Key Points

  • Stocks have been consolidating their post-March 23 gains over the past few weeks, with a shift back toward growth characteristics.

  • Differences in age cohorts’ attitudes toward both the stock market and the virus may be at play.

  • A full market cycle condensed into a few months suggests investors should “react” by rebalancing; not try to anticipate the market’s short-term peaks and valleys.

COVID-19 headlines dominated equity market action last week, with the S&P 500 suffering a near-3% decline; although all is not grim. The number of virus cases has been spiking in states that opened earliest—including my new home state of Florida, which went from a mid-60s average age for confirmed cases to the current mid-30s average age. The relatively good news, in the midst of more cases, is that new reported deaths declined over the weekend; with the seven-day average also moving lower. Coming about a week after virus-related hospitalizations began to move up—which has been the average lag—it highlights younger folks’ better chances at fighting the virus.

As an aside though, I witnessed first-hand the lower “compliance” in Florida with social distancing and the donning of face masks; especially among the younger set. I’m on Nantucket now for the remainder of the summer, where face masks are donned by nearly everyone—certainly in stores, where they’re mandated, but also out and about on the streets. It’s not been a scientific study by any means; but I believe the proximity to hot spots in the Northeast weighed more on the psyche of its population.

Since June 8, which was the most recent peak, the S&P 500 initially suffered a -7.1% pullback through June 11, followed by a 4.3% rally through June 23, and another selloff since then of -3.9%. The most recent peak in the S&P 500 corresponded to the point at which COVID-19 cases shot up again—likely not coincidentally.

COVID Cases vs. S&P 500

Source: Charles Schwab, Bloomberg, Johns Hopkins University, World Health Organization, as of 6/28/2020. S&P 500 as of 6/26/2020.

Don’t fight the Fed?

I won’t claim direct correlation (or even causation), but as you’ll see in the first chart below, the peak in the S&P 500 also came within the same time frame as the recent peak in the Federal Reserve’s balance sheet (which has had two consecutive weeks of slight declines). Related, the peak in the S&P 500 also came just after the peak in the 13-week percentage change in M2 money supply, as you can see in the second chart below. In essence, the “shock and awe” stage of Fed policy announcements is, for now, in the rear-view mirror.

Fed’s Balance Sheet vs. S&P 500

Source: Charles Schwab, Bloomberg, as of 6/26/2020.

M2 vs. S&P 500

Source: Charles Schwab, Bloomberg, as of 6/26/2020.