I hope you’ve had a great first week of June. If this week has taught us anything, it is that the markets are future looking: they are more concerned with what is about to happen rather than what is happening at the moment. The market had an incredible rally, which was primarily due to the release of far better than expected economic data. The U.S. economy added 2.5 million jobs for the month of May, signaling that the recovery is on its way. This news was significant enough that the money managers reallocated some of their assets from tech stocks to other sectors. The biggest winners of the week were the Energy and Financial sectors, with almost 15% and 11% weekly growth respectively
Based on several different indicators, the market appears now to possibly be overbought. One of the key indicators is that over 90% of S&P 500 stocks are trading over their 50-day moving average. There is also still a very considerable disparity between the Nasdaq and the ten-year U.S. Treasury note yield. In addition, tech stocks, that empower work from home and are not only recession proof, but also pandemic proof, saw a huge inflow of cash over the past few months. The chart below shows this disparity between the Nasdaq (where most tech stocks are listed) and the ten-year U.S. Treasury note yield.
Last weekend, SpaceX successfully launched a rocket into space in a test flight called Demo-2, sending NASA astronauts Bob Behnken and Doug Hurley to the International Space Station (ISS). The futures markets paid more attention to both this news and the reopening of the U.S. economy than they did to the protests taking place in the United States and elsewhere.
Thanks to the political unrest in the U.S., gun and ammunition stocks saw a huge jump in their share price on Tuesday. Sturm, Ruger & Company, Inc. (ticker: RGR), Smith & Wesson Brands, Inc. (ticker: SWBI) and Vista Outdoor Inc. (ticker: VSTO) closed +4.35%, +10.14% and +7.50% respectively.
Zoom Video Communications, Inc. (ticker: ZM) released their earnings on Tuesday and they were far better than expected. Zoom’s earnings per share increased more than 9 times over the year-ago quarter, with accelerated growth in both the top and bottom line. Needless to say, the market reacted positively to the earnings and the stock closed over 13% higher in comparison to the previous day.
This week also proved that Warren Buffett can at times be wrong! If you remember from one of my previous emails, Buffett cashed out all of Berkshire Hathaway’s airline stock with an astonishing +$3 billion loss back in April and, oh, how things did not work out for him as planned.
This week was also big for IPOs, with multiple companies raising capital. Two of the notable IPOs of the week were Warner Music Group Corp. (ticker: WMG) and Pliant Therapeutics Inc. (ticker: PLRX).
I would like to end this week’s market roundup with a quote from (U.S.) General George S. Patton, “Success is how high you bounce when you hit bottom.” So, regardless of how bad or good the first week of June was for you, try to reenergize and look forward to the coming week. I hope you will all have an amazing second week of June and, like always, keep it green!