Last week, the Dow (+2.6%), NASDAQ (+3.4%), and S&P 500 (+3.3%) all exhibited strong gains. Conversely, diversified taxable and tax-free muni bond funds were down about 0.5%. The NASDAQ and S&P 500 continue to set record highs, as the S&P 500 has recorded its eighth gain in the past nine weeks. Meanwhile, the Dow is now in positive territory for the year, and lies only 3% below its historic peak, recorded on February 19. The markets were fueled by comments from the Fed that they will continue to be accommodative to the economy, and won’t raise rates even under scenarios when inflation exceeds a previous trigger point of 2%. In short, leaving rates low helps businesses grow and should help the labor market that is still reeling from the COVID pandemic.
So here comes some conflicting data for you. According to Factset, second quarter earnings from the S&P 500 dropped 32% from the same period a year earlier. Yet, a record 84% (since Factset has been recording this data since 2008) of companies exceeded their expectations. Sure, set the bar low and it’s pretty easy to exceed your expectations, right? As you know, I rely very heavily on fundamentals, and those are pretty lousy fundamentals. That said, the stock markets are leading indicators and don’t reflect the current economic conditions, but where they can be expected in 6+/- months. Thus, the stock markets are “predicting” that the economy is on the right track. More recently, I’ve read that many pundits believe that those “predictions” are also relying on a perfect scenario, suggesting that the economy and the markets are only one piece of bad news away from faltering. Thus, the data has definitely been improving, so I have gone from being bearish to still very cautious. I guess that would be considered an upgrade!
Have a great day and week!