Economic Update 7-6-2020

• On a shortened holiday week, economic data included sharp improvement in manufacturing, as well as in the June employment situation report. Housing and consumer confidence also showed promise, as a variety of data points appear to be rebounding from extremely low levels.
• Global equity markets gained, with stronger economic news; U.S. stocks outperformed those abroad. Bonds were mixed to higher as interest rates were little changed, but credit outperformed. Commodities rose broadly, including increases in the prices of crude oil and natural gas.

U.S. stocks fared better last week as economic data showed improvement, in addition to an apparent willingness to proceed with further stimulus, and a potential extension of the PPP loan program until August (there is still substantial money left in the bucket). Despite continued reports of increasing Covid cases in reopened states in the Sun Belt over the past two weeks, positive results concerning further vaccine development also seemed to help boost market sentiment, which included a brief new record high for the Nasdaq index. Every sector performed positively last week, led by the diverse group of materials, consumer discretionary, and communications services (notably video gaming and streaming video); while financials and energy lagged with smaller gains. Real estate also experienced solid gains for the week.

Foreign stocks also fared positively last week, but to a lesser degree than in the U.S., with Europe and emerging markets leading, and Japan lagging with negative results. European results, as in the U.S. recently, were led by stronger-than-expected manufacturing PMI, retail sales, and employment results. Results were mixed by region, but economically-sensitive groups such as peripheral Europe, China, Brazil, and South Africa experienced the strongest weeks, in keeping with broader positive sentiment. Generally, the mood continued to follow the week-to-week results from Covid infection rates and economic data (especially the pace of reopenings and improvement).

U.S. bonds gained a bit of ground, led by contraction of spreads in corporate credit, with high yield and bank loans performing best, with returns well over a percent. Foreign developed market bonds were generally flat, while emerging markets fared well, in keeping with other risk assets.

Commodities gained across the board, with the strongest results from energy and agriculture. The price of crude oil rose 5% higher to just over $40/barrel, while natural gas rose over 12%.

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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