Economic Update 8-10-2020

• Economic data for the week included strength in ISM manufacturing and non-manufacturing surveys, a better-than-expected employment situation report for July, and a slight improvement in jobless claims.
• Global equity markets inched higher last week with improved economic data and investor sentiment. Bonds were little changed, in keeping with minimal changes in the yield curve. Commodities gained with price increases for metals and natural gas.

U.S. stocks rose last week, with the S&P reaching within a percentage point of the mid-February prior market high. Since the trough on March 23, stocks are up nearly 50%, which many investors would have thought highly unlikely at that time. As with many recent weeks, sentiment appeared to be driven by a broad hopes for a Covid vaccine earlier than previously hoped, as well as economic and earnings data coming not quite as catastrophic as many feared. Every S&P sector was up for the week, led by cyclical industrials and financials, the former with hopes of additional aid to the airline industry. The usual defensive groups healthcare, utilities, and consumer staples were only up around a percent each.

Debate over stimulus details continued between the Senate (who sponsored the more recent $1 tril. HEALS plan) and Congress (sponsoring the original secondary $3 tril. HEROES plan from May), with no deal being reached. The larger plan features more aid to state/local governments as well as more generous worker benefits. Current consensus points to a stimulus plan falling somewhere in the middle, perhaps by late August or early September. In the meantime, the President issued executive orders, including an extra unemployment payment for a month, a payroll tax deferment through the end of 2020 for all but higher-income workers, a student loan payment deferral extension, and actions to reduce foreclosures/evictions for certain property/financing types. These were all designed to soften the blow between stimulus plans and may incent a lower overall plan size.

Foreign stocks fared similarly to U.S. equities during the week, with developed markets faring slightly better than emerging. European GDP fell by -12.1% (quoted as a non-annualized rate, the equivalent to annualized U.S. GDP would be -40%), which was a bit smaller than expected. Sentiment tied to both concerns over rising virus cases in certain European regions, prompting travel bans and possible additional lockdowns, as well as resumed U.S.-China trade tensions. Emerging markets were pulled down by weakness in Brazil and Turkey, while Chinese stocks gained upon stronger economic numbers as of late. This recovery sentiment has been occasionally detailed by trade tension escalations, especially the newest targets TikTok and WeChat—which have been accused of being U.S. national security concerns.

U.S. bonds were little changed on the week, with interest rates ticking slightly higher across the curve. Treasuries lost a bit of ground, while corporate credit gained a few basis points. Developed market government bonds were similarly flat, while emerging market dollar bonds gained over a percent, offset by roughly similar losses for emerging market local bonds.

Commodities gained slightly last week, as weakness in agriculture was offset by gains in metals and energy. Often one of the most volatile commodities, natural gas prices jumped 25% as expectations for a heat wave reversed earlier cooler weather (that brought by Hurricane ISAAIS) coupled with oversupply conditions. The price of crude oil rose by over 2% to shade over $41/barrel—remaining in an extended trading range. Gold, one of the winners thus far in 2020, continued to push higher upon recent weakness in the U.S. dollar, low real interest rates, and fears that the flood of global government stimulus could lead to eventual inflation.

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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