Weekly Economic Update

Economic Update 8-03-2020

  • Economic data for the week included the Federal Reserve keeping monetary policy unchanged and accommodative, GDP for the 2ndquarter came in showing historical weakness as expected, jobless claims remained elevated, while housing data showed signs of life with building activity picking up and prices steady due to tight market inventory.
  • U.S. equity markets gained, while foreign stocks experienced mixed results, as returns were largely sector-dependent. Bonds gained as interest rates ticked downward, especially outside of the U.S. as the dollar declined last week. Commodities were mixed, with energy down and metals higher.

U.S. stocks generally gained last week upon decent earnings news and an accommodative Fed. By sector, technology stocks gained up nearly 5%, while communications services and consumer discretionary stocks also returned positively. Strong earnings reports from the largest FANG firms have helped to drive the Nasdaq to market leadership during the Covid lockdowns. Energy and materials, on the other hand, lost several percent each with continued questions over profitability from large integrated oil companies.

Earnings for Q2 continue to roll in for U.S. companies, with nearly two-thirds of the S&P now having reported. The year-over-year number, which remains so large that a few percent here nor there makes little difference, shows a decline of -36% (surpassed only by the -69% drop in Q4 of 2008). Interestingly, though, nearly 85% of firms so far have reported a positive earnings surprise for the quarter, which attests to the extremely negative expectations, and would also be a record for a single quarter if this number stands for the entire S&P. The largest surprises surfaced in industrials and materials, while energy experienced continued disappointment. For the first time in a while, firms with over 50% foreign revenue exposure lagged slightly less than more domestically-oriented firms based on earnings, but those with foreign exposure suffered deeper revenue declines.

Executives from Amazon, Alphabet/Google, Apple, and Facebook (Microsoft was interestingly absent) testified before the House antitrust subcommittee last week, as legislators delved into the possible further regulation of online activities, as well as threatened potential forced corporate breakups. There are naturally some conflicting issues here. At the very least, the hearing may help clear up a cloud that’s been hanging over the future of these companies in recent years. As we’ve discussed before, anti-trust regulation has been caught between two key impacts in recent decades: on competitors vs. consumers. While competitors have complained about Amazon’s market dominance, network pricing power, for example, consumers have no doubt benefited from lower prices such scale provides. Particularly during the pandemic, consumers have been reliant on these big tech/consumer firms more than ever, which raises political fears of their growing economic power.

A key market focus has moved to the potential second economic relief package from Congress. While the first act was known as CARES, this would carry the name HEALS. While the political bar was higher for this package than the first edition, both Republicans and Democrats have agreed in principle on the need for further government aid—again, on the order of another $1+ trillion. Congressional deals being made at the last minute are common, and part of the negotiation process, and can be made retroactive (rendering the Jul. 31 deadline for some benefits less critical). Overall, market concerns are focused on both the House and Senate departing for their August recess with no clear deal in place. A key sticking point is the $600 ‘extra’ weekly unemployment insurance payment, which some argue is too high and a disincentive for seeking work.

Foreign stocks generally lost ground in developed markets, while emerging market regions were mixed to slightly positive on net. Weaker earnings were a key catalyst for Europe, especially in key sectors autos and financials, along with rising Covid cases in some regions, which was the case in Japan as well. In emerging regions, gains in Asia, notably Taiwan and South Korea, outweighed weakness in commodity-sensitive Russia, as well as Turkey, where markets fell -10% due to concerns over levels of foreign exchange reserves used to sustain the domestic lira currency. The Covid pandemic has been negative for emerging market growth generally, especially outside of the faster-recovering Asian region, but remains country-by-country dependent, and some chinks in the armor have been exposed.

U.S. bonds gained last week as interest rates ticked lower across the curve, with the 10-year U.S. treasury note reaching close to a half-percent again, in keeping with the uncertain outlook and seeming Fed commitment to low rates for longer. Credit performed slightly better on the investment-grade side, and especially in high yield. Foreign bonds earned positive returns as the U.S. dollar declined again last week by nearly a percent. Again, this has some pundits calling for the ‘collapse of the dollar’, although this has been due to strength in the euro and British pound, since currency movements are always a two-way street.

Commodities were mixed last week, despite the bullish influence of a weaker dollar. Precious metals and industrial metals experienced positive weeks, while energy declined. The price of crude oil fell by over -2% to just over $40/barrel, with a deeper decline in natural gas. While inventories have fallen a bit, along with supply cuts, a tempered outlook over the rest of the year has kept demand expectations contained. In these situations, there is no overwhelming catalyst to move prices significantly in one direction or the other over the last two months.


Period ending 7/31/2020 1 Week (%) YTD (%)
DJIA -0.15 -6.14
S&P 500 1.75 2.38
Russell 2000 0.89 -10.57
MSCI-EAFE -2.12 -9.28
MSCI-EM 1.74 -3.21
BBgBarc U.S. Aggregate 0.30 7.72


U.S. Treasury Yields 3 Mo. 2 Yr. 5 Yr. 10 Yr. 30 Yr.
12/31/2019 1.55 1.58 1.69 1.92 2.39
7/24/2020 0.11 0.14 0.27 0.59 1.23
7/31/2020 0.09 0.11 0.21 0.55 1.20



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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