Written by Michael Forrester – Founder, President, and CIO of High Note Wealth
Happy Saturday, High Noters! It’s been a couple of weeks as we don’t want to wear you out. Believe it or not, there has been a boatload of news since the last update, so we will distill that down and reset as July comes to a close.
In terms of the markets, we can make this quick. U.S. stocks are more-or-less even for the year while interest rates have gone down, continue to go down, and look likely to stay down. Foreign stocks haven’t performed as well to date, but that trend seems to be reversing. More on that below.
The stock market isn’t the economy and the economy isn’t the stock market. This is particularly true in short periods of time. Over time, the connection is stronger. How do we define “short” and “long” in this context? Unfortunately, it is not an equation or specific set of rules. It’s subtle. Stated differently, the answer changes during different timeframes.
If we have these two separate things, the stock market and the economy, we want to know what’s the “rug that ties the room together,” to quote the Big Lebowski. Clearly, the stock market is ducking out on the current economic news du jour and focusing on 2021-2022. All the trouble of Q2 has been dismissed and it is moving forward. What ultimately needs to happen is that these two separate entities find some common ground to weave the rug that ties them together.
With that backdrop, here are a few items that are worth noting:
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Hurry Up and Wait
- The increased unemployment relief just rolled off with millions of Americans still out of work. Our friends in D.C. have been discussing a second round of direct stimulus or a continuation (at some level) of increased unemployment insurance for months. Typically, they are forward-looking and ahead of schedule, but this time they seem to be waiting until the last possible minute to get something passed [eye roll].The additional stimulus did mitigate the economic damage and without it we may see some added waves to the sea.
Shortest Recession in History
- It is a little too early to be making such predictions, but in many ways the stock market and economy were in sync in the second quarter. Unlike the underlying economy, the stock market has a scoreboard. In March, the home team was getting run out of the gym. As the market dropped 30% there was no doubt who was winning and who was losing.
- This week, the GDP numbers were published for the second quarter and it was gross. Year-over-year U.S. GDP was down [swallows] 9.5%, tripling the record for the worst number in recorded history. Yikes. This makes sense, in context with its co-conspirator, as the stock market also set its own record for the speed of its fall. So, does that mean the quick market rebound is indicating that Q3 economic data is going to be good? Maybe.
Big Companies/Big Earnings
- We have been in full clip with earnings the past three weeks with the big dogs reporting on Thursday. Amazon, Apple and Facebook reported ridonkulous numbers. Yes, these are simply technology companies, but with each passing day they represent a greater percentage of the overall market. Not to go too far out on a limb, but I think the internet is here to stay.
The U.S Dollar Took the Summer Off
- There are some (the President of the United States, for example) that speak fondly of a weak U.S. dollar in terms of global currency. We will spare the details for the moment and simply look at the chart art below. When the world economy was at its most stressful moment in recent memory, the dollar hit highs, signaling its strength. With the global reopening of economies and our “sort of” reopening, the dollar has dropped to two-year lows. The quick takeaway is that this is helpful for the stocks of companies in countries outside the U.S. International stock returns are starting to outperform. Just when you think the case can be made for U.S. only investing, diversification proves its worth. A lesson as old as time.
Kodak: Legendary Drug Maker?
- Well this is something. Kodak, best known for their attempts to get into the cryptocurrency business in 2018 after they completely squandered the company’s historical success in film, is now in the generic drug business. This is all thanks to a $765 million dollar loan from Uncle Sam. The idea is that Kodak will produce drugs here in the U.S. and reduce our reliance on China for manufacturing. That seems like a prudent idea. However, we are talking about a company that has been essentially having a corporate garage sale the last five years; unloading patents, buildings and any other assets not nailed to the floor. The stock price went vertical immediately (see chart below). Typically, this movement would be seen after the announcement of the loan and plan. However, someone got a little loose with the lips and the stock started moving like crazy before the announcement. A very strange story that only makes sense in this strange year. You can read more here.
Enjoy the weekend. Get some rest. We are here keeping watch. All the best.
High Note Wealth LLC is registered as an investment adviser with the Securities and Exchange Commission (SEC). High Note Wealth LLC only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.
