How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case. –Robert G. Allen

Lately, much of what I have been hearing about the equity market rally off the lows revisits an ongoing theme that isn’t anything new. Investors, pundits, and analysts make the argument about how the equity market is on a sugar high, a hopium trade. According to some analysts, this is the “silly” phase of the market cycle. This talk isn’t anything new, these comments were common all during the Bull market run from 2009 to early 2020. It started with the Fed’s QE programs, then after Trump was elected many proclaimed when the stimulus of the tax cuts and increased government spending wears off, the house of cards will come crumbling down.

Anyone that has been involved in the stock market since the Great Financial Crisis, heard the proclamations that the end of QE was supposed to have the same dire outcome. When the Fed was interjecting liquidity into the system, all investors heard was “this is going to end badly”. It got to the point that anyone bullish and staying invested in the equity market was deemed to be foolish. They were deemed as lambs being led to slaughter. The lambs also realized it was foolhardy and a huge waste of time to keep debating these arguments.

So many investors were focused on that and didn’t see what was unfolding before their eyes. Rather than debating the issue, I simply asked anyone that doubted that bull market a simple question, do you want to be right, or do you want to make money? Clutching on to an idea and reciting a litany of reasons why they just have to be correct shows tremendous conviction. Therein lies a problem for all investors. It is a fine line between conviction and stubbornly holding on to an idea that simply isn’t working. That goes for both Bulls and Bears. It’s why the practice of looking at all of the data with an open mind is the only way to manage money.

Price action was once again highlighted last week as being the first metric to watch. Market participants often take their convictions to extremes in the face of interpreting what the market is telling them. The biggest problem for most is due to that mountain of data, an investor can easily be tricked into seeing something that isn’t there. That is partly true because humans are inherently irrational and can be a victim to wild emotional swings. Then the errors start to mount up.

The right thing to do is recognize that this is human nature at work, and in most cases, it is this issue which is the underlying cause of that poor performance. Once this is recognized, it helps the average investor make better, less emotional decisions.

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There are times when feeling bullish is pretty easy and then there are times when it feels pretty lonely. When equity markets are at or near all-time highs, not many want to step out on a limb and suggest there is more to come. During those times, the majority believe the odds are against anyone bullish. In reality that doesn’t work very well.

No one is going to be correct 100% of the time when it comes to the stock market. Being right more often than wrong enhances a person’s chance of better returns over the long run. What helps that percentage is knowing when your stance is, or is not, paying off.

Investors who saw the decline but didn’t “panic sell” when all looked lost in March made the right call. They realized that history has shown that time and time again, after the first wave of declines, the market does indeed bounce back to the old trendlines. The same trendlines that they followed to carry them to bull market highs. Patience once again paid off. The rally took on a life of its own and as we have seen so many times before, the majority that called for a retest of the lows and another devastating leg down that was to follow were dead wrong.

They pulled the ripcord believing they were going to “save” themselves. Instead, their knee jerk reactions left them vulnerable. Now they find themselves falling back to earth. Their parachute never opened. Another lesson learned.

For those that wish to follow their convictions that “virus” worries, geopolitical risks, huge deficits, the upcoming election, the Fed, and overvaluations are all set to undermine the stock market, they may just want to stop and reflect for a moment. Ask yourself if you have learned anything in the last 3 months. At some point, you may be correct, but for the present, do you want to be right, or do you want to make money?

Before anyone wants to be overly critical, let me be clear that I’m not calling for a “bet the farm”, “all-in” approach here. We take what the market is giving us. If you weren’t participating in the market on the BUY side to some degree in the last two months you need to change your approach and/or change your advisor. The price action was telling investors what to do. Not many were listening, as every excuse was cited for a reason to be cautious.

While the days in March and early April were very difficult, many suffered from analysis paralysis and then turned to their own biases to guide decision making as opposed to listening to the actual message of the market. They were all looking for the “perfect” set up across technicals and economic data to become bullish.

Over the last week or so several analysts/strategists that I follow from time to time have now turned bullish or at the very least are recommending an increase in equity exposure. For some, that’s a tough pill to swallow if one has heeded their advice and are now “forced” to put cash to work after the 40+% eye-popping surge off the March lows.

Weakness is being bought, cash is being rotated to different sectors of the market now. If we stay with the mantra of “Keeping it Simple” that is all one needs to know right now. Those that over-analyzed, and overthought the stock market in early April are in a quandary now. It’s best NOT to join them by making what at times is a simple situation more complex.

Americans were subject to nonstop domestic rioting as a backdrop that opened up the trading week. History shows that civil unrest is usually not an issue for the market. Despite the wall of worry, stocks started the month of June off on a positive note. The major indices closed fractionally higher on Monday. Breadth was solid with every sector except for Health Care moving higher. The Russell 2000 once again a sign that the economy will start to improve, led the way rising just shy of 1%.

