Technology Keeps Pushing the Market Higher

July 31, 2020

Coming into the month the S&P 500 was 40% above the March 23rd low and had closed higher for 3 consecutive months.  After such strong gains it would be normal to see some profit taking, but the market moved higher at the beginning of July and steadily gained ground for most of the month.  Inflation concerns send the price of gold a new all-time high, but investors continued to have an appetite for stocks, despite a news backdrop that was showing little improvement.  Technology stocks continued to lead the rally as they are seen by most as being immune to the virus.  The market often reflects the economy, but right now a dozen, mostly tech stocks, are sending the market sharply higher while the economy continues to lag.  At the end of the month it was a 4th straight month of gains for the S&P 500 which added 5.5% and is now 1.3% higher for the year.  The technology ETF has a year to date gain of over 20%.

The market tends to move higher ahead of a 3-day weekend, and we started the month with a 2-day rally ahead of the long Independence Day weekend.  We learned 4.8 million new jobs were created in June which brought the 2-month total to 7.3 million jobs which helped the S&P 500 gain 1% during the first 2 days of trading.  The first full week of the month turned out to be the best for the market, despite a record number of new COVID cases every day.  We learned home purchases were 33% above last year which helped the housing related stocks, and the lagging banking sector rallied ahead of earnings reports due week 2.  The second full week saw COVID cases continue to rise, but promising news on several vaccines, better than expected retail sales and bank earnings that were above expectations, combined to move the S&P 500 1.2% higher.  The third full week was dominated by earnings reports, but rising tensions between the U.S. & China and disappointing earnings from Dow component Intel sent the S&P 500 to a closing loss of .3%.  During the last week of the month we learned additional economic aid from Washington was likely to take longer than expected due to political disagreements, and Q2 GDP dropped by a record 32.9% as the economy was ordered to shut down.  Tech has been leading the rally and strong earnings from 4 of the biggest tech names helped end the week and the month on a positive note.

We have been saying our level of uncertainty regarding the short-term market is higher than normal and that continues to be the case.  Market participants have been looking beyond the current rise in COVID cases to an economy that is functioning more normally, but that time appears to be pushed back on a weekly basis.  Stock valuations are, by any measure, rich and a 5% to 10% pullback can come at any time.  We think any selling will be limited and will be an opportunity to add to high quality securities as the Federal Reserve and Congress seem very committed to doing whatever it takes to support the economy until we see a full recovery.  No money manager wants to be sitting in cash when the Fed brings their next stimulus or, more importantly, when a vaccine is developed and approved.  That should provide a level of safety for the market. With that said, it could be late spring of 2021 before a vaccine is widely available and then we have to see how many people are actually willing to get the vaccine.  Uncertainty is likely to remain higher than normal for an extended period.  We have slowly been getting more defensive as we move towards the election but will not hesitate to buy a tradeable decline.

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As always, the key to successful investing is to have a portfolio that is consistent with your investment objectives and risk tolerance. We invite you to listen to our weekly Money Matters radio show which airs every Sunday Morning from 8:00 AM to 10:00 AM on KNST AM 790.  You can also listen to us on iHeart radio. You can follow us on Twitter @gbergfinancial or on Facebook under Greenberg Financial Group.

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