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The bond complex ticked higher while global equities generally consolidated or ticked slightly higher during volatile trading over the last week.
Concern is building over what appears to be a relatively sharp increase in COVID-19 cases in a number of states. Sharp increases in the number of cases increase the likelihood that governors will once again have to take actions that will restrict not only the spread of the virus but economic activity. Even if individual governors take no action, a spike in cases will negatively affect the confidence of consumers to go about their lives. As such, lower growth would be the result. Companies are already taking a wait and see attitude towards employment and spending. Additional COVID-19 worries would likely contribute to additional corporate downsizing and cost controls beyond what is already occurring. We appear to be heading into a complex period for the economy.
In regard to equity and bond pricing, the Federal Reserve is in control for now. The actions by the Federal Reserve have buoyed prices. What would it take for the Federal Reserve to lose control? That is undetermined, but best if we don’t have to find out. Be aware that on a relative basis, equities appear very expensive by several measures. Be on the lookout for news that hints at the Federal Reserve losing control. Such news could cause significant downward spikes in equity prices.
The Conference Board’s Leading Economic Index increased in May, which is positive news. If the LEI can post a string of back to back increases, it would be a good sign that the trough in equity prices is behind us for now. Link to the press release: https://conference-board.org/pdf_free/press/US%20 LEI %20 PRESS %20 RELEASE %20-%20 JUNE %202020.pdf
During the next week expect continued volatility. Be on the lookout for a negative sentiment shift.
Bookmark this COVID-19 site. https://rt.live
Happy Father’s Day.
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