Good morning and happy Monday to everyone,
Today’s email has some good juicy information relating to FAANGM (called “Fang” stocks), Facebook, Amazon, Apple, Netflix, Google, and Microsoft. For a few weeks now, I have been wanting to share this information, but needed to compile more data, and also figure out how I want to explain this without getting too technical. Part of the problem explaining “Fang”, is some charts like to mix up the data. For example, some are FANG-Facebook, Amazon, Netflix, and Google. Some charts are FAANG-adding in Apple. Some charts are FAANGM-adding in Apple and Microsoft.
2nd Quarter GDP numbers should be officially out this week, but after this email is sent. These numbers will officially put us into “Recession” category.
Next round of stimulus is expected to be announced soon. We don’t have a concrete date. Experts are saying the end of July to the very early part of August. Since the Federal unemployment checks run out at the end of July, we expect the announcement to be soon.
TidBit, gets a bit techy, but I am trying to illustrate the perception investors have on the “market” vs what is reality, and why from a stock market stand point, we have fears of the future.
It is possible the negative news in July (especially late July) will over-shadowed by the positive news of an additional stimulus.
Mon 7/20 +0.03%
Tues 7/21 +0.60%
Wed 7/22 +0.62%
Thurs 7/23 -1.31%
Fri 7/24 -0.68%
Last week -0.33%
Since 2/19 market high -9.81%
Bond model you are in:
Last week +0.33%
Bond model last 30 days +1.03%
1. Dow, is made up of only 30 stocks. These 30 stock are also within the S&P 500 but the Dow was specifically created to gage how the overall U.S. economy is doing. These 30 stocks are within different industries. The DOW does NOT include all FAANGM stocks (only Apple and Microsoft within it)
2. The S&P500 is made up of the 500 largest company stocks here domestically. (Includes FAANGM)
3. The Nasdaq is made up of 3,300 technology based company stocks (Includes FAANGM)
4. P/E Ratios 7/24/20 1year ago Difference
Dow 23.23 19.38 +3.85 or 19% increase (only Apple and Microsoft are in the DOW)
S&P500 23.90 16.74 +7.16 or 42% increase (includes FAANGM)
Nasdaq 32.92 25.06 +7.86 or 31% increase (includes FAANGM)
5. Notice how large the increase in the S&P500 and NASDAQ with those all 6 stocks vs the smaller increase in the DOW only having 2 of those 6 stocks.
6. P/E Ratios WITHOUT these stocks
Dow 20.03 14% lower by taking Apple and Microsoft out of the DOW (2 of the 30 stocks)
S&P500 19.30 19% lower by taking FAANGM out
Nasdaq ***this data is not available***
7. Market capitalization with FAANGM without FAANGM Difference
S&P500 $25.6T $18.4T $7.2T or 28% of all S&P500 is FAANGM
Nasdaq $15.2T $8T $7.2T or 47% of all Nasdaq is FAANGM
8. Summary of all these numbers: Yes, the “market” has been going up, but what is the “market”? Typically investors see the DOW, S&P500, and the Nasdaq as the “market”. Investors judge how well the stock market as a whole is doing based on these 3 indexes. What we are trying to illustrate here is that the concentration of these 6 stocks are causing the “market” as a whole to look like its doing way better than what is reality. Not all stocks in the DOW, nor the S&P500, nor the Nasdaq are performing nearly as good as FAANGM stocks by themselves are. In short, the FAANGM stocks are inflating these numbers. All other stocks excluding FAANGM are doing fairly well, just not as well as a typical investor understands it to be. With the coronavirus, and social distancing, and Americans staying at home more, we can understand that Facebook, Amazon, Netflix, and Google are being used more. Apple and Microsoft are just solid tech companies that are doing good, but not as robust as the other 4 stocks. I hope all of this made sense, the way we worded it, as it is a complex concept to explain in an email.
Global 16,451,551 cases 652,921 deaths
US 4,372,056 cases 149,852 deaths (+4.56%, +6,542 increase from last week) **2 weeks in a row, the death numbers increased**
KS 25,508 cases 332 deaths
MO 43,240 cases 1,233 deaths
Highlights from analysts and economists
1. From JP Morgan
Weekly Market Recap
By the end of this month, the weekly $600 extra unemployment payment under the CARES Act is set to expire while Congress and the Administration negotiate some form of extension for the program. As we entered the deepest recession since the Great Depression and reached a record high unemployment rate of 14.7%, the CARES Act provided generous benefits to cushion the blow. The weekly earnings of all production and nonsupervisory workers averaged $839 in June, while those who lost their jobs were mostly lower wage earners, with an average of $692 in weekly wages. The regular pre-pandemic unemployment insurance program pays $342 weekly, about half of their salaries, but with the enhancement provided by the government, many have made more than they would have done if they were still employed. While this stimulus has kept consumer spending afloat, it has discouraged some from returning to their jobs, thus adding to the challenges facing employers. With COVID-19 cases continuing to grow and joblessness still very high, there is heavy pressure on Congress to extend enhanced unemployment benefits in order to avoid widespread poverty. However, any new program will need to strike a delicate balance between providing enough support for households to pay their bills while still leaving an incentive for people to work rather than remain unemployed.
