Are You Overexposed to Equities?
The explosion in Covid-19 cases in Florida and the Southwest has many healthcare professionals on edge. Whether this is a continuation of the first wave or the start of the second, we are far from the end of the crisis.
Investors have yet to get the memo as the S&P 500 at the end of June sits a mere 200 points away, or approximately 5% from where we started the year.
Here’s why: consumer spending is the little engine that drives the economy higher and right now consumer confidence is rising.
According to the Conference Board on Tuesday consumer confidence came in at 98.1. That’s a significant jump from the 85.9 in May. Additionally, we have a booming housing market that saw pending home sales soar by 44.3% in May, according to the National Association of Realtors on Monday.
Those nuggets buoyed stocks to a level that in our opinion is now priced for perfection; we do not believe it’s worth chasing these levels.
With states like Florida and Texas taking steps to pause or step back from reopening, we are concerned similar actions may occur in other states. It appears that as states open up and people gather in public, infection rates surge.
We had hoped that Covid-19, like the flu, might not transmit easily once summer temperatures arrived. That is not the case—it remains highly contagious.
Perhaps even more alarming is the demographic shift of those contracting the virus at the moment, with larger numbers of younger people now infected. Given the propensity of the younger generation to be out and about with slight or no symptoms at all, there is a greater risk of a faster spread.
The good news is that hospitalization rates and the number of those needing ICU care has not risen, so this recent resurgence is not overwhelming the system.
We stated previously that it will take a widely available vaccine to truly stem the tide of the pandemic. Until then, there are a multitude of outcomes that could undermine the stock market.
As such, there is no better time to examine your portfolio mix and ask yourself if your allocation to equity securities is too high.
If you are wondering about these issues relative to the current risks in the market, give us a ring. We’d be glad to sit down with you to discuss in detail.