Hello,

 

These are known as the dog days of summer, but increasingly they feel more like bull days. U.S. stocks have tested new highs, despite a resurgence in COVID-19 cases and an acceptance—in the words of virus-skeptic Donald Trump—the pandemic will “get worse before it gets better.” Europe’s leading stock indexes and the S&P 500 closed at pandemic highs on Tuesday, a day after the tech-heavy Nasdaq hit a new record. Investors were buoyed by positive vaccine developments and the European Union’s US$2-trillion spending plan. There’s also a growing expectation Congress will authorize another US$1-trillion in relief, mostly for consumers and small business. Perhaps most surprisingly, markets are looking positively at second-quarter earnings as they roll out and give the first full view of Corporate America’s pandemic performance. Although hundreds of companies are still to report this week and next, the general view of the first wave—IBM, Lockheed Martin, Coca-Cola—can be summed up in three words: not so bad.

 

It’s as if the end of the pandemic were in clear sight. It’s not. Renewed lockdowns in major cities, especially in the South and Southwest, are leading to tighter consumer spending, as seen in declining restaurant bookings and transit usage. “Markets may be a little bit detached from fundamentals,” says Lori Calvasina, head of U.S. equity strategy at RBC. She’s upped her target for the S&P 500 to 2,900, about 10% below where it’s at this week, but remains concerned, noting how many companies are speaking cautiously about expectations. American consumers may also step back as they watch temporary layoffs become permanent. LinkedIn is cutting 6% of its global workforce, citing a decline in job postings. And that’s before we hit August, which for the past decade has earned its “dog days” label as the worst month of the year for U.S. stocks.

 

You can hear more from Lori Calvasina on today’s 10-Minute Take podcast.

 

- Mike