Economic Update 9-28-2020

• Economic data for the week included a rise in durable goods orders and strong housing results, while jobless claims remained elevated.
• Global equity markets lost ground globally by several percent, as economic concerns continued to fester in the wake of the pandemic. Bonds were mixed, with treasuries gaining a bit, while credit pulled back. Commodities lost ground across the board along with a stronger dollar and a less clear demand/supply picture.

U.S. stocks ended down last week following a poor -3% start Monday, with rising Covid cases, political intensity growing, and election polls tightening. In addition, Congressional testimony from Dr. Anthony Fauci was pessimistic, based a lack of preventive medical actions taken in the U.S., as was that of Fed Chair Powell, who expressed a need for additional fiscal stimulus to stem economic damage, including on housing through weakened mortgage and rental payments. On an intraday basis, anyway, the S&P reached -10% correction territory, which continued during the week despite a false start or two.

By sector, technology and utilities were the sole gainers last week; energy and materials were the laggards, with the former down over -8%. Financials also suffered upon reports of a variety of major global banks being been involved in money laundering, or at least facilitating the activity. Real estate also lost ground slightly, in keeping with the smaller cap market.

Some corrections can be more stealthy than dramatic, as they can occur quickly over the course of a few days, before many even notice. Market sentiment was seen as being focused more on the future (including a vaccine and higher hopes for additional fiscal stimulus from Congress) than the present, but the growing fears of a fiscal aid deal not materializing in 2020 has raised near-term concerns. Partisanship around a Supreme Court nominee, and possible implications over vote counts haven’t helped. The continued growth bounceback that was expected to carry over from Q3 to Q4 may be now pushed in to the first quarter of 2021. Of course, the outlying possibility has likely increased of certain segments of the economy (especially the service sector) being be in deeper long-term trouble.

Foreign stocks fell in keeping with movements away from risk globally. Japan fared slightly better, with less negative returns, and Europe a bit worse, along with a rise in new Covid infections there. In fact, several nations were considering another wave of lockdowns to contain the spread, which weighed on consumer and economic sentiment. The proposed restrictions in the previously-resistant U.K. were more extensive than expected, with leaders mentioning a new round potentially lasting months. In Japan, on the other hand, there seems to be some reassurance that new Prime Minister Suga will be continuing the accommodative policies of the Abe era, intended to stimulative the economy via a long-term multi-pronged approach.

U.S. bonds were mixed last week, with treasuries gaining slightly and corporates losing ground as spreads moved wider along with a negative week for risky assets. Foreign bonds similarly declined in both developed and emerging markets, largely the result of flows away from risk and a stronger U.S. dollar.

Commodities lost ground for the most part last week, with all key sectors down several percent each, in line with many risk assets globally, and a stronger dollar. The price of crude oil was down by -3% to remain just over $40/barrel, as demand expectations rise and a pickup in Libyan production provided a dual negative. The sole exception last week was a spike in the price of natural gas, which experienced both a pickup in demand as the colder season approaches, along with tighter-than-expected storage. Despite fairly regular demand patterns, natural gas is one of the more volatile commodity contracts, due to wide variations in storage and short-term expectations.

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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