| Tuesday, August 25, 2020 Headlines 1. Markets end mixed as Nasdaq and S&P 500 notch new record highs 2. American Airlines threatens massive job cuts 3. US consumer confidence plunges in July 4. Money in US checking accounts hits all-time high 5. The FANGMAN that ate the market Markets Closed
 Image courtesy GettyImages/Tee-roy
Markets Today U.S. markets battled between gains and losses all day, yet the S&P 500 and the Nasdaq managed to notch new record highs as tech stocks forged ahead. Shares of Apple (AAPL) fell for the first day in six as the hype around its impending stock split eased temporarily. The DJIA dipped the day after the keepers of that index said it will shake up the Dow 30, adding Salesforce, Amgen, and Honeywell and kicking out ExxonMobil, Pfizer, and Raytheon Technologies.
U.S. and Chinese trade representatives met over the phone earlier today, and they issued a press release saying everyone is cooperating with phase one of their deal. U.S. consumers showed signs of squeamishness in the first few weeks of August as a resurgence in the virus in July threatens the recovery. They are still saving money in record amounts, and by the look of things, they might very well need it as the recovery stumbles.
Have you met the FANGMAN that is eating the stock market yet? You will if you read on. [NEW READER SURVEY: We are running another two-week survey of our U.S.-based readers to gauge your sentiment and see what moves, if any, you have been making with your money given the market recovery and current economic conditions. We'll share the results, as always, and we thank you for your time and participation.]
Headlines:
 Chart courtesy Schwab Research
U.S. Consumer Confidence Plunges to Six-Year Low Consumer confidence fell in August to a new pandemic low after a resurgence in coronavirus cases during the summer caused Americans to turn more pessimistic about an economic recovery.
The index of consumer confidence sank to 84.8 this month from a revised 91.7 in July, the Conference Board said Tuesday. Most economists were predicting more optimistic results, but clearly consumers have had their confidence shaken amid all the uncertainty.
The consumer sentiment index produced by the University of Michigan edged up slightly in August—although it is still at multi-year lows. Not surprisingly, Americans are just as pessimistic about the near future. The so-called future expectations index dropped to 85.2 in August from 88.9. That's also a new pandemic low.
It's not unusual for consumer confidence to decline during recessions, but typically confidence trends higher once a recovery has begun. What is clear from these surveys is that consumers have no idea when the recovery will take place. When the lack of confidence turns into a meaningful drop in consumer spending, we could enter into what is known as a paradox of thrift. That dynamic occurs when individual savings rather than spending can worsen a recession or that individual savings can be collectively harmful. That hasn't happened over the past several months, but given the end of the stimulus checks and excessively high unemployment, it could be right around the corner.  Chart courtesy FederalReserve.gov
Rainy Day Money? While consumer confidence may be rattled, U.S. consumers have been saving their money. We know that the personal savings rate spiked in May and June as many Americans banked their stimulus checks. But new data from the Federal Reserve shows that total checking account deposits now exceed $5.1 trillion, the highest level ever.
We know that most Americans are not flush with cash, especially now. But those that have been able to save have been doing just that as they try to ride out the pandemic. It's another example of how this crisis has exacerbated income inequality in this country. Those who have savings, investments, and good credit are going to come out of this alright. For those that don't, it will be a long road to recovery.  Chart courtesy YCharts
Enter FANGMAN The concentration of mega-cap stocks leading U.S. indexes has only intensified through the pandemic to where seven stocks now account for nearly $8 trillion of the S&P 500's overall market cap. In the cap-weighted Nasdaq, the concentration is even more intense, which is one of the reasons that index has outperformed all the others. It used to be just the FAANG stocks that got all the attention, which include Facebook, Apple, Amazon, Netflix, and Google. Microsoft displaced Netflix given its outperformance, creating the FAAMG stocks.
But graphics chipmaker Nvidia has elbowed its way into the party, and Netflix has also rejoined the group to create what market watcher Holger Zschaepitz has dubbed the FANGMANs. These seven stocks make up one-third of the S&P 500's overall market cap, so if you are buying the index or an ETF like SPY that tracks the S&P 500, you are buying these stocks. You've done very well if you've been buying them individually over the past several years and dollar-cost-averaging your way in. You've done pretty well if you've just bought the index.
Know what you own.
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(chart courtesy YCHARTS)  Shares of Gap rose by over 11% amid a Citigroup analyst upgrading the clothing retailer from Neutral to Buy. J.M. Smucker's stock price rose by nearly 7% after the food manufacturer reported Q1 income, sales, and EPS results that beat analyst estimates.  Shares of Best Buy are down by nearly 4% following the electronics retailer choosing not to release guidance for the next quarter. Energy companies, including Phillips 66 and ExxonMobil, are down today amid operations being closed ahead of Hurricane Laura. Word of the Day Dollar Cost AveragingDollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset's price and at regular intervals; in effect, this strategy removes much of the detailed work of attempting to time the market in order to make purchases of equities at the best prices. Dollar-cost averaging is also known as the constant dollar plan.  Photo credit Bloomberg News
Today in History Aug. 25, 1987: The Dow Jones Industrial Average hit 2,722.42, a new record high—up 44% for the year and triple its level of 776.92 just five years earlier. "In a market like this, every story is a positive one," said Jon Groveman, head equity trader at Ladenburg, Thalmann & Co. "Any news is good news. It's pretty much being taken for granted now that the market is going to go up." For a while, anyway: Less than two months later, on Oct. 19, the Dow lost 23% in a single day.
The Wall Street Journal, Aug. 26, 1987, p. C1.
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Tuesday, August 25, 2020
Rattled
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