More negative headlines, and more new reactionary highs as there was no turnaround this past Tuesday. The Dow 30 was the winner on the day gaining 1%, as money is rotating from sector to sector in a day where all eleven sectors were positive. Breadth was fine with advancers outnumbering decliners by 3:1. The Russell 2000 posted another gain bringing the two day total to 1.7%.

While the media continued to be consumed by the social unrest and the financial analysts were consumed by the notion that stocks can’t go higher, that is exactly what they (stocks) continued to do. Plenty of traders, investors started the week looking for spots to hedge, and by Thursday morning were declared roadkill.

The Bears are still trying to tell us we are going to test the lows and the next leg down is about to begin any day now. Well, at least that was their tune in early April. That advice and approach turned out to be financial suicide.

For the week the S&P posted a 5% gain closing the week at 3194. That is less than 6% from the all-time high as the index is down only 1% for the year. Speaking of new highs the Nasdaq 100 (NDX) set a new all-time high this week. The Nasdaq Composite (COMPX) is a mere 3 points from a new high and is UP 9% in 2020. A solid 6.8% gain for the DOW 30 left the index some 8% off the old high and in need of some catching up.

That is quite a message from Mr. Market.

The STOXX 600 is not at new rally highs, but it has rallied strongly with positive breadth. The bank stocks, travel stocks, and oil & gas led the move higher but every sector is flashing green as European reopenings continue and case counts continue to fall.

As of May 28th, Norway (ENOR), Canada (EWC), Australia (EWA), Sweden (EWD), and Germany (EWG) are up the most since the March 23rd low for the S&P 500, but Sweden (EWD) is the only one of these five countries that are up year-over-year as well.

Hong Kong (EWH) and China (MCHI) have rallied the least since March 23rd, while Brazil (EWZ) is by far down the most over the last year. The US (SPY) is up 35% since 3/23, but even more impressive are its gains over the 2-year, 3-year, and 5-year windows.

While we hear the grass may be greener elsewhere, over the last five years, SPY has significantly outperformed every other country.

The U.S. has regained all of its share of the global market cap that was lost during the crash and has recently added to that share. That now stands at 41.4% of all global stock market cap. China, on the other hand, has continued to lose share since peaking in mid-March. Before Covid that share was just under 11.5% it stands at 9.4% today.


The Atlanta Fed’s GDPNow model sees a 52.8% contraction in Q2 vs. its prior estimate of -51.2% as consumer spending and business investments are expected to pull back even more.

U.S. construction spending report revealed an April headline drop of just -2.8%, following big upward revisions for February and March that left a much stronger than expected report. Analysts still saw a -0.9% March construction spending drop, but February was sharply revised to 0.2% from -2.5%. Analysts saw big upward revisions to residential and nonresidential construction and smaller upward revisions for public construction.

ISM rise to 43.1 in May from an 11-year low of 41.5 in April left an upturn in line with the other major sentiment measures, leaving a bottom in April that never breached the prior recession-low of 34.5 in December of 2008, or the all-time low of 30.3 in June of 1980. All of the components improved, except for deliveries and imports. The ISM survey has shown greater resilience to shutdowns than the other sentiment surveys, though the headline and component indexes are still at weak levels despite the May bounce.

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index posted 39.8 in May, up from 36.1 at the start of the second quarter. Although slightly higher than April’s recent low, the latest figure signaled the second-steepest deterioration in manufacturing operating conditions since April 2009.

Chris Williamson, Chief Business Economist;

“Manufacturing remained in a deep downturn in May, as measures taken to contain the spread of COVID-19 continued to cause production losses, disrupt supply chains and hit demand. Job losses meanwhile continued to run at one of the highest rates in over a decade, and pricing power has collapsed.”

“With increasing numbers of companies restarting production, we should see some improvements in the output trend in coming months, and it was reassuring to see signs of the downturn already starting to ease in May, suggesting April was the eye of the storm as far as the production collapse is concerned.”

“There remains a high risk that any recovery will be frustratingly slow as ongoing social distancing measures, high unemployment, job insecurity and damaged balance sheets constrain consumer and business spending. The recovery will of course also fade quickly if virus infections start to rise again. For now, however, we focus on the good news that we may be past the worst in terms of the economic decline.”

The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 37.5 in May, up from April’s record low of 26.7 and slightly higher than the ‘flash’ figure of 36.9.

ISM-NMI Services index rise to 45.4 in May from an 11-year low of 41.8 in April was accompanied by an ISM-adjusted ISM-NMI bounced to 45.9 from an 11-year low of 42.8 in April. The producer sentiment reports are documenting a May rebound in most headline and component measures following out-sized declines in April, as producer sentiment is turning the corner into May with re-openings.

