July 7, 2020

Good morning,

After a strong rally to begin the first full week of July, investors are taking a breather today.  The concern has now become that the market has gotten ahead of itself relative to some gloomy forecasts for the U.S. economy.  There are two issue at play here, let’s examine both.

First, better-than-expected employment and manufacturing data for May and June have certainly been catalysts for investors’ bullishness towards buying stocks.  But there is little doubt that some 2nd quarter economic data – GDP in particular – will reflect a significant slowdown in the U.S. economy.  However, that is not news and has been expected since the coronavirus came on the scene months ago.  Some hope that the strong recent economic data may lead to a softer landing for the economy and a swifter recovery.  Of little argument is the outlook for the 3rd and 4th quarters – moderate growth in the 3rd quarter accelerating to substantial growth in the 4th quarter and into 2021.

Second, recent economic forecasts have been anything but accurate.  Just a few weeks ago, market analysts forecasted a loss of more than 8 million jobs – the actual report was that of a gain of 2.5 million jobs – a “miss” of more than 10.5 million jobs.  Last week these same analysts forecasted a gain of 3.1 million jobs – the actual report was of a gain of 4.8 million jobs – another significant miss.  This is all to say that market forecasts should be taken with a grain of salt, and not necessarily the basis for changing one’s investment strategy.

The NASDAQ hit another all-time high this morning of more than 10,400, while the Dow and S&P 500 are experiencing modest declines.  Gold is seeing another rally taking its price for more than 1,800 per ounce.