Leadership Edge | July 31, 2020

AUTHOR: Kerry J. Hilsabeck, CFP®
TITLE:    Investment Adviser Rep
TAGS:   Jobs, Retail Sales, Housing, Building, Yield Curve, S&P 500

Leadership remained with the NASDAQ as markets climbed. The S&P struggled in comparison, what gave NASDAQ the edge?


Markets started on the rise. Optimism once again high as news broke of Moderna’s vaccine trial moving into phase 3. Phase 3 will consist of 30,000 test patients. The National Institutes for Health (NIH) continues to assert that a year-end goal reflects a stretch but remains optimistic.


Some notable large companies reported weaker than expected earnings. This kept markets at bay throughout the day. Additionally, consumer confidence data slipped, likely as COVID cases continue to rise. While fairly close to breakeven throughout the day, markets dove into the close led by the NASDAQ. This may have been a pre-emptive move as four of the five FAANG stock CEO’s are preparing to testify before the house antitrust committee. Specifically, Facebook, Amazon, Apple, and Google all prepare to defend their anti-monopoly practices.


Markets bounced on Wednesday as earnings season rolls on. The Federal Reserve concluded their 2-day meeting on Wednesday, and they made no substantial changes. As a result, the markets soared into the close.


GDP shrank during the second quarter at a pace of 32.9%. The largest ever quarter over quarter fall in the history of the measurement. Markets responded in line, opening in the red. Tech heavy NASDAQ rebounded throughout the day, likely on optimism ‘stay at home’ stocks will continue.


Markets awoke to outstanding quarterly earning results from Amazon, Google, Apple, and Facebook. Starting in the green, NASDAQ stayed there all day. The Dow and the S&P 500 both dipped into the red before rallying into the close to end the week on a bullish tone. A good indication of investor sentiment heading into next week.


At the start of the week things seemed rather precarious for large tech. Four CEO’s were having to testify before congress on their business practices. Those same four companies also were reporting earnings the following evening. This was for a quarter that saw GDP epically plummet, which typically would not spell good news for corporate earnings. These obstacles proved to be non-existent for large tech as they led the NASDAQ ever higher. There is a risk being created as the premium for NASDAQ positions over S&P positions are starting to land in a similar range as in 2000. In case you have forgotten, that was when the dot com bubble burst.

While we are not likely to see a similar burst (P/E ratios are far more reasonable for most companies), it may be a warning sign of things to come during the next expansion.

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