The U.S. jobs report was much better than feared. The unemployment rate was 13.3% in May, after rising to 14.7% in April. Nonfarm payrolls increased 2,509k after the -20,687k drop previously. Hourly earnings declined -1.0% in May following the 4.7% surge in April which was distorted by a concentration of layoffs in low-wage categories. Hours worked increased to 34.7 from 34.2. The labor force rose 1,746k from -6,432k while household employment climbed 3,839k from -22,369k. The labor force participation rate edged up to 60.8% after tumbling to 60.2%


Lower interest rates, a desire to get out of cities, remote work, catch-up after a delayed spring buying season all possible reasons why mortgage applications for purchase are soaring despite tens of millions of unemployed. With the 5.3% gain this week, they’re up 62% from mid-April lows and sit less than 7% below expansion highs from mid-January.

Global Economy

The J.P.Morgan Global Manufacturing PMI, a composite index produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM, posted 42.4 in May, up from 39.6 in April. Rates of contraction for many of the survey variables, including output, new orders, new export business, the number of purchases, and future output remained at depths unseen outside of either the current pandemic or the global financial crisis of 08/09 (albeit less marked than April).


The ECB left rates unchanged. The Governing Council voted to keep the main deposit rate at the historic low of -0.5%, in line with market expectations.

The ECB forecast annual real GDP growth for the euro area at 1.2% in 2019, 1.1% in 2020, and 1.4% in 2021 and 2022, an upward revision of 0.1% for 2019 and a downward shift of 0.1% for 2020 compared with September’s projections.

ECB boosts security purchases under the pandemic emergency program nearly doubling its pandemic emergency purchase program by €600B ($676B) to €1.35B and extending the PEPP to at least the end of June 2021.

“The PEPP expansion will further ease the general monetary policy stance, supporting funding conditions in the real economy, especially for businesses and households.”

The rebound from the bottom continues with China showing the largest improvement. Global markets may be viewing the China data as the “recovery roadmap” that other countries will follow.

A six-point rise brings the IHS Markit Eurozone Manufacturing PMI to a two month high. However, at 39.4, compared to April’s survey record low of 33.4, the index still indicated a considerable rate of contraction in operating conditions. Despite being generally looser across the region compared to April, government restrictions designed to limit the spread of the global coronavirus disease (COVID-19) continued to severely hamper the sector.

Posting 31.9, the IHS Markit Eurozone PMI Composite Output Index rebounded following April’s survey low. That was higher than the flash reading of 30.5 and the April reading of 13.6, the best level in three months.

Chris Williamson, Chief Business Economist at IHS Markit;

“The scale and breadth of the eurozone downturn were highlighted by the PMI data showing all countries enduring another month of sharply falling business activity. Eurozone GDP is consequently set to fall at an unprecedented rate in the second quarter, accompanied by the largest rise in unemployment seen in the history of the euro area.”

“Encouragingly, while rates of decline of both business activity and employment remained shockingly steep for a third successive month in May, the downturn has already eased markedly in all countries surveyed. Optimism about the outlook has also returned to Italy and, to a lesser degree, France, while pessimism has moderated markedly in all other countries.”

“Providing there is no resurgence of infection numbers, the planned lifting of lockdowns will inevitably help boost business activity and sentiment further in the coming months.”

The headline seasonally adjusted Chinese Purchasing Managers’ Index, a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – rose from 49.4 in April to 50.7 in May. The above 50.0 reading signaled a renewed improvement in overall operating conditions midway through the second quarter, albeit one that was only marginal.

Dr. Wang Zhe, Senior Economist at Caixin Insight Group;

“The Caixin China General Manufacturing PMI rebounded to 50.7 in May after falling into contractionary territory the previous month, reaching its highest level since January. Supply was generally stronger than demand in the manufacturing sector, as production continued its expansion amid a broader economic rebound while demand had yet to recover.”

1) While manufacturing output continued expanding at a faster clip, total demand only improved slightly due to sluggish external demand. Economic activity gradually came closer to normal with more businesses resuming operations as the domestic coronavirus epidemic was largely brought under control. The output subindex rose further into expansionary territory, posting its highest reading in more than nine years. In contrast, the recovery of demand lagged, as the subindex for total new orders remained in contraction territory despite rising slightly from the previous month. New export orders continued to drop sharply, pointing to a contraction in foreign demand amid the pandemic.

2) The gauge for backlogs of work dropped into negative territory for the first time in more than four years, as supply recovered more strongly than demand, allowing many backlog orders to be fulfilled. A production expansion led to a further drop in inventories of purchased items, and the measure for stocks of finished goods dropped into contraction territory as logistics recovered. Production resumption also helped boost purchasing activity and the labor market. The gauge for quantities of purchased items returned to expansion territory, and the employment subindex also rebounded from the previous month, although it remained in negative territory. That said, pressure on the job market should not be underestimated.

3) Downward pressure on the prices of industrial products continued. The gauge for input costs rose slightly despite staying in contractionary territory, as bulk commodity prices rebounded in May from a low level the previous month. Output prices remained largely flat amid a slow demand recovery. Manufacturers saw signs of improvement in profitability as the gap between output prices and input costs grew wider.

