The second quarter of 2020 closed on an appropriate note with furious buying into the closing bell. It was the best quarter for the market since 1998. The Nasdaq led the way with a 30% gain.
What was most remarkable about the quarter was that the negative narrative never gained traction. Headlines about the Covid-19 crisis and the economic damage never gained any traction. The buyers focused on the reopening of the economy, the trillions in liquidity created by the Fed, and a surge in speculative trading.
The surge in very active day trading was not a development that anyone was anticipated. It has been so frothy at times that it gave the action the same feel as the internet bubble back in 1999-2000.
Some market players were anticipating portfolio rebalancing out of equities and into bonds, but there were few signs of such action. A major reconstitution of the Russell indexes last Friday probably had some impact on that action.
The business press will be full of superlatives about the second quarter, but our job at this point is to deal with what lies ahead. You can be sure that there will be plenty of bears looking for reversals of some of these gains, but one thing is very clear after this quarter, and that is that it is a mistake to be too aggressive about looking for downside.
At some point, the negative narrative will matter, but the only way to time that with some rough precision is to stay focused on the price action.
As you look ahead to the third quarter, keep in mind that the key to long-term success is keeping our accounts as close to highs as possible. Don't let those hard-won gains slip away.
Have a good evening. I'll see you tomorrow.