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The Bull Case

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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