4) The measure for future output expectations rebounded markedly to the same level as before the coronavirus outbreak. Manufacturers’ confidence in the economy for the next 12 months rose sharply, as restrictions were lifted as China’s domestic outbreak abated and its economy returned to normal, and some countries outside China started partially resuming work.

“To sum up, manufacturing production recovered faster than demand as the domestic economy recovered from the epidemic. Sluggish exports remained a big drag on-demand as the virus continued spreading overseas. Stabilizing the job market is a top priority on policymakers’ agenda this year, as shown in last month’s government work report. Boosting employment is not an easy task, as the employment subindex in the Caixin manufacturing PMI survey has remained in contractionary territory for five months in a row.”

At 55.0 in May, the seasonally adjusted headline Chinese Business Activity Index rose from 44.4 in April to signal the first increase in services activity since January. Furthermore, the rate of expansion was the steepest recorded since October 2010. Companies mentioned that an easing of restrictions related to the COVID-19 outbreak had driven the renewed expansion of activity.

Dr. Wang Zhe, Senior Economist at Caixin Insight Group;

“The Caixin China General Services Business Activity Index rose to 55 in May from 44.4 the previous month, marking the index’s first return to expansion territory since January and its highest level since October 2010. The recovery of the services sector accelerated last month.”

1) Supply and demand both recovered quickly in the services sector. The business activity index hit its highest reading in nearly 10 years, as service providers accelerated resumption of work after the domestic Covid-19 outbreak was largely brought under control. The measure for new business also reached its highest point in almost 10 years, returning to positive territory. External demand remained sluggish, however, as the pandemic continued raging overseas. The gauge for the new export business remained in negative territory for the fourth straight month.

2) Employment in the services sector remained worrisome. The employment gauge stayed in negative territory for its fourth month in a row despite rebounding slightly as the supply and demand situation improved. Most companies in the survey expressed caution about expanding hiring, citing concerns over “cutting costs and improving efficiency.” Input costs for service providers remained stable in May, while the prices they charged customers declined slightly, pointing to the insufficient recovery of business activity.

3) Service companies remained optimistic about their business over the next 12 months and the gauge for future activity was broadly stable, as restrictions were gradually lifted after China’s domestic outbreak began to abate and supply and demand in the broader economy both recovered.


The headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index, a composite single-figure indicator of manufacturing performance – recorded below the neutral 50.0 level yet again in May, falling for a fourth successive month to signal a sharper rate of deterioration in the health of the sector than in April. At 38.4, the headline figure slumped from 41.9 in the previous month to its lowest since March 2009.

Joe Hayes, Economist at IHS Markit;

“While Japan has lifted the state of emergency across most parts of the country, making way for a restart of its economy, the latest survey data indicated that the manufacturing sector downturn is playing catch-up. “May survey data revealed that production volumes are falling at an even faster rate than in April. Anecdotal evidence tells us that this is the result of collapsing demand, which according to the PMI, fell at the sharpest rate since the global financial crisis. Exports also fell drastically, highlighting the extreme challenges that global manufacturers will be faced within the coming months as countries emerge from lockdown.”

“While easing lockdown measures will be positive for the economic environment, it is clear that dislocations will remain, which will continue to hinder supply chains, impact global trade and make operating conditions challenging for manufacturers. “Until we see a sustained improvement in demand, manufacturing conditions are likely to remain fragile.”

The seasonally adjusted Japan Services Business Activity Index recorded 26.5 in May, still substantially below the 50.0 mark which separates contraction and growth, and therefore indicated a further decline in service sector output. Although the headline figure increased from April’s record low of 21.5, it remained indicative of a contraction in the activity that was unparalleled in comparison to those seen since data were first collected in September 2007.

Joe Hayes, Economist at IHS Markit;

“While the month of May has seen the Japanese government reduce the stringency of its lockdown, the latest survey data indicated that economic activity continued to sink at a rate which had previously been unrivaled before the coronavirus crisis began.”

“Services activity fell to a broadly similar extent to that seen in April as store closures continued and events were canceled. Social distancing and reduced tourism are clearly having a severely negative impact on the service sector, and these factors are likely going to limit the speed and strength of any recovery as they continue over the short-to-medium term.”

“Looking at May’s survey data in isolation, the reading of the Composite PMI is indicative of GDP falling by around 10% on an annual basis. Taking into consideration the April reading, which was even worse, it is clear that the impact on second-quarter GDP is going to be enormous.”

At 30.8 in May, the seasonally adjusted IHS Markit India Manufacturing PMI rose from 27.4 in April. The latest reading pointed to another substantial decline in the health of the Indian manufacturing sector, albeit one that was slightly softer than recorded in April.

