Economic Update 6-29-2020
- Economic data last week included higher than expected durable goods orders, along with mixed housing and jobless claims data. Inflation results remain tempered, as expected from low consumer demand.
- U.S. equity markets fell sharply last week with a continued rise in Covid infections in newly re-opened states, while foreign stocks fared generally better, with more tempered declines. Bonds were mixed, with gains due to investor flows toward treasuries, and weakness in lower quality corporate credit. Commodities were mixed, with the price of crude oil falling by a few percent.
U.S. stocks moved back and forth earlier in the week, with China rhetoric and a proposed $3 bil. in tariffs against several European nations bringing down sentiment early, offset by talks of additional planned government stimulus. Further concern came along with continued growing Covid infection rates in newly re-opened regions around the U.S., notably in the Sun Belt region, including a record day in new cases. A re-closing of bars in FL and TX late in the week heightened concerns over possible ‘second wave’ shutdowns elsewhere.
Both economists and medical professionals question the viability and public appetite for shutdowns to the degree as those implemented in March. However, the timeline for a ‘back to normal’ economy appears to have lengthened, as evidenced by the IMF downgrading its estimates for 2020 global growth to -4.9%—the worst in the post-WWII era—as well as lowering 2021 growth by a half-percent.
Every domestic sector declined last week, with technology faring best, with a minimal loss, while energy, financials, and communications fell over -5%. Energy stocks have been naturally closely tied to the spot price of crude oil, while financials were affected by disappointing stress test results for several firms late in the week. Financials were also affected by the mixed news that the Fed would be easing restrictions on riskier investments and margin requirements, yet would also cap payment of dividends and share buybacks.
Foreign stocks fared better than those in the U.S. last week, with emerging markets generally flat, followed by minor declines in Europe, and larger losses in the U.K. and Japan. A substantial European manufacturing PMI improvement to nearly expansionary levels, as did service PMI in Japan, provided a sizable sentiment boost, as did announcements of upcoming openings in Britain by early July. Further reopenings in several Chinese industries to foreign investment supported strength in emerging markets indexes, and the nation’s virus response has been seen a far more effective than elsewhere on the globe.
U.S. government bonds experienced gains last week, as investors sought safe havens away from equity markets. Corporate bonds fared less well, with flattish returns for investment-grade debt, and declines of several percent for high yield and floating rate bank loans—in keeping with a negative week for equities. Foreign developed market debt also fared well due to ‘risk off’ flows, while emerging market bonds experienced flattish results.
Commodities generally lost ground last week, with declines in energy and agriculture outweighing higher prices industrial metals and precious metals. Following the weakness in economically-sensitive assets overall last week, the price of crude oil fell by over -3% to about $38.50/barrel.
|Period ending 6/26/2020||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||0.21||6.14|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.
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