June 15, 2020
Good Monday morning,
The U.S. equity markets had a rough week last week, in fact the worst since the week of March 20 when the markets reached their lows. For the week, the Dow and S&P 500 lost 5.5% and 4.7%, respectively, while the NASDAQ dropped “only” 2.3%.
This morning the Dow futures are down more than 500 points, so the volatility continues. We see two primary reasons for the recent declines and increased volatility.
First, with the reopening of many states including Alabama, California, Florida and North Carolina, rising fears that a resurgence of the virus may cause a new round of lockdowns and continued sluggishness in the economy. Texas and North Carolina reported a record number of COVID-related hospitalizations last Saturday.
Second, since the March lows in the markets, stocks had posted a significant comeback in April and May, and some see this as short-term profit taking amidst the virus uncertainty. One analyst noted that the sentiment is that the markets were too bullish too fast.
It is difficult to make investment decisions when the key factor driving the markets is fear. Fear is an emotion that most often causes imprudent actions on the part of the investor. Wall Street has an old saying that you “sell on the rumor (fear), buy on the fact.” This may be taking place this and last week.
Please be safe.