Eliot Kerr, Economist at IHS Markit;

“The latest PMI data suggested that Indian manufacturing output fell further in May. This result is particularly poignant given the record contraction in April which was driven by widespread business closures. The further reduction in May highlights the challenges that businesses might face in the recovery from this crisis, with demand remaining subdued while the longevity of the pandemic remains uncertain.”

The IHS Markit India Services Business Activity Index recorded 12.6 in May. Although the headline figure rose from April’s unprecedented low of 5.4, it remained at a level which, before the coronavirus pandemic, was unparalleled in over 14 years of data collection and pointed to an extreme drop in services activity across India.

Joe Hayes, Economist at IHS Markit;

“Service sector activity in India is still effectively on hold, the latest PMI data suggest, as output fell at an extreme rate once again during May. Given the stringency of the lockdown measures imposed in India, it is no surprise to see the severity of the declines in April and May.”

“Demand for services, both domestically and overseas, continued to plummet in May as clients’ businesses remained closed and footfall remains drastically below normal levels. With economic output set to fall enormously in the first half of 2020, it is clear that the recovery to pre-COVID-19 levels of GDP is going to be very slow.”

The headline IHS ASEAN Markit Purchasing Managers’ Index data registered 35.5 in May, up from April’s nadir of 30.7, but indicating a third successive deterioration in the health of the manufacturing sector. The headline figure was the second-lowest recorded since the series began in July 2012. Both factory production and order book volumes continued to fall sharply, albeit at softer rates than in April as some lockdown restrictions were loosened. Many firm’s output expectations picked up from April’s record low but remained among the weakest on record.

Lewis Cooper, Economist at IHS Markit;

“ASEAN manufacturing sector performance remained weak during May, with operating conditions deteriorating at the second-quickest rate since the series began in July 2012 as the COVID-19 pandemic continued to negatively impact the sector.”

“May data highlighted further rapid contractions in both output and new orders. Although the rates of decline were not as severe as those seen in April due to the slow reopening of economies, they nonetheless remained historically marked.”

“Meanwhile, substantial job cuts continued in May as client demand remained muted. Many firm’s expectations with regards to output did improve from April’s nadir, but only slightly. Notably, each of the seven monitored countries remained mired in a downturn for the third month running during May, which lays bare the enormous impact the pandemic is having on the sector. Although data appear to suggest that the downturn bottomed out in April, ASEAN manufacturers are still a long way from a recovery.”

The seasonally adjusted headline IHS Markit Hong Kong SAR Purchasing Manager’s Index rose from 36.9 in April to 43.9 in May, its highest in four months. That said, by remaining below the no-change 50.0 level, the latest reading still registered a decline in the health of the private sector.

Bernard Aw, Principal Economist at IHS Markit;

“The Hong Kong SAR private economy remained mired in a downturn during May, though the PMI survey showed signs that the economic decline is bottoming out as parts of the economy reopened.”

“The Hong Kong SAR PMI rose from 36.9 in April to 43.9 in May, its highest in four months, as the declines in output and sales eased. Notably, the reduction in sales to mainland China slowed to the weakest for a year.”

“While job losses persisted in May amid reports of further layoffs, the rate of job shedding weakened. There was evidence that government wage subsidies reduced employment costs and had helped with staff retention.”

“That said, business sentiment remained weak as firms continued to worry about the longer-term impact of the COVID-19 pandemic on economic activity.”

The seasonally adjusted IHS UK Markit/CIPS Purchasing Managers’ Index rose to 40.7 in May, up from a record-low of 32.6 in April. Despite the increased level of the PMI, it still signaled a marked deterioration in overall operating conditions. The headline index is at its seventh-lowest level, at depths unseen outside of the current pandemic and the global financial crisis of 2008-09. May 2020 survey data were collected between 12-26 May.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply;

“Though less severe than the wrecking losses of last month, continued supply chain disruptions resulted in another strong contraction in the manufacturing sector as output fell at its fourth-fastest rate in the near 30-year survey history.”

“With new orders from home and abroad drying up for the third month in a row, company owners watched helplessly as the result of factory shutdowns, raw material shortages and furloughed staff continued to eat away at their operations. With no new pipeline of work to fulfill, purchasing dropped at one of the fastest rates for three decades as companies focus their attention on completing any work in hand with current stocks of materials and with what little capacity remained in factories.”

“Even with the slight uplift in May’s sentiment as firms began to recover from the initial shock and looked to the future, optimism remained depressed. Worries over safety for returning staff and repairs to broken supply chains will be uppermost in business minds and are obstacles to be overcome before real recovery can begin. Uncertainty remains the watchword for the months ahead.”

