A New Bull Market?
In the last couple of weeks, there have been several confirming data points that the stock market rally from the March lows might be for real, as much as people hate to admit it (especially stock market "Bears"). The most recent positive proof was the May jobs report last week Friday, which showed the most job growth in history (+2.5M) compared to expectations of significant losses (-7.5M). While the unemployment rate is still very high at 13.3% (might be revised up to 16.3% based on some data errors), positive news is positive news. All around the US, there are more and more signs of the positive effects of the economy reopening, people going back to work and business conditions improving, albeit at a much lower pace initially due to social distancing protocols. With California and now New York reopening, this positive momentum is set to continue. Professional sports including the NBA are preparing to come back.  Airlines and cruise ship companies are reporting increased bookings. Restaurants and retail establishments are reopening - Mall REITs last week soared almost 50%, with some individual REIT's almost doubling in value and still well off of their highs pre-COVID-19. These include names like Simon Property Group (SPG), Washington Prime Group (WPG) and Pennsylvania Realty Trust (PEI). The bond market last week seemed to also acknowledge the recovery by pushing yields up on longer dated bonds (caused by selling bonds), which would make sense if investors were beginning to rotate some money back into the stock market. Below is a chart of the 30-year treasury bond:
We all know the backdrop of the unprecedented amount of fiscal and monetary stimulus that has been unleashed to fight off the massive and equally unprecedented unemployment and decline in business conditions since the start of the COVID-19 pandemic in early March. Could this be the shortest (and worst) recession on record followed by the shortest (and best) recovery on record? Or was the data we saw last week a "head fake" and will this continue to be a long and protracted recession (with a "U" shaped recovery versus the so-called "V" shaped recovery)? Only time will tell for sure.
In the meantime, it seems best to stay the course with whatever your investing strategy has been, which hopefully includes an allocation to stocks. If you have held on to your stocks through the COVID-19 crisis, much of the losses suffered since March have recovered and you might even be looking to add selectively as cash is available. My stock portfolio strategy is focused on safety / cash flow and is heavy on solid dividend paying stocks. I have recently started selling slightly out of the money call options on highly-liquid and broadly diversified index funds that I own (SPY, QQQ) to generate additional cash flow- see my recent post A Simple Option Trade. I'm still a big believer in broad diversification across multiple asset classes (the Financial Fortress) including real estate, precious metals, stocks, cash and alternative assets (such as royalties and Bitcoin) to weather any storm. However, it's important to also have some cash set aside not only for emergencies, but also to take advantage of opportunities as they arise. It seems that there are definitely some opportunities in the stock market and as the rally continues a focus on of the more beat-up sectors such as retail, restaurants, travel and leisure, small cap stocks, etc. might make sense as part of the "reopening rally" theme. One thing is for sure, historically there is a lot more positive return years in the stock market than negative - about 75% of the time the outcome is positive and 25% it's negative (see chart below):
S&P 500 Historical Annual Returns
I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2020.  Stay safe, healthy and positive.
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