Market in a Minute August 3–7, 2020
by Sheila and Rich Jamison
It was a strong week of broad-based gains for stocks. All 11 S&P 500 sectors finished higher. The NASDAQ Composite Index broke above 11,000 for the first time, while the S&P 500 came within 1% of its all-time closing high set in February. Industrials led the pack at up 4.8% and real estate brought up the rear with a 0.7% gain.
Our 10-year Treasury yield ticked up to 0.56%. WTI crude oil rose 2.6% to $41.17/barrel. The CBOE Volatility Index, VIX, fell to 22.2 from 24.2.
Despite the July upsurge in reported cases of COVID-19, we added a better-than-expected 1.76 million jobs last month. The unemployment rate fell to 10.2% from 11.1% in June. Revisions to May and June data saw a modest 47,000 jobs added to payrolls. The most recent weekly initial jobless claims decreased by 249,000 to 1.186 million, its lowest level since March.
July Purchasing managers' indices were in recovery mode. Manufacturing and non-manufacturing activity continued to expand. The ISM manufacturing index rose to 54.2, its highest level since March 2019, from 52.6.
Household debt fell by $34 billion in Q2, the first decline since 2014. Credit card balances fell $76 billion, the largest drop on record. The Fed's Senior Loan Officer Survey showed weaker loan demand amid tighter credit standards. The Fed’s Vice Chair, Richard Clarida, said he expects our economy to attain pre-COVID-19 levels by the end of 2021.
The overall rate of new US coronavirus infections dropped to around 50,000 new cases a day last week from more than 70,000 a day at July’s peak. Novavax provided an encouraging vaccine update on a Phase 1/2 trial for healthy adults ages 18-59. (As of the last count, there are currently over 130 vaccines in the works.)
Policymakers remain at loggerheads over additional stimulus. The White House and Republicans found a proposal on which they could agree. Neither size nor scope of the package is acceptable to Democrats. They also rejected a narrower deal with enhanced unemployment benefits and eviction restrictions. Among the sticking points, the Democratic leadership is seeking $1 trillion in funding for state and local governments, which the White House has rejected.
Citing congressional inaction, President Trump signed an executive action to redeploy unused funds from the CARES Act to state governments to restore enhanced unemployment benefits, imposing a partial moratorium on evictions and suspending the payroll tax. Republicans had previously labeled the payroll tax a nonstarter. Additionally, questions of the order’s legality, and when anything would happen if it does happen, are unresolved.
President Trump signed another executive order. It put a ban (starting 45 days from last Thursday) on Chinese-owned apps TikTok and WeChat over national security grounds. It says the apps "automatically capture vast swaths of information from its users, including Internet and other network activity information, such as location data and browsing and search histories," information the administration believes could be used by Chinese authorities. Chinese media has deemed the move as the beginning of a "digital cold war." Timing is interesting as officials from China and the US are set to meet on August 15 to assess the progress of the “phase one” trade deal and Microsoft is in talks to buy TikTok.
With Q2 results from 90% of S&P 500 companies in, earnings growth is running at -33.8% and sales down 9.8% compared with the same quarter a year ago. At July’s close, 84% of S&P 500 companies had beaten earnings estimates, well above the 72% five-year average. Companies are beating expectations by 21.8% compared with the five-year average of 4.7%.
The Eurozone’s manufacturing index rose above 50 for the first time in 18 months, to 51.8.
German industrial production rose 8.9% in June after a 7.4% increase in May as lockdown measures were eased.
China's Caixin manufacturing index rose to 52.8 in July from 51.2 in June. Its July exports rose 7.2%, the strongest in seven months. Shipments to the US rose 12.5%.
Nothing in the above is meant to be, nor should it be construed as, investment advice or recommendations to buy or sell any security. Individual securities, whenever mentioned, are for illustrative purposes only and may not be relied upon as investment advice.
All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.
Tax and/or legal information contained herein is general in nature and for informational purposes only. It should not be relied upon as advice. Consult your tax professional or attorney regarding your unique situation.
Past performance is no guarantee of future results.