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CWG Market Commentary: Sell in May and Go Away? No Way!

In the month of May, the S&P 500 was up 3%, following a 13% rise in April.

Something happened last week that hasn’t happened in 29 years, according to Macro Ops. "96 percent of the S&P 500 stocks were above their 50-day moving average. That’s after hitting near-record lows in March. The last time breadth hit similar levels was in early 91’ following the 90’-91’ bear market and recession, which then preceded the great 90’s bull market." 

The broad U.S. stock market has averaged annual returns of about 8%, since 1950. With April's rare bounce, i.e. +10% in a single month, followed by a good May, SPX sets up historically to go higher over the next 12 months.  

Here are some the 2020 YTD returns: 

  • S&P 500 -5.8%
  • DJIA -11.1% 
  • NASDAQ Composite +5.8% 
  • IXUS or non-U.S. shares -14.86% 
  • HDV representing high dividend stocks -13.23% 
  • EEM representing emerging market stocks -16.05% 
  • TLT representing 20 yrs + U.S. Treasury bonds +21.2% 

Asset allocation has been key to performance or lack thereof.

Emotional responses including panic selloffs periodically occur in markets.

Needless to say, we have seen very unusual events of late. The reaction of the economy to a national shutdown has been severe.

We are witnessing dramatic GDP declines, soaring unemployment levels not seen since the 1930’s and general pessimism.

The speed of the 2020 decline in both markets and the economy were historic. Everything happens faster these days. The speed of the bounce is both impressive and surprising.

Government imposed lock downs were shocking and a big blow to confidence.

Fortunately, the government’s fiscal and monetary response was both swift and strong. Congress passed a $2.3 trillion spending bill in record time. The Federal Reserve expanded its balance sheet by $3 trillion, also in record time.

In the context of a $20 trillion U.S. economy, that is an enormous rescue package!  These actions explain much of the reason behind the 39% rally off the 3/23/20 bottom.

Despite many dire headlines, stocks have moved steadily higher, climbing a classic "wall of worry."

Now is the time for our economy to rally back as well. We realize that the speed and length of recovery may be less than hoped for. 

Many are fearful that returning to a "pre-Covid normal" is not possible.

Markets, however, indicate a recovery is at hand.

We are thankful for the progress on slowing the virus spread and the mitigation of economic pain in the U.S.A. 

  • China seems well on its way to recovery.
  • Europe is reopening with no ill effects.
  • South America and Africa however are still in the throes of Covid-19's rapid spread. 

Our concerns focus on a renewed confrontation with China.

After the CCP's early suppression of news about this deadly virus, we learned how dependent we are on China for vital medicines, critical materials and supply chains.

The confrontation has begun, and China has reacted by breaking prior agreements made to the global community and Hong Kong citizens.  

The rest of the world has woken up to the dangers of over dependence on far away suppliers of sensitive goods.  

On the domestic political front, we are sadly witnessing violence in our city streets and increased racial tension.

We expect protests and riots may continue over the summer.

Republican and Democratic conventions in August and September will likely draw unruly crowds.

For the moment we appear to have gotten over the worst of the COVID lock down. Now is time to rebuild our confidence and open the economy. It will not be easy or quick if social unrest intensifies.

Covid’s spread has slowed considerably.

Space X brought us the first US manned mission since 2011.

U.S. technology is still the best in the world. This country has a strong work ethic and a will to succeed.

The times are very challenging but American history indicates progress will overcome adversity.

If you have questions or comments, please call or email.

We wish you good health and a safe summer.

All the best,

Doug Coppola 

Executive Director & Investment Committee Chairman