Market Pulse: Second quarter review
The second quarter was the best for stocks in 20 years and the worst for the economy since the 1930s. Stocks climb and the economy shrinks? How can that be? I’ll explain.
In articles I’ve said that investors won’t need to see better economic data nor read about a new vaccine. All they will need to see is a progression along these lines: First, the bad data, while still worsening, begin to do so at a slower rate. Check. We saw that in April. Then the data level off at a depressed level and slowly begin to improve. Again, check. That was in April and May. Positive data soon appear. Check. Check. That was May and June with record numbers of new jobs, orders for durable goods and strength in manufacturing.
The picture with the vaccine has a similar look. I said investors won’t wait for a vaccine or very effective treatment for the coronavirus. All they’d need to see are signs of progress, even small ones. The speed with which the drug and biotech companies have gone “all in” on virus research is impressive.
All that said, some investors have been selling stocks because they have rallied so much and due to worries about the surge we are now seeing in virus cases (and testing) and some parts of the country are shutting-down once again.
They must believe that the virus will have a long-lasting impact on the economy and earnings. No it won’t. We have lived through financial crises, 9/11, wars and inflation. Through it all stocks bottomed then recovered to set record after record.
We will overcome this virus, too. Don’t doubt it. Still, if the number of new infections rises or even stays where it is for months we can forget about a V-shaped recovery. That’s okay. Nothing wrong with modest growth.
There are always investors who see a half-empty glass, who in both bull and bear markets look for a reason not to buy. They have reasons now. Many professionals and market “experts” are in that group, too.
For people with that condition I have a prescription: Buy good stocks, companies in businesses you understand and whose earnings and dividends will grow over time, though not every quarter or every year.
Buy those that suit your comfort level, then take a long-term view and ignore short-term factors. If symptoms persist, repeat as needed.
David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Consult your financial advisor before purchasing any security.
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