Weekly Strategy Report
Markets are forward-looking, and equity investors have moved well ahead of the real economy to price in an expected sharp recovery in corporate profits. This at least partly explains valuations that look elevated when comparing stock prices to today’s depressed earnings levels.
A turning point in the earnings cycle is already visible in the incipient divergence between forward and trailing earnings. Backward looking earnings are still falling, while 12-month forward expected earnings have begun to pick up.
Analysts currently estimate U.S. quarterly profits will hit new highs in around two years. That is likely too optimistic, but we could well see a faster-than-usual earnings recovery.
Notes on the Week Ahead
It doesn’t happen often, but every now and then, when I get into my car in the morning, the tire pressure warning light comes on. My normal procedure when this happens, is to stop by the gas station, fill the tires to regulation pressure, and go about my day. If, however, the warning light comes on again the next morning, it’s a job for the dealership not the gas station. There’s no point in pumping air into a leaky tire.
Economic data over the next few weeks will likely underscore the depth of the recession and provide a warning that a full recovery is still far from being achieved. Negotiators from the White House, Senate and House of Representatives will debate the next round of federal relief, commonly referred to as “stimulus”. However, for investors, it will be important to keep an eye on the pandemic itself. It is the pandemic, rather than any lack of stimulus, that is holding the economy back. While the stock market has remained remarkably resilient in recent months, it may be vulnerable to a correction, given the short-term risk that the recovery will peter out and the long-term consequences of all the stimulus being pumped into the economy in a rather inefficient effort to prevent this. However, while this suggests caution with regard to a simple long-only U.S. equity strategy, valuation anomalies created by the global pandemic also provide opportunities for long-term investors.
In a pandemic economy, stimulus alone cannot trigger a full recovery. Even with the retail sales rebound, we believe overall real consumer spending was likely down by more than 5% year-over-year in June, as leisure, entertainment and travel services remain very hard-hit by the pandemic. In addition, we expect an economic drag in the months ahead from lower investment spending. Government spending will also likely drag on the economy as many state and local governments will be forced to cut payrolls to balance budgets in reaction to the deep recession and lack of sufficient federal government aid. Consequently, while we anticipate a roughly 20% annualized bounce-back in real GDP in the third quarter, following a mammoth 35% annualized slide in the second, this would still leave real GDP down 7.5% year-over-year in the third quarter, with much slower future progress in advance of the widespread distribution of a vaccine.
The Washington Stimulus Game
Clearly, the next round of coronavirus aid should have an impact on both economic activity and corporate profits, and negotiations should begin in earnest this week as the Senate returns from its July 4th recess. Even in a highly polarized environment, it is likely that a bill will be passed as neither political party will want to be blamed for sinking a bill containing much-needed relief. That being said, negotiations are likely to stretch into early August rather than be wrapped up in July.
Considering what appear to be the true priorities of the Administration, Senate Republicans and House Democrats, the final legislation could include:
- Further one-time checks to individuals, although likely phased out at a lower income threshold than in the first go-round. An extension of enhanced unemployment benefits into early 2021, but at a significantly lower level than the extra $600 per week in the CARES Act.Some redirection of unused PPP money to a revised program generally targeting companies that have seen a substantial revenue decline.
- Some additional aid to state and local governments, although far less than the $1 trillion+ included in the House’s version of the next stimulus package, passed in May.
- Some additional aid for school reopening.
- Some liability protection for businesses making good faith efforts to follow public health protocols to avoid the spread of the virus.
The price tag for the overall bill would could come in between $1 and $1.5 trillion, added to a national debt that has already grown by over $3.3 trillion this year. Moreover, realistically a further bill will likely be needed after the November election.
Community Café is Wednesday, July 29nd at 8:00am for 30 minutes. Topic will be on: Learn the 411 on Power of Attorneys and Heathcare Directives
- Will live stream on Facebook Live anyone who is friends with me on Facebook.
- Email invitations were sent to join on the Zoom.com platform
- All 3 speakers, myself, Glenn Stockton, and Chris Toman
- Invitations will go out via email with a link to join on zoom.com, plus those who are friends with me on Facebook
Estate Planning webinar on Tuesday, July 28 at 12:00 noon or July 29 at 6:00pm
- Pros and cons of a Will based estate plan
- Pros and cons of a Trust based estate plan
- Co-hosted by Glenn Stockton with Stockton & Stern Law firm
- Interested in attending? Register at the following link: Click the date for the link to join… Click Here For July 28 at 12pm Click Here For July 29 at 6pm or email Stacy at [email protected]
If you would like a copy of my 30 minute recording of Community Café on the topic of “Tax saving Strategies”, please contact Stacy and we can email it to you.
Are you over age 72? RMDs, can be re-invested back into your IRAs.
If you previously took your annual RMD, and with the stimulus package CARES allowing RMDs in 2020 only to be skipped, you can put that money back into your IRA. Call us for more details.
Referral rewards program:
Don’t forget that the news creates drama. The stock market moves for 2 reasons which are greed and fear.
Any service work you would like us to do for you, please email your request to us.
Please feel free to share this email with anyone you know, as the best way to battle stock market anxiety is education.
Thank you for your time in reading these updates.
Stay safe and stay healthy,