What’s Love Got to Do With It?

What’s Love Got to Do With It?

Mark Lazar’s May 2020 Newsletter

Blessed are the young, for they shall inherit the national debt. Herbert Hoover

Let’s start with the bad news; unemployment claims currently exceed 36 million, industrial production fell by 11.2% in April, the largest drop in the 101 year history of the index. Retail sales were down 16.4% for the same month, the stock market erased $12 trillion in wealth within the five weeks ending March 23, US debt just topped $25 trillion, and the Atlanta Fed is now forecasting a Q2 economic drop of 42.8%. Holy, cow, Batman!

Data Point
S&P 500 Return YTD
Dow Jones Index YTD
Foreign Index Return YTD
Emerging Market Index YTD
U.S Forecast GDP 2020
Unemployment Rate

*All hyperlinked data as of 5/17/2020

But wait! If everything is doom and gloom, why has the market jumped 27% from the March low? It’s important to remember the market is both efficient and forward-looking. The market isn’t concerned with what happens to today—it’s already priced in all of the bad news referenced at the beginning of this missive. Rather, the market is looking ahead 6–9 months, and sometimes longer. Furthermore, the market is an unbiased price mechanism, meaning it doesn’t care about Democrats or Republicans, or the latest headlines on Fox News or CNN. It doesn’t give two hoots about supposed experts, nor their prognostications as to what tomorrow will bring. What does drive the market, then? Expectations. Expectations of future employment, wages, revenues, fiscal policy, trade policy, geopolitical events and, ultimately, corporate earnings. Which is why we can be in the midst of a barrage of bad news, but if it’s less bad than the market expected (priced in), markets move higher. Conversely, if the news is worse/not as good as the market anticipated, security prices move lower.

It would be easy to fall into a pit of despair simply reading the current myriad of sky is falling headlines; however, below are some recent high-frequency data points. While the YOY data is dreadful, you’ll notice some big improvements in most of the WOW and MOM stats, including jobless claims, box office receipts, steel production, and hotel occupancy, to name a few. This is why the stock market has been trending sharply higher since the March 23 lows—in the midst of what appeared to be the beginning of the zombie apocalypse, Mr. Market was correctly forecasting a brighter tomorrow.

First trust

There’s another factor that may be contributing to the market’s violent and somewhat perplexing recovery; TINA, or there is no alternative. When you think about it, there are only a handful of places someone can invest their money with the expectation returns could exceed inflation over time: stocks, corporate bonds/preferred stocks, investment property, precious metals, collectibles, alternative assets, and direct business ownership (e.g. Subway franchise, car wash, laundromat, etc.).

As Tina Turner famously crooned, “What’s love got to do with it?” Investors may not love the stock market these days, but when compared to other investments, stocks appear to be, relatively speaking, the pick of the litter.

Mark Lazar, MBA
Certified Financial Planner®

Views expressed in this newsletter are the current opinion of the author, but not necessarily those of Raymond James & Associates. The author's opinions are subject to change without notice. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. The S&P 500 is an unmanaged index of 500 widely held stocks. The Dow Jones Industrial Average is an unmanaged index of 30 widely held securities. It is not possible to invest directly in an index. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Gross Domestic Product (GDP) is the annual market value of all goods and services produced domestically by the US. The information in this article is general in nature, is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Investments and strategies mentioned may not be suitable for all investors. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index's three largest industries are materials, energy, and banks. The Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. Raymond James is not affiliated with any of the organizations listed above. Neither Raymond James Financial Services no any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Be advised that investments in real estate and in REITs have various risks, including possible lack of liquidity and devaluation based on adverse economic and regulatory changes. Additionally, investments in REIT's will fluctuate with the value of the underlying properties, and the price at redemption may be more or less than the original price paid. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes.