Once again today markets rallied higher across the board, ignoring ongoing protests and the fact that the US lost 2.7 Million jobs last month, on top of the 19,500,000 lost in April. Though this 2.7 Million number was a lot better than market participants had feared, it’s still almost three million lost jobs for the month and over 22,000,000 jobs lost in the past two months. And yet markets continue to rise.
To put that in perspective, that means about 14.4% of all employed American’s have lost their jobs in the last eight weeks, and yet here we sit on the precipice of major equity indexes hitting all time highs.
When look at the last four trading days we see that Emerging Markets, European stocks, and Small caps have all rallied north of 3.5%, with Emerging Markets stocks leading the pack, clocking a 9% gain in less than a week.
These recent gains are set against the backdrop of already high equity valuations (For more on equity valuations and future returns read this) and an economic environment that is more uncertain than ever.
Bond markets have been much more subdued than equity markets over the past few weeks, which is a welcome change from earlier in the year when bonds provided a few decades of excitement in a few days.
On the factors side, Small Cap and Value continue their recent gains compared to other factors. I’ll note that the Value factor, and value stocks discount to the growth stocks has been the subject of much writing recently, (and here). The same can be said for Small Caps, which sit at valuations compared to their larger peers that have not been seen in decades. This doesn’t by any means mean that Small Caps and Value stocks will continue their recent run of performance, but the valuation disparities are certainly worth watching.
Finally, ESG stocks continue to outpace their non-ESG peers for the year-to-date. Though the gap between ESG and non-ESG stocks has not been too pronounced, it is not insignificant. My belief is that ESG investing has a bright future for a number of reasons. There is the oft mentioned aligning of values and investment holdings. There’s the growing body of evidence that more well governed companies generate positive returns. For me, one of the more exciting reasons to invest in ESG or SRI funds is that it gives increased exposure to many of the industries that are going to lead the way forward in energy, healthcare, and other exciting fields.
Till tomorrow, have a great evening.
Nathan