At 29.0 in May, the headline seasonally adjusted IHS Markit/ CIPS UK Services PMI Business Activity Index remained well below the 50.0 mark that separates expansion from contraction but rose slightly from the earlier ‘flash’ estimate of 27.8. The latest reading was also up from 13.4 in April, to signal a slower pace of decline than in the previous month

Tim Moore, Economics Director at IHS Markit;

“The COVID-19 pandemic continued to have a severe impact on UK service sector activity in May, despite a boost in some areas from the gradual easing of lockdown measures. Survey respondents noted that deep cuts to corporate spending had been a major factor dragging down business activity in May, leading to a lack of work to replace completed projects.”

“A number of firms cited limited opportunities to win new orders with clients placed on furlough, as well as a hit to workloads from the postponement of new projects. Consumer demand also remained very subdued, with large areas of the service economy still in the planning stage of restarting business operations.”

“Service providers recorded another modest improvement in their business expectations from the low point seen in March, with some hope that the reopening of clients’ business operations would start to boost activity in the coming months.”

“However, customer-facing businesses continue to report extreme levels of concern about their near-term prospects, with efforts to adapt to social distancing measures set to hold back capacity and generate a sharp increase in costs.”


The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index registered 40.6 in May, up from 33.0 in April but still well below the neutral 50.0 threshold. The latest declines in output, new orders, and employment were all less severe than in April, but still, the second-fastest since the survey began nearly ten years ago.

Commenting on the PMI data, Tim Moore, Economics Director at IHS Markit;

“May data highlights that the Canadian manufacturing sector remains on a steep downward trajectory, despite the speed of decline moderating from April’s survey record. A severe drop in demand from both domestic and export markets amid the COVID-19 pandemic resulted in sharp cutbacks to production volumes. While some survey respondents commented on a gradual reopening of manufacturing supply chains, business operations were still adversely impacted by longer lead times for critical inputs and low stocks among suppliers. At the same time, exchange rate depreciation against the US dollar also fed through to higher purchasing prices in May.”

“The latest survey pointed to widespread job cuts across the manufacturing sector. Around four times as many survey respondents reported a fall in employment as those indicating an increase in May, which was mostly attributed to concerns about the long-term impact of the COVID-19 pandemic on manufacturing workloads.”

Earnings Observations

Refinitiv Research Q1 ’20;

  • Earnings are expected to decrease by 12.6% from 19Q1. Excluding the energy sector, the earnings growth estimate is -11.9%.
  • Of the 489 companies in the S&P 500 that have reported earnings to date for 20Q1, 65.4% have reported earnings above analyst expectations. This compares to a long-term average of 65% and a prior four-quarter average of 74%.
  • Revenue is expected to decrease by 1.4% from 19Q1. Excluding the energy sector, the growth estimate is -0.5%.

The Information Technology and Health Care sectors have the highest earnings growth rates for the quarter, while the consumer discretionary sector has the weakest anticipated growth compared to Q1-’19.

The Political Scene

The Senate passed the House-approved extension of the Paycheck Protection Program by unanimous consent. A bill that loosens requirements on hundreds of billions of dollars in forgivable small-business loans. This action will extend the timeline for the next comprehensive package, possibly until sometime in July, as lawmakers continue to gauge the impact of the current relief programs.

Last year, any sanctions between the US and China would have rattled the financial markets, but currently, the escalating tensions between the two have not been a distraction for the equity market. Over the last several weeks, the Senate passed legislation to delist foreign companies from US exchanges should certain audit requirements fail to be met, the Commerce Department expanded export controls to limit Huawei’s access to critical supplies, and the State Department declared that Hong Kong is no longer autonomous from China. Overall, the actions taken seek to limit China’s access to the US capital markets, protect US intellectual property, and address civil liberty violations.

China’s push forward on a national security law for Hong Kong adds a significant geopolitical strain on the overall US/China relationship with potentially significant commercial and economic implications. We are now entering the most sensitive part of the process, as the US and international partners will demonstrate the costs for China’s imposition of the law, which is expected to be drafted in the coming weeks before being implemented later this year.

This week’s revocation of Hong Kong’s distinct entity status by Secretary of State Pompeo lays the groundwork for punitive measures out of Washington targeting China. This could come in the form of enhanced export controls, visa restrictions, increased tariffs, and financial markets restrictions – but the Trump administration is likely to be more deliberative in its process as to limit the harm to Hong Kong as a result of China’s actions. Geopolitical questions like this have been a major source of friction in the US/China relationship, and have the potential to affect the broader economic relationship given the various pressure points that have risen recently.

The potential risk seems underappreciated by the market at the moment. However, it remains front and center on the radar screens of those that are looking for a catalyst to take stocks lower. I doubt we see any more serious saber-rattling until after the election.

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The Fed

The 10-year Treasury bottomed at 0.40% over the worldwide fears that are present. The 10-year note yield rallied off those lows to 1.18%. A trading range under 1% has been established now with the 10-year note surging this week to close 0.91%, up .26% from the prior weekly close.

The 3-month/10-year Treasury curve inverted on May 23rd, 2019, and remained inverted until mid-October. The renewed flight to safety inverted the 3-month/10-year yield curve once again on February 18th, and that inversion ended on March 3rd. The 2/10 Treasury curve is not inverted today.

