Volatility is back in the markets this week, ending the rally streak that saw the S&P 500 index break even for the year before falling back. Technology remains the strongest sector, probably because investors believe that the demand related products and services will power through the economic shutdown from Covid-19. Travel and leisure stocks have also skyrocketed. While it is true that airline travel is up significantly month over month comparing April to May, travel volume is still down 80 percent year over year. Full recovery to pre-pandemic levels may take several years, not only for travel and leisure, but also for many other sectors of business and for employment in general. Government stimulus through the funding actions in the Care Act have supplied loads of liquidity to the economy. I think much of that 2 trillion dollars has found its way to the stock market and is one reason for the strong rally. Even as the Care Act provisions continue, Congress, the Treasury Department, and the Federal Reserve are cooking up a second round of stimulus and support. Latest reports are that it will not simply be a continuation of the Care Act but will have new elements. Elimination of the payroll tax, which was done post 2008, is one idea that may live again.
Although there are pockets of value, I think the overall domestic market is expensive. Commercial real estate, especially office and retail, may struggle going forward as our economy shifts to the digital age. Many who have been forced to work from home may not return to the office. Many businesses may close their brick and mortar location and sell exclusively online. This has been a trend for years, but shelter in place policies have accelerated the move. Commercial real estate will have to adjust. I expect occupancy rates to decline until a new use for the properties is established.
I hope you enjoy your week-end, understanding that different regions are experiencing different phases of social opening.
Joe Tomkiewicz MS, CFPr
Sierra Financial Advisory