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Streetwise for Friday, July 3, 2020









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Streetwise for Friday, July 3, 2020

“Forecasts are difficult to make…particularly about the future.” Samuel Goldwyn.

It is summertime once again as evidenced by the upcoming Fourth of July holiday, often considered the unofficial start of the beach and barbecue season. It is also when everyone asks the same question…will we see a summer rally on Wall Street between July 4th and Labor Day. As opposed to the, “Sell in May and go away”, philosophy.

Statistically, July is the best month for stock prices in terms of percentage gain. Furthermore, the Dow Jones Industrial Average has rallied during 66 of the past 73 summers. 

Nonetheless, if you subscribe to the theory that the stock market represents a series of independent random events, then a seasonal rally has the same statistical probability as no rally.

Unfortunately, we now must bring COVID-19 into the equation. The question being asked is how this will affect the markets going forward? That question is only second to how the upcoming national elections will affect the markets?

The nightmare began late February as stocks sold off on coronavirus fears. Even some of the most respected fell from their perch. The S&P 500 Index was down 34% from Feb. 19 to March 23. 

Since 1928, the first year for which daily prices are available, only the Great Crash in the fall of 1929 and the subsequent selloff in the fall of 1931 produced deeper losses over the same number of trading days.

A month later the market suddenly turned higher. Seemingly every stock shot up in late March. Countless emails asked the question, ìAre we suddenly facing a historic buying opportunity.

Yes, the equity markets chalked up their best quarter ended June 30, since 1998 as the consumer confidence numbers exceeded forecasts and acted as an antidote to concern over new coronavirus infections. The Conference Board’s consumer confidence index chalked up its largest one-month gain since late 2011.

The S&P 500 rose 44% from March 23 to June 8. Only 1932 and 1933 produced larger gains over a similar time. The lesson here is that no amount of intelligence, learning, or experience is foolproof when talking about the overall direction of the financial markets short-term.

Now for some bad news. The volatility on Wall Street is not going away because Covid-19, the market’s chief nemesis, is not going away near term and probably not until 2021.

Accelerating virus cases threaten to set back reopening and subsequently any economic progress. At the same time, the†Federal Reserve†is preparing for the possibility of a second wave of infections.

The markets are unusually twitchy as a result and therefore market forecasting will be even less forgiving. Moreover, tethering your portfolio to the indecisiveness of the financial media is a sucker’s game. Let the news inform you…not dictate your actions.

Nonetheless, my inclination would be that Wall Street has a better than even-money chance of moving higher this summer. At the same time, be aware that actual earnings numbers have the potential to surprise with radically different results from consensus estimates. 

When compared to fixed income investments, there is no question that equities are certainly more appealing, especially when contrasted to the Treasury market. For example, the 10-year Treasury note recently traded with a 0.07 percent yield. Compare that to Johnson & Johnson’s indicated annual dividend yield of 2.93 percent. 

In addition, Johnson & Johnson has consistently increased its dividend for 56 consecutive years. If the company’s share price rises by just 5.5 percent, and you receive a dividend payout of 2.93 percent, you have a total return of 8.43 percent. 

That does not mean go out and buy high yielding equities that do not have the requisite parameter for quality. It means look to the blue-chip names and evaluate their current valuation along with their dividend yield.

Yes, I am maintaining my bullish outlook for the second half of 2019. And as you paddle down the river of life, do not focus on the rocks but on the opportunities. 

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.

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