Source: U.S. Dept. Of The Treasury

The 2-10 spread was 30 basis points at the start of 2020; it stands at 69 basis points today.

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AAII’s weekly survey of investor sentiment showed 34.5% of respondents reported as bullish this week which is up from 33.0% last week. While a smaller increase than the past couple of weeks (1.48 percentage points compared to 4.07 percentage points last week and 5.69 percentage points the week before), this was the third consecutive week with bullish sentiment moving higher. At the current reading, bullish sentiment is at its highest level since mid-April.

Meanwhile, bearish sentiment has continued to fall from its elevated levels. Bearish sentiment fell back below 40% to 38.8% this week. That is the first time that bearish sentiment has been below 40% in 12 weeks. In the history of the AAII survey, there were only two other streaks above 40% that ran that long if not longer: one ending in December of 1990 at 19 weeks and another ending in March of 2008 at 14 weeks. S&P 500 performance following both of those past occurrences differed greatly with the index higher by 17% six months later in 1990, but down over 10% in 2008.

Crude Oil

WTI continued to climb topping $39 this week for the first time since early March. That is despite inventories ex SPR sitting at their sixth-highest level on record at 532 million barrels. That was a draw of 2.07 million barrels compared to estimates of a 3 million build. Including SPR, inventories rose by 1.9 million barrels. Meanwhile, domestic production has continued to slide falling to 11.2 mm bbls/day which is the lowest reading since late October of 2018.

Domestic production has also now declined for 9 consecutive weeks which is the second-longest streak ever behind one that ran for 12 weeks in 2016. After last week’s surge of 7.2 mm bbl/day in imports, this week saw a decline of 6.18. Even after that drop, though, they remain at higher levels than most of the past several weeks.

Gasoline demand remains weak at 7.55 mm bbl/day but has continued to grind higher alongside refinery throughput which rose for a fourth consecutive week to 13.3 mm bbl/day.

The price of crude oil closed the week at $39.07, which was an increase of $3.91 for the week, bringing the five-week gain to $19.59.

The Technical Picture

When trading ended on Wednesday it was 50 trading days since the S&P 500 made its COVID-Crash closing low on March 23rd. Since then, the S&P is up 39.3%. That’s the strongest 50+ day move for the index since 1952 when the U.S. stock market went to the five-day trading week.

The 39.3% gain is the strongest 50-day move for the S&P in 75+ years. Despite what we may think about what will happen next, history shows sharp moves higher like this have nearly always been met with further buying over the next one, three, and six months. Strength begets strength.

Chart courtesy of

The S&P 500 is stretched now and with that the calls for a pullback grow louder. This is a strong bull market trend now and surprises usually occur on the upside. There is some resistance at various levels before the index gets back to the old high. Perhaps a bumpy ride is next but for some, this last ride has been smooth sailing.

No need to guess what may occur; instead it will be important to concentrate on the short-term pivots that are meaningful. However, the Long Term view, the view from 30,000 feet, is the only way to make successful decisions. These details are available in my daily updates to subscribers.

Short term views are presented to give market participants a feel for the current situation. It should be noted that strategic investment decisions should NOT be based on any short term view. These views contain a lot of noise and will lead an investor into whipsaw action that tends to detract from the overall performance.

As we were forced to watch the rioting here in the U.S for well over a week now one has to wonder why the mandate to protect life and property was abdicated. Ironic that the same “leaders” that draft legislation to denounce China and the Hong Kong scene, are nowhere to be found when it comes to denouncing this issue which can only be called an embarrassing event in our backyards.

For those that have never experienced this horrific social unrest in their investment lives, take note that despite the ugliness, the stock market is rarely fazed by these events. That is because the equity market is always looking ahead and past what is deemed will be “temporary”.

However, one difference this time is the fact that the destruction of property is putting an enormous burden on business across the country in a time when many were just about to see the light at the end of the tunnel created by the virus scare. This has to quelled very soon.

The stock market is shrugging off the “riot” news and focusing on a data point this week that points to a meaningful change in the virus outlook. Over 400,000 COVID tests are being done in a single day now, and the “positive” test results have dropped to 4%.

The market has a way of finding out the facts, even when they aren’t reported as a major headline.

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Individual Stocks and Sectors

Ultimately all of us want good growing businesses at decent prices (Growth stocks), or maybe slower-growth assets in situations where the business/asset is ridiculously underpriced versus fundamental reality (Value stocks). Two distinct choices.

A long way of saying be careful chasing “value” and make sure there is (1) something of real value to own, or (2) an asset sensitive to a specific demand-rebound, or (3) an asset tied to a specific event/catalyst that will unlock the value. Finally, understand the moves in the cyclical sectors will be betting on improved growth indicators, so if there is a pause or stumble in the data, those names could suffer.

