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Tom L. Stringfellow, CFA®, CFP®, CPA, CIC | June 22 , 2020

The following has been compiled from information and comments provided by the investment professionals of Frost Investment Advisors:

Opening Day Jitters…

As more cities and states opened up this past week, corresponding flare-ups of new COVID-19 cases appeared.  While not unexpected, this trend will be closely watched by the public until news of a vaccine or effective treatment is announced.  This past weekend, the World Health Organization reported that June 20th marked the largest single-day increase in COVID-19 cases, with 183,000 cases over the 24-hour period, including 36,000 in the U.S.  But gauging local government and the general public’s resolve, it is also unlikely that we will see any course reversal with the “opening for business” signs now popping up across formerly quarantined localities.

As businesses open up and consumers begin heading out to visit their former haunts, the highways and airport security lines are looking a bit more traveled.  Springing back from the pandemic economic-distancing is what markets have been anticipating for the past two months and what investors have been counting on. Getting global economies back on line will likely prove to be volatile and at times stagnant.  Even so, as new case outbreaks and precautions are reported, the data still appears to underscore the resilience in certain sectors of the economy and the markets.    

Using last week as an example, investors appeared unfazed by the increased case count as sentiment and dollars pushed the major U.S. and overseas equity markets higher.  The major U.S. equity benchmarks and most sectors were positive by Friday’s close, except for the energy and utility sectors, further helping to erase the March 23 market trough.  While most stocks and sectors are still negative for the year, a handful of now household name companies led consumer discretionary, technology and communication service sectors into positive territory on a year-to-date basis.  On a 12-month basis, quite a few more companies have reversed their sell-off damage and are in or near positive territory.

In the meantime, last week’s slate of economic news was mostly positive, contributing to the market’s upward move and bolstering investor risk-on sentiment.  The most impactful news story was retail sales data, up more than double analysts’ expectations.  May’s monthly retail sales figure grew at its best ever rate of 17.7 percent.  All 13 categories were positive, with nine categories posting “strongest ever” growth rates.  Keeping in mind these growth rates were off an extremely low base, they still represent a pent-up demand in consumer activity.  Other positives noted last week include:

In terms of further market risks, concerns persist of another surge in virus infection rates like earlier this year.  Although case spikes are occurring in a few of the recently opened economies, such as Texas, Florida and Arizona, there are also positive signals from former COVID-19 hotspots, such as New York.  As businesses open, risks will continue with any increase in cases reported widely.  Any meaningful increase will rattle the public and certainly the markets.  It is also reasonable that we expect progress in statewide openings and economic activity.  And ultimately we may even see vaccines.  Unprecedented amounts of global capital and coordinated research are being focused on this very issue with almost daily progress reports.  It is a significant disruption today, but we expect the risks will likely decline over the next 12 months.

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