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Market in a Minute July 20–24, 2020

Sunday, July 26, 2020

by Sheila and Rich Jamison

Executive Summary

The week started with a mega-cap rally and new NASDAQ highs. But earnings, rising unemployment and renewed US/China tensions overcame stimulus and vaccine hopes to reverse that rally. The US 10-year Treasury note yield fell to 0.59%. WTI crude oil rose slightly to $41.27/barrel. The CBOE Volatility Index (VIX) revealed volatility ticked up 0.2 to 25.8.

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Details

COVID-19/Economy

Initial unemployment claims were over 1 million for the 18th consecutive week. Initial claims came in at 1.4 million versus an expected 1.3 million. This snapped a 15-week streak of declining initial claims.

June sales of existing homes jumped nearly 21% from May, the largest monthly percentage gain since tracking began 52 years ago. However, home sales were still down 11.3% on an annual basis.

A GOP coronavirus relief bill was delayed until this week. It is unsure Congress can pass a bill in time to avoid disrupting a key financial lifeline. With vastly different plans, the two parties are yet to negotiate with each other. The $600/week federal unemployment benefit that’s keeping millions of Americans afloat will expire at the end of July.

Joe Biden unveiled a proposal to invest $775 billion over 10 years to rebuild and fortify the nation’s caregiving economy. The plan focuses on providing daycare in early childhood, in-home elder care, long-term care for the disabled and emergency funding to keep struggling childcare centers afloat during the pandemic. 

Encouraging Vaccine News

A vaccine by Oxford University and AstraZeneca produced a promising immune response in a large, early-stage human trial. The vaccine produced antibodies and killer T-cells to combat the infection that lasted at least two months. They hope to begin human trials in the US in a few weeks, but they warned that it is too soon to know if the vaccine will prove successful. The Pfizer and BioNTech collaboration also produced positive data. In addition, project Warp Speed gave Pfizer and BioNTech a $1.95 billion vaccine supply agreement (contingent upon FDA approval).

Reopening Slows

Business reopening plans stalled further as new coronavirus cases are rising at a record pace. For example, Disney delayed the release of several potential blockbusters as people cannot or will not go to theaters. A poll showed 59% of Americans do not plan to renew their gym memberships when the pandemic is over. The pandemic helped them find “more affordable” ways to get exercise and live a healthier lifestyle. 

China Tensions

We ordered China to close its consulate in Houston. That prompted Beijing to revoke the license of the US consulate general in Chengdu. The State Department said our decision was made to protect American intellectual property and the private information of Americans. The Justice Department recently accused two Chinese nationals of stealing trade secrets and hacking into the computer systems of firms working on the COVID-19 vaccine. We also sought to block shipments of semiconductors from global chipmakers to Huawei Technologies.

Earnings

Q2 is widely expected to be a low point for earnings because of the pandemic lockdowns. Results are in from about 25% of S&P 500 companies. Year-over-year, earnings growth is running at minus 42% and sales are down by 10.3%. Noteworthy last week were Microsoft and Tesla. Both reported better-than-expected earnings results, but received disappointing market reactions. Intel disappointed investors with a six-month delay in its next-generation chip technology, (its shares falling 16% on the news). Conversely, Advanced Micro Devices, the major competitor, gained 16.5%.

Globally

The 27 EU country governments reached a €750 billion new fiscal stimulus deal breakthrough. Funds will be distributed among the countries and sectors that have been affected the most by the coronavirus pandemic. €390 billion will be in the form of grants (significantly less than the €500 billion initially proposed) and the rest as loans. The EU also agreed that net debt issuance will end in 2026 and that it will repay all new debt by 2058. 

Canada’s June annual inflation rate posted its biggest jump in more than nine years as the country's economy reopened and restrictions were lifted.

 


Sources:
Bloomberg News; Briefing.com; BusinessWeek.com; CNBC’s Power Lunch & Squawk Box; CNN.com; Crain’s New York Business; Dol.gov; Dorsey-Wright Associates; MarketWatch.com; Markit.com; MFS research; Morningstar.com; NASDAQ; NYMEX.com; NYSE; Reuters.com; Standardandpoors.com; Streetinsider.com; The Associated Press; The Financial Times.com; The New York Times; The Wall Street Journal Online; Thomsonreuters.com
 
The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.
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.

 

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