Bottom Line; Managing your money isn’t easy.

There is no shortage of negative catalysts for investors to be wary of. The main issue that any are focused on, the stock market is way ahead of the economy. That has created a huge disconnect between Wall Street and Main Street. Markets have shrugged off “overwhelming” and “devasting” news flow.

The others include second virus waves, secondary effects of shutdowns, U.S.-China tensions, election uncertainty, and civil unrest.

On the first issue, any investor stating that as their main concern needs to learn how the stock market works. As far as the disconnect, savvy investors reconciled that issue over a month ago when others were calling for the next leg down.

‘Balance’ – A Winning Strategy For Investors

They also realized, the remainder of the “issues” that have a majority of market participants so concerned are all legitimate, but also fall into the camp of “what if”.

So it seems we are back to square one with the same rinse and repeat “story” from the Bears as they now will take advantage of the corporate news vacuum between earnings seasons. All of those issues are “prime time“ financial news now. I realize the role human nature plays in the world of investing, but I am continually amazed at how so many look for the negative ending instead of realizing where we are in a given situation.

By the way, it is never about seeing down to the end of the road and making predictions. It is all about assigning probabilities to the issues that we can see and following all of the signals that are in front of us. Then forming an opinion and strategy. Telling me that a “what if” issue could cause the next crisis is thinking with blinders on and not looking at all of the other factors around us today.

“Today” being the operative word. I’ll also remind the obsessive crowd that whatever will cause the negative ending they so are fearful of is more than likely an unknown event or issue, and their fortune-telling prowess won’t identify the cause “today”. No one told us the next bear market was coming about due to a virus. No one. Believing that one can say today that “this or that” issue will bring about a devastating pullback or another debilitating market crash is tantamount to believing in the Easter Bunny.

So instead of searching for the end, I would rather spend my time dealing with the present. That scenario is telling me to stay with what has been working. Of course, if one has been involved in the equity market and recognized the trend that was in place regarding individual stocks and sectors, they can surely harvest some very handsome profits now. Remember greed is second only to fear.

The present is telling me the probability of higher stock prices remains elevated. Some seasonal factors point to near-term risks. The S&P is at the top of its trend channel, and June seasonally has not been a good month. Add in the noise from the bears during the corporate news vacuum between earnings seasons and there could be some weakness. That said, attempting to predict when the rally slows down then turns is always a fool’s game. Investors need to ask themselves if it is worth trying to time what could be a weak period by trimming exposure now. Then decide when they should get back in and re-deploy if the market does turn higher again. The age-old dilemma.

I don’t forecast sell-offs or try to attempt to call an intermediate top. Many are astounded and can’t believe where the S&P is trading today. Far too many were waiting for the economy to re-open before they committed money. Wrong. By the time the economy is re-opened and things are almost back to “normal” the S&P will probably have put in an interim high and will be headed down. That is how the Stock market “works”.

The market was sending signals, the question was how many were listening. Suffice to say the place to be was to remain invested, and if one played this rally back to current levels to any degree that makes life much better now.

There are 5 reasons stocks could pull back starting tomorrow, and another 5 that says the indices head higher. I guarantee the majority of investors have already settled on the 5 that signal danger ahead.

The best of luck to them, I take it one day one week at a time.

Please allow me to take a moment and remind all of the readers of an important issue. I provide investment advice to clients and members of my marketplace service. Each week I strive to provide an investment backdrop that helps investors make their own decisions. In these types of forums, readers bring a host of situations and variables to the table when visiting these articles. Therefore it is impossible to pinpoint what may be right for each situation.

In different circumstances, I can determine each client’s situation and requirements to discuss issues with them when needed. That is impossible with readers of these articles. Therefore I will attempt to help form an opinion without crossing the line into specific advice. Please keep that in mind when forming your investment strategy.

Thank you #2.jpg to all of the readers that contribute to this forum to make these articles a better experience for everyone.

Best of Luck to Everyone!

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Disclosure: I am/we are long EVERY STOCK/ETF IN THE SAVVY PLAYBOOK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: My portfolios are ALL positioned to take advantage of the bull market with NO hedges in place.
This article contains my views of the equity market, it reflects the strategy and positioning that is comfortable for me.

IT IS NOT A BUY AND HOLD STRATEGY. Of course, it is not suited for everyone, as each individual situation is unique.

Hopefully, it sparks ideas, adds some common sense to the intricate investing process, and makes investors feel calmer, putting them in control.
The opinions rendered here, are just that – opinions – and along with positions can change at any time.

As always I encourage readers to use common sense when it comes to managing any ideas that I decide to share with the community. Nowhere is it implied that any stock should be bought and put away until you die.
Periodic reviews are mandatory to adjust to changes in the macro backdrop that will take place over time.

The goal of this article is to help you with your thought process based on the lessons I have learned over the last 35+ years. Although it would be nice, we can’t expect to capture each and every short-term move.