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While there are parts of the economy still struggling during this current crisis, there are also some big winners.


The obvious and most talked about winners are in the tech space. Apple, Amazon and Facebook all reported amazing quarters recently. The tech dominated Nasdaq continues to hit record highs as investors pile into that space.


The other set of winners, which get slightly less attention, are on the retail side.


Target, Walmart, Home Depot and Lowe's all recently reported earnings and they were all spectacular.


Target CEO Brian Cornell told CNBC that people have not been spending money on summer travel, and the dollars that would go towards vacations, has instead gone to spending more at stores, like Target. "Those traditional summer trips have been canceled. We’re not on planes. We’re not spending dollars on lodging, so many of those dollars have been redirected into retail," Cornell told the cable network. The same commentary came out during Lowe's earnings report. Lowe's CEO Marvin Ellison spoke about people taking the cash they did not use for vacations, and instead, putting it to work on improving their home. "We’ve got tons of anecdotal information where someone was planning to take a vacation and now they’ve decided to remodel the kitchen, where they were planning to take a vacation and they decided to remodel their entire backyard to make it a place where they could spend more time," Ellison said during the earnings call last week. The commentary makes sense. People have been at home much more often this year because of the pandemic. Of course, they want to spruce up the place where they are increasingly spending more time.

These giant retailers also reported that the positive sales trends were true all across the United States. It's not just people in the northeast or southwest, but all over the country spending rose at retailers. "We saw in all of our top 40 markets, double-digit growth. And it's one of the most narrow performances we've seen by region, by market in quite some time," said Craig Menear, CEO at Home Depot. The CARES Act with enhanced unemployment benefits and the stimulus checks sent out to many Americans also helped. Walmart noted in its earnings call that customers were doing better financially than what would normally be expected during a recession. "We see a number of consumers who are feeling better about their personal finances, but the sentiment is a little lower than what they've been a year ago," said John Furner, CEO at Walmart.


There had been some concern that when the boosted unemployment stopped at the end of July, these retailers would take a hit. However, both Target and Home Depot were asked about that on their earnings call last week. Executives for both said they continued to see strong sales into the first weeks of August. As a long term investor, it's important to think about whether this trend will continue for a while going forward. The data indicates that there are many people still cautious and not willing to get on planes or go to restaurants. Without a vaccine or cure for the coronavirus, it is hard to imagine that the behavior will change soon.



There are plenty of negatives to point to right now in the economy.


The unemployment rate is still in the double digits, new jobless claims are still at close to a million per week, tens of millions of Americans are at risk of losing their housing and bankruptcies are not slowing down.


Despite all those negatives, the Nasdaq and S&P 500 are at record highs. We wanted to take some time to lay out what the "bull case" is for markets and what could propel stocks even higher.


Retail sales have been a bright spot in the data.


Consumers have been spending money on electronics, appliances, at hardware stores, and at sporting goods stores. Retailers and restaurants also saw a bit of a bump from in the July data.


The CARES Act, through the stimulus checks and boosted unemployment benefits, gave people cash. The data shows us that they have been spending that money.


A second tailwind for the markets is the Federal Reserve.


In the spring, Chairman Jerome Powell vowed the Fed would "use our tools to do what we need to do."


Powell and other officials have made good on that promise. Rates have plummeted as the Fed dropped its rate to zero. The Fed has also expanded its balance sheet to roughly $7 trillion through purchasing several assets, including corporate debt.


The Fed took the unprecedented step of buying junk bonds, arguing that these purchase would help businesses preserve jobs. The jury is still out on that, but the Fed's bond buying has definitely made it easier for companies to access cash.


The Federal Reserve has endless buying power and is showing no sign of slowing down which allows investors to feel more comfortable.



A third item towards the bull case is another stimulus package from leaders in Washington.


At the moment, talks between the House, Senate and White House have stalled. However, both sides have expressed a willingness to another stimulus package, and that would provide at least $1 trillion towards boosting the economy.


Democrats and the White House seem to agree on at least a few issues, including another round of checks for Americans, extending the PPP loan program for small businesses, and boosted unemployment benefits.


If Americans get more money placed in their wallets, we should continue to see strong spending habits from consumers.


A fourth factor in the bull case involves science. There is a lot of optimism towards a vaccine being developed by the end of the year or early in 2021.


A vaccine would obviously be a massive boost to the parts of the economy suffering the most, such as airlines, hotels and restaurants.


There are multiple candidates competing to make the breakthrough on a vaccine, and we simply need one to be successful.


Are we all-in on the bull case? No. There are plenty of factors that could derail it, including a vaccine taking longer than expected to find or Congress failing to pass another stimulus bill. However, it is important to acknowledge that a bull case does exist, and as investors we need to be prepared.

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