Stocks continued their move higher last month as the S&P 500 rallied over 5% in July. (YCharts) This brings the S&P 500 to breakeven for the year, something that many investors would have had a hard time imagining during the market lows in March.  While the rally in stocks is much welcomed there is concern that the market’s recovery does not accurately reflect the damage done in the economy.  We agree.  While the market is generally considered a leading indicator, we don’t believe the dramatic move higher is an “all-clear” signal for stocks (or the economy).

Main Street’s struggles can be seen most clearly through the economic data with unemployment at 11.1% and 2^nd quarter GDP growth reported at a staggering -32.9%. (US Bureau of Economic Analysis) This economic hole was filled during the quarter with stimulus efforts ranging from direct checks to individuals, increased unemployment benefits, and support for businesses. 

These efforts have led to some unusual results as the stimulus increased consumer incomes by 10.5% in April and the savings rate jumped to 33%.  Then in May, we saw retail sales jump 17.7% - not what we’d expect early in a recession. (LPL Financial) This sentiment was also echoed by many of the big banks during their 2^nd quarter earnings conference calls.  As stated by JP Morgan’s Chairman and CEO, Jamie Dimon:

“And just to amplify, in the normal recession, unemployment goes up, delinquencies go up, charges go up, home prices go down. None of that's true here. Incomes go down, savings go down. Savings are up, incomes are up, home prices are up. So, you will see the effect of this recession. You're not going to see it right away because of all the stimulus and the fact, 60% or 70% of the unemployed are making more money than they were making when they were working. So, it’s just very peculiar times.”

While we are hopeful that the worst is behind us there are still some major challenges to the economy. As such, the recovery from here may become more difficult as the ongoing impacts of COVID-19 remain uncertain.  We currently maintain our more cautious allocation given these challenges and additional risks from deteriorating US-China relations, upcoming elections, and a struggling labor market.

Sincerely,

Your Team at TLWM

*Investment advice offered through TLWM, LLC., a registered investment advisor.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

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