Stocks got hit hard last Thursday. The S&P 500 fell 5.9% as many states, including Texas, Florida and California, saw a resurgence in COVID-19 cases. Investors looking to lock in profits after a strong run in the stock market may have also contributed to the sell-off.
That said, the sell-off was short-lived – and a series of positive developments have occurred since. Of particular note were the shockingly strong May retail sales numbers. While the consensus expectation was for an increase of 7.7%, retail sales rose a record 17.7% for the month. When paired with the strong employment numbers of recent weeks, it appears, thus far, that economists have underestimated the recovery.
Additional constructive news came on both the fiscal and monetary front. From a fiscal perspective, the Trump administration announced it will propose a $1 trillion infrastructure package that would fund projects such as roads, bridges, 5G wireless networks and rural broadband. On the monetary side, the Federal Reserve stated that it would begin buying individual corporate bonds in an effort to ease pressure on the credit markets.
Finally, trial results were released which showed that a widely available steroid treatment could help critically ill coronavirus patients, further adding to the positivity.
The prior week was the first time since mid-March that the stock market’s armor showed cracks. While no doubt scary, the recovery within the week showed that the U.S. government will do everything in its power to stabilize the economy. However, the swiftness of the market movements – in both directions – in the past few weeks shows that market sentiment can shift rapidly. As such I continue to believe diversification to be a prudent strategy as the markets move forward.
Stay safe and be well.
The S&P 500 index is unmanaged and cannot be directly invested into. Past performance is no guarantee of future results. Investing involves risk and the potential to lose principal.
Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time and cannot be guaranteed.
Diversification is an investment strategy that can help manage risk within your portfolio but it does not guarantee profits or protect against loss in declining markets.