| Tuesday's Headlines 1. US markets soar higher behind tech stocks again 2. European manufacturing falls less than expected 3. IRS allows retirees to return distributions made in 2020 4. Pension plans face rebalancing June 30 5. Who owns the stock market? Markets Closed
 Image courtesy mmphoto/Getty
Markets Today U.S. markets soared again, unbowed by mixed messages from the White House on the state of the trade agreement with China and a troubling surge in virus outbreaks across the country and in Europe. It was the big tech stocks that led the charge yet again, as growth has trumped value for the past three weeks.
Cyclical stocks tied to a recovery were rallying in late May and early June, but uncertainty over the strength and breadth of the global economic recovery sapped that surge, and investors have been more than happy to surf behind the wake of Apple, Amazon, and Microsoft.
Better-than-expected manufacturing surveys out of Europe followed similar reports out of China earlier this week, so the recovery is moving westward. But a stubborn resurgence in new COVID-19 cases as testing increases, along with our exposure to one another, is troubling. Restaurants that have reopened in states like Florida have been forced to close anew as they can't guarantee the safety of their customers and staff.
It's but one of many risks blowing headwinds into this rally.
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Headlines:
chart courtesy theirrelevantinvestor  The Fastest Bounce in History 2020 has been a year of extremes, and the stock market has played its part. It was the fastest bear market in history, and now it has become the fastest recovery in history.
The stock market bottomed three months ago. In the 65 trading days since, the S&P 500 gained 41%, the strongest move off a bear market low in the history of the index.
The recovery in the stock market, just like the recovery in the economy, has been imbalanced. As we know, giant growth stocks around technology like Apple, Amazon, Facebook, Microsoft, and Google have led the gains. Those five stocks represent a whopping 22% of the S&P 500 market cap, up from 10% only five years ago. Those stocks all made record highs again today.
Index investors aren't complaining, since these are among the most widely held stocks in the biggest mutual funds and ETFs on the planet. They are also among the most widely held by pension funds, which represents some interesting risks (read below).  Pension Problems? Pension funds have had a 2020 to forget. These are the investment funds that manage retirement money for civil servants, cities, and countries. They represent about 11% of the stock market, but they are a critical part given that they hold the nest eggs of hundreds of millions of retirees in their hands. They lost nearly $1 trillion in the first quarter, but they likely made some of that back in the recovery.
But as the final day of the quarter and the first half approaches, there is a growing concern that they may take their recent stock market gains and run as they rebalance their positions. Pension funds typically rebalance every quarter. Some strategists estimate the amount of pension fund rebalancing expected ranges from $35 billion to $76 billion. That could bring the biggest wave of stock selling and a shift into bonds that we've seen in six years.
On the other hand, the stock market has been one of the only games in town for investors seeking yield since April, except for gold, and pension funds are limited to how much gold they can own. Many may choose to stick with the winners that brought them out of the bear market, especially when yields on government bonds around the world have been so paltry.  chart courtesy Goldman Sachs
Who Owns the Stock Market? It's always worth looking at this chart to remind ourselves where we, the individual investor, fits into the investment picture. Here in the U.S., households account for 34% of the $43 trillion equity market. But we are also exposed to the 22% held by mutual funds, which invest on our behalf through retirement and brokerage accounts. Pensions and governments own about 11% of stocks, and the rest is concentrated in ETFs, hedge funds, and other investment vehicles.
While we are separated by type, the money is all in the same pot. A pebble dropped into the pond will send ripples across all investors. A boulder tumbling into the pond can disrupt the whole ecosystem.
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(chart courtesy YCHARTS)  Shares of Mohawk Industries are up by over 12.5% following a report from Cleveland Research stating that the flooring manufacturer's revenue is holding up better than expected in the current quarter. Sysco's stock price rose by 7% on the hopes that the food supply company will rebound as restaurants reopen.  Despite recently raising $2 billion in capital, shares of American Airlines are down by over 6% due to the airline underpricing its common shares relative to where the stock traded on Monday. Smaller technology stocks, such as Fortinet, Seagate, L3Harris, and Western Digital, are also down today. Word of the Day Rebalancing is the process of realigning the weightings of a portfolio of assets. Rebalancing involves periodically buying or selling assets in a portfolio to maintain an original or desired level of asset allocation or risk. For example, say an original target asset allocation was 50% stocks and 50% bonds. If the stocks performed well during the period, it could have increased the stock weighting of the portfolio to 70%. The investor may then decide to sell some stocks and buy bonds to get the portfolio back to the original target allocation of 50/50.  image courtesy thoughtco.com
Today in History June 23, 1836: With the U.S. national debt eliminated in 1835, and the federal budget running a huge surplus, Pres. Andrew Jackson's plan to distribute the surplus to the states is enacted. Jackson repeatedly declares that with no more national debt, the U.S. will "always" have a budget surplus. Here's a better signal of what the future really holds: By the time the distribution is actually paid out, in 1837, it has already shrunk below $37.5 million, 25% less than the government's original estimate of $50 million.
Source: Bray Hammond, Banks and Politics in America: from the Revolution to the Civil War (Princeton Univ. Press, 1991 ed.), pp. 454–456.
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Tuesday, June 23, 2020
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