Bulls Dismiss Covid-19 Case Surge for Third Week of Gains

The rotation out of growth and into value powered the Dow Jones Industrial Average to a third consecutive week of gains. This week’s strong consumer spending and industrial production figures, along with promising vaccine results, reinforced the market’s bullish thesis. Sentiment remains resilient despite the continued rise in Covid-19 case counts. As of Friday morning, John Hopkins University was reporting 3,592,316 confirmed cases of Covid-19 in the U.S. Florida, Texas, and California remained hotspots to watch and are part of a larger group of 18 states that a White House task report designated as coronavirus “red zones” that it recommends should roll back their reopenings. Nonetheless, markets dismissed the latest coronavirus news to push the Dow to a 2.30% weekly gain.

Stimulus Burns Hole in Consumers’ Pockets

With stimulus checks and extended unemployment benefits in hand, consumers were ready to splurge as more states loosened stay at home restrictions in June. Retail sales for the month rose 7.50% as consumer spending returned to pre-Covid levels. Popular among shoppers were big-ticket items such as motor vehicles, up 8.2%. Home décor for the work from home crowd helped push furniture sales up 32.50%. Clothes jumped off the rack and on to consumers, with sales increasing a whopping 105.10% as shoppers took advantage of the deals offered by struggling retailers. Restaurants and bars also got a bump, up 20%. Overall, it was a strong report, showing consumers are confident in spending. The wild card remains to what degree the rollback in openings dampens consumption at a time when the job market still shows rising claims for first-time unemployment benefits, stimulus checks are drying up, and extended unemployment benefits are set to sunset.

Industrial Production Gathers Steam

Factories, mines, and utilities gathered steam in June, sending industrial production up a seasonally adjusted 5.40%. That builds from May’s 1.40% gain. Capacity utilization, a measure of slack in the economy, rose to 68.6% in June, up from a revised 65.1% in May. The manufacturing sector led the gains in industrial production, up 7.20% in June, driven by automakers restarting production. Factory restarts also helped utilities, whose output rose 4.20%.

Confidence over rising consumer spending and industrial production prompted investors to dump richly priced growth stocks in favor of unloved, economically sensitive value stocks. As has been the case for many weeks now, markets remain highly confident the U.S. economy will continue to gather steam in the weeks ahead despite the surging number of Covid-19 cases nationwide. This positive sentiment was most evident this week in the first crop of Q2 2020 earnings. Value stocks, led by financial giants Goldman Sachs and JPMorgan, managed to beat estimates due to record-breaking trading profits which helped offset retail banking weakness. Positive earnings surprises should be a regular event this quarter given that the bar has been set extremely low. FactSet forecasts that earnings will fall -44.60%. If this proves to be true, this would be the biggest decline in earnings since Q4 2009 when earnings fell -70% amidst the financial crisis. The market is going to give a pass for Q2 and Q3 earnings just given the fact that the economy is still spinning back up, but they will be acutely sensitive to management’s guidance particularly now that we are seeing some states pull back on their reopening plans as we begin the third quarter.

The Week Ahead

The housing market has sizzled as urbanites have chosen to pick up and move out of the city in an effort to escape Covid-19. We’ll see if the momentum can continue with the latest reports on new and existing home sales. Earnings season also continues with tech and consumer companies reporting results.

Preserving Your Legacy

Over the past 40 years, our advisors have been helping families, couples, and individuals determine optimal paths for the transfer of assets and family businesses to future generations. Throughout the process of establishing the structural aspects of wealth transfer, we remind our clients that estate planning is about more than distributing wealth — it is also an opportunity to pass on your wisdom and values. Our advisors help clients define and communicate their legacy and express their hopes and wishes for heirs and loved ones.

A personal legacy letter which is sometimes called an ethical will is an opportunity to say all of the things that you would say to your friends and family if you knew you only had one last chance. Below are some ideas to consider should you be interested in preparing a letter or letters for loved ones. Our advisors recommend placing at least one copy with your estate plan. Keep in mind it does not have to be a written letter. A family legacy video is another way to preserve a legacy for generational successors.