When the calendar turns from June to July, that tends to be a turning point for the market, too. Here in Market360 and my other investing newsletters, I’ve really emphasized the annual shake-up in the Russell indices, not to mention the 90-day ETF realignment. Now that both events have “hit the tape,” it’s time to ask ourselves: “What’s next?”
First, the good news. We got the May report for U.S. pending home sales, and they jumped 44.3% since April. That sets a new record for one-month gains since the National Association of Realtors started conducting this survey in 2001. That’s a read on existing homes, and newly built home sales were also up nicely in May: nearly 17%.
When you compare to May 2019, pending sales were down 5.1%, but newly built sales were up 13%. Stuart Miller, CEO of Lennar (LEN), was on CNBC last week speculating that COVID-19 has Americans looking for more space (and fleeing urban centers). Meanwhile, others are refinancing existing mortgages like crazy. In its June 19 report, the Mortgage Bankers Association reported that its Refinance Index had eased off the gas (down 12% from the previous week) – but was still up 76%, year-over-year!
Now, I do want to mention that Thursday’s report on U.S. nonfarm payrolls might not be that good. For one thing, we might be looking at a sharp revision from the Labor Department, since there was a big discrepancy last time: Their May data showed over 5 million jobs that ADP couldn’t account for. And June payrolls are a big question mark in themselves. When the coronavirus stimulus bill passed on March 27, that was the first time independent contractors could file for unemployment. The big drop in payrolls was in April, and it looks like a lot of that was independent contractors.
All of this continues to be impacted by COVID-19. Some states are reopening, while others are getting more restrictive, with hospital stays up and new outbreaks in states like Texas and Arizona. So, it’s hard for the service, travel and leisure industries to bounce back. There could be more layoffs; time will tell.
When it comes to stocks, all that trickles down into earnings season. Those reports ramp up again on July 15. What tends to happen is that the good earnings reports come early, and the bad earnings hit later. Obviously, you want to be on the right side of that! And that’s what my Portfolio Grader system is designed to do.
Personally, I’m excited for earnings season. Money is chasing good stocks, now that the indexes have gotten so volatile. And the ones I’ve selected for, say, my Platinum Growth Club Model Portfolio are companies with top-notch sales growth, earnings growth, and analyst forecasts. I keep a close eye and make sure that’s going to continue. Otherwise, I will not hesitate to cut it and move on to other opportunities.
For now, I want you to keep in mind that the Federal Reserve is doing everything it can. By that, I mean: They’re spending billions to keep American companies on top. Part of that involves holding yields near zero. Even the 10-year Treasury is still at 0.65%, while the Dow and S&P are yielding three, four times more!
That alone is going to prop up stocks. But my Model Portfolio and other Buy Lists are stacked with Strong Buys in all corners of the market. In tomorrow’s Platinum Growth Club Monthly Update, I’ll be announcing my Top Stocks for July.