This week, CIO Tom Weary, CFA®️, discusses the volatility that has reappeared in the stock market as well as stalling recovery in the labor market. He also shares earnings from RFA Defensive Portfolio holding Oracle Corporation and gives an overview of the latest addition to RFA’s Core Portfolio: Sony Corporation.

Transcript

Hi, I’m Tom Weary here at Reilly Financial Advisors with your Weekly Market Update.  Well, it was a bit of an odd week with California seemingly going up in flames, as this midday Wednesday photo of downtown San Francisco illustrates, and the NASDAQ threatening to melt down.  But as we can see from this first chart, the NASDAQ 100 Index managed to hold above its 50-day moving average during the recent sharp sell-off.  Such a move is actually quite healthy as valuations were becoming a bit extended and investor sentiment a bit frothy after the huge surge off the recent bottom in late March.  The market always needs to digest large gains.  I would expect that we are going to continue to experience bouts of violent volatility in the coming months as we approach the election while struggling to re-open the economy still in the midst of battling COVID-19.  We only had one company report earnings this week and we did add a new name to the Core Portfolio, but let’s start by taking a quick look at the latest data on the economy.

Let’s focus on the all-important labor market this week since a healthy jobs market drives Consumer Spending which is two-thirds of the U.S. economy, and recovery in the labor market is very much subject to making progress against COVID-19.  On Wednesday, the Labor Department released their Job Openings and Labor Turnover Survey for July, also known by its acronym JOLTS.  As this first chart shows, Job Openings continued to rebound from the pandemic plunge, increasing to 6.6 million in July, well above the 6 million expected.  However, the labor market recovery appears to be losing steam as the report revealed that only 5.8 million people were hired in July versus almost 7 million in June even though the number of job openings increased by 617 thousand.  Another sign of weakness as revealed in this next chart is that job postings on job website Indeed.com are still about 20% below the level of last year after rebounding strongly in the past four months.  On Thursday, we got our weekly look at jobless claims with Initial Jobless Claims for last week coming in at 884,000, above the 840,000 expected but the third week in a row below the 1 million mark.  Continuing Claims for the prior week came in at about 13.4 million, holding relatively steady, which is worrying since that is a pretty high level to plateau.  As this next chart shows, if we include pandemic-related programs to regular unemployment insurance, 29.6 million Americans are currently receiving some form of state or federal assistance.  We can’t keep this up forever, but neither can we remove this support to the economy at such a fragile time.  Hopes are running high that we get an effective vaccine soon.

After the close on Thursday Oracle, a holding in the Defensive Portfolio, reported results that beat expectations on both the top and bottom lines with revenues of $9.37 billion versus estimates of $9.17 and earnings of 93 cents per share versus estimates of 86 cents.  CEO Safra Catz stated that “Our infrastructure businesses are also growing rapidly as revenue from Zoom more than doubled” during the quarter.  She also said that she had high confidence that revenue will accelerate as we move beyond COVID-19.  Investors were pleased to hear that and shares surged 6% after hours.

This week we added Sony to the Core Portfolio.  The addition of Sony adds to the weighting in International stocks and increases the Overweighting in the Consumer Discretionary sector, both of which were objectives that came out of our most recent Investment Committee meeting.  Sony is a strong global brand with higher than average profitability and lower leverage.  The coming release of Playstation 5 should be aided by the Stay-At-Home conditions brought on by COVID-19, boosting the Game & Networks segment, which is 23.3% of revenue.  The Imaging & Sensing Solutions segment is boosted by the increasing number of cameras in smartphones.  While Electronic Products, which is 23.9% of revenue, has been unstable over time, stability is brought by Financial Services, Motion Pictures and Music Production.  Sony is even working on introducing an electric car!

So, what does it all mean?  Volatility reappeared in the stock market but that is to be expected even welcomed after such a strong upward move as we have witnessed this year.  There will be more volatility; this is nothing unusual.  The initial economic bounce from the pandemic plunge has been surprisingly strong thanks to extraordinary monetary and fiscal policy responses but help from Washington has paused and the labor market recovery appears to be losing steam.  Continued progress depends upon both continued fiscal support and a successful coronavirus vaccine.  In the meantime, your companies are continuing to find ways to navigate this difficult environment and we continue to find great companies to add to your portfolio.  So, please relax and have a great weekend and join us again next week for the RFA Weekly Market Update.

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