@theMarket: Markets Celebrate Fourth of July

The continuing gain in jobs cheered equity markets on Thursday, just before the holiday weekend. Given the surge in virus cases in more than half of the United States at the same time, some investors were dumbfounded. They just don't get it.

 

The nation added 4.8 million jobs in June, which was better than expected. It was the second month in a row that the employment data surprised investors by beating expectations. Remember, however, that this data is backward looking. The bounce back in the economy as a result of re-opening businesses resulted in these upside labor surprises. Readers should expect those employment gains to moderate next month for some obvious reasons.

 

Topping the list is the massive upsurge in virus cases in those states that chose politics over lives. The pandemic has slowed many state plans to re-open their economies and will impact future growth as well as further employment. I suspect this three-day weekend will damage the American comeback even further, unless the nation actually listens to the advice of medical experts. 

 

In the meantime, I've spent most of the week explaining to clients and readers why I have maintained my bullish stance throughout the last several months. It comes down to my view on the future of the economy and the stock market. There are three main schools of thought on how the economy will weather this pandemic.

 

There are those who believe a "V" shaped recovery is in the offing. These are mostly politicians and investors with their eye on November's elections. Then there are those who think we will see a "U" shaped gradual pickup that will take longer to accomplish. Finally, there is a group who believe we will see a "W" type recovery, where the big decline in March is followed by a sharp recovery (like what we are experiencing now), only to fall back again before finally rising out of the chaos.

 

If you look at all three cases, what do you see? In every case, the direction of the right side of each of these letters is going up.  From my perspective, that is all you need to know. Will the restoration of jobs and the economy require six months, 12 months, or even 18 months? No one really knows, because no one can game the virus without a vaccine. Whether the economy takes a longer or shorter time period to get there, it will still recover, and so will your investments. 

 

There are several promising vaccines in the works worldwide. In some cases, such as one Chinese version (that is already being administered to their army), the chances of success should be known sooner than later. Several drug companies are expected to provide further information on their vaccines in the fall. A successful drug would be a gamechanger, not only here in the U.S. but for the economies worldwide. In which case, the "V" might be the preferred choice.

 

Thanks to the massive stimulus provided by the government, the last quarter in the stock market was one of the best since 1998. And the stimulus is expected to continue fueling further gains in the financial markets. While I still expect markets to have their ups and downs, hang in there, because better days are coming if we all use our common sense.