Is a vaccine our only hope, or is unlimited stimulus enough?
Some weeks just take your breath away, and last week was one of them. Let’s touch on some of the key points, and then we can break them down one by one.
- On Monday the S&P500 entered positive territory for the year and stayed there.
Take 5 stocks out and all of a sudden were down 8+% - The EU agreed on a massive stimulus package that will inject much needed capital into the EU countries most impacted by Covid-19.
- A mixed bag of Covid-19 data, vaccinations seem like they are promising, but spikes are accelerating
After helping hundreds of families and managing millions of dollars towards a long-term goal for unique individuals, I have never had to answer the question “why is the market shooting up, and my account is only going up slowly” so many times! Take a look at the chart below for a better understanding.
The S&P500 is a market cap weighted index. In normal terms, the bigger the company the more it will move the index. In the chart showing the green and red boxes, the size of those boxes indicates how much those companies are weighted in the S&P. As you can see about 90% of the index can be down, but if those large boxes are up, the media is going to scream how the market is up. Don’t get sucked in.
Here we see the S&P500 normally weighted, versus it equally weighted where all of the companies have the same impact on the overall index when their overall value changes. You can see a clear divergence, that year to date the S&P 500 is up slightly, while the equal-weighted is down more than 8%.
So, the markets and the real world have nothing to do with each other?
This is closer to accurate now than ever before, but like most things, a clear explanation is right there, we just have to look. In this case the name of the game is stimulus. The EU just announced a massive stimulus package to help the countries impacted the worst by Covid-19, and the USA isn’t far behind with another stimulus package. Stimulus to the rescue, at least for a while.
What about Covid? It’s, over right?
You would think from the way many are acting, but this is far from the truth. Many of you are just getting your children’s back to school plans, or hearing about how if you are a grandparent you are going to be relied upon heavily during the start of school. The chart below shows the most recent Covid data, and although we see some glimmers of hope, until we stop thinking “its over” because we can go buy a big mac we will continue to feel the impact in our everyday lives.
National Covid-19 Data ending July 26th, 2020
Most anticipated earnings for this week
Don’t forget to check out last weeks episode of Forefront’s Friday Fun, and remember “its personal, not just business.”