises can be attributed to the massive stimulus provided by fiscal policymakers at the onset of the pandemic that were aimed at supporting unemployed citizens during strict lockdown measures as well as the lending programs to businesses intended to secure employment. Although the initial stimulus measures appear to have buoyed consumer spending over the past several months, the battle over the next phase of economic assistance is currently being debated in congress. With fiscal support in question, Fed President, Jerome Powell has remained consistent in his messaging that the Federal Reserve will remain accommodative by keeping the Fed Funds Rate at zero for the foreseeable future as well as fund credit facilities to support ailing parts of the U.S. economy.

While it is impossible to predict the future path of the global pandemic, we remain confident that much has been learned from initial lockdown measures that can be applied at a local level if and when spikes in COVID-19 cases arise. As our society continues to adapt to this ever-changing crisis, we are optimistic that business leaders too are taking decisive action to adapt corporate America to sustain and grow into the future.

If anything in your circumstances should change, please be certain to share that and other new information with your Wealth Advisor.

Kind regards,

SAGE Investment Committee

Any opinions are those of the SAGE Investment Committee and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Expressions of opinion are as of this date and are subject to change without notice.

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