Weekly Economic Update

Economic Update 9-21-2020

  • Economic data for the week included the Federal Reserve keeping monetary policy unchanged, but with more dovish forward guidance. Retail sales and industrial production expanded, but at a slower pace than expected, as did the index of leading economic indicators. Housing results were mixed, although general consumer sentiment improved.
  • Global equity markets were mixed last week, with U.S. equities ending lower, while foreign stocks gained. Bonds were also mixed following the Fed meeting as underlying interest rates changed little. Commodities gained due to a sharp weekly increase in oil prices following tighter supplies, while natural gas experienced the opposite set of conditions.

U.S. stocks began the week higher, including prior to the Federal Reserve meeting, but took a turn downward. Despite the extremely dovish tone (and high bar for inflation and unemployment to reach before rates would be normalized higher), stocks reversed lower as markets started to have second thoughts after Powell’s comments about needs for additional fiscal stimulus (which only Congress can provide). There also seemed to be concern over the Fed’s lack of success in generating its inflation goals so far, necessitating a unique adjustment in policy. Again, it’s the classic sigh of relief turned to worry: ‘Great, the Fed has our back’…to ‘Uh oh, are things really still this bad?’

By sector, energy, industrials, and materials led the way last week, up at least a percent each; communications, consumer stocks, and technology all declined at least a percent. Reports of Federal Trade Commission anti-trust discussions about Facebook brought down sentiment in communications/tech. Real estate ticked slightly higher, and small cap stocks rallied, despite the negative market trend by mid-week. Some of the weakness in tech and other ‘growth’ areas recently could be due to the likely downward impact of earnings in these sectors if the Biden tax plan is implemented (which the market appears to be discounting), not to mention any increase in the capital gains rate to the threatened level of ordinary income.

Foreign stocks were flattish overall last week in local terms, but turned slightly positive with help from a weaker U.S. dollar last week. Sentiment for recovery remained decent, despite reports of rising Covid infection rates in several countries—leading to government discussions about another round of autumn lockdowns. The lack of progress between the U.K. and European Union on Brexit has again raised concerns over the potential headwinds this could bring to economic recovery. Emerging markets outperformed developed, led by a rally in Chinese equities, due to continued stronger economic momentum compared to the rest of the world.

U.S. bonds declined slightly as interest rates ticked up across the curve, potentially related to Fed actions to not pursue additional purchases of long-term treasuries. That maturity of treasuries saw the strongest drop, in keeping with duration effects, as did high yield. On the other hand, investment-grade corporates and floating rate bank loans saw positive returns. Foreign debt was mixed, but helped by a weaker dollar—developed market government bonds and local EM debt gained, while USD-denominated EM bonds declined. While straddling the fence for some time, the Bank of England hinted again at potentially taking interest rates negative.

Commodities earned positive returns last week, with strength in energy and agriculture outweighing flattish returns elsewhere. The price of crude oil rallied by 11% to over $41/barrel, with supply shortages and promises of continued limited production due to Gulf hurricane activity and planned reductions from the OPEC+ group; this offset an oversupply in natural gas markets that caused prices to decline by -10%.


Period ending 9/18/2020 1 Week (%) YTD (%)
DJIA -0.01 -1.35
S&P 500 -0.60 4.17
Russell 2000 2.68 -6.98
MSCI-EAFE 0.79 -4.46
MSCI-EM 1.53 -0.55
BBgBarc U.S. Aggregate -0.09 6.93


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
9/11/2020 0.11 0.13 0.26 0.67 1.42
9/18/2020 0.10 0.14 0.29 0.70 1.45



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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