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T2 Asset Management

May 2020 Market Commentary

It just keeps getting stranger! The S&P 500 Index is now less than 10% from its all-time high. Indeed, the Nasdaq composite is positive for the year! We have certainly seen the markets do some conflicting things over the years, but this one takes the cake. We do not need to recount here what has been happening to the U.S. over the last month, and frankly, we find ourselves tired of hearing the C-word on the news.

Let’s start with the economy. Last month we saw the worst payroll number in the history of ever, as non-farm payrolls reported a loss of 20 MILLION jobs in one month! That is not a typo, as literally 15% of the American working force was laid off in a 30-day period. Gross Domestic Product (GDP) for the quarter came in at -4.8%, and retail sales declined by 8.7%. The GDP figure is a quarterly estimate and does not come close to reflecting the actual damage since it only reflected about 3 weeks of the shutdown. These are easily the worst numbers any of us has seen in our lifetimes.

So what is the market doing? It has recovered more than 2/3rds of the decline and seems to want to push higher. In fact, as we mentioned before, the Nasdaq is positive for the year. We definitely get a lot of calls about how this is possible. There are really two reasons. First and most important is that the Federal Reserve has stepped in with TRILLIONS of dollars to support the financial markets. The second is that in doing so they have effectively told the markets not to worry about anything. They are saying if we go lower, we will print more and stop the decline. Scary but true. 

Obviously this type of support cannot last forever, and really it will come down to the economic impact from the shutdown. Many would like to believe that this is just a blip. The economy will be shut off for 3 months costing us about 4 trillion dollars. Next, the government will add about 4 Trillion and everything will be fine. The big questions are: Will everyone get their jobs back? Will consumers go back to flying and cruising and attending sporting events? Is any of this a permanent change? No one really has the answers, and we suspect that the market is far too optimistic here. There will be some winners, Microsoft, Amazon, Netflix, and the like that will benefit or be okay in all of this. However, 5 stocks cannot hold the market up forever, and we would continue to advise caution in portfolios.