July 14, 2020

Good morning,

After setting multiple all-time records, the NASDAQ finally saw a day of profit taking yesterday, closing down 2.13% - its worst day since June 26.  The S&P 500 also closed lower for the second straight day, finishing down 0.94%.  The Dow bucked the trend by gaining 0.04% for its second straight positive day.

But this was not the story earlier in the day yesterday, when all three major market indices were significantly higher.  In fact, at one point the Dow was up more than 500 points.

So, what changed?  The almost immediate drop in U.S. equities came as CA Gov. Newson announced a state-wide reclosure of all in-dining, bars, gyms, etc. for a minimum of a three-week period.  California is one of a handful of states who have seen a strong resurgence in the number of coronavirus hospitalizations in recent weeks.

“There’s an increasing sense that the recovery from the virus-related shutdown is going to be more drawn out, more uneven than maybe the market was looking for,” said Willie Delwiche, investment strategist at Baird.

Continued economic growth through the resurgence of the virus will be vital to maintain the recent market advance, but likely difficult to achieve at least in the short run.  This may increase the probability of market volatility, especially as more companies are reporting 2nd quarter earnings.