Market Recap
August, 3 2020
Last week delivered a mixed bag of financial and economic news.
As many expected, the U.S. economy did not fare well during the second quarter. COVID-19 lockdowns and business closings caused productivity to fall by one-third. Real gross domestic product, which is the value of all goods and services produced by our country, dropped 32.9 percent during the second quarter of 2020, reported the Bureau of Economic Analysis. During the first quarter of the year, productivity fell by 5 percent.
The Federal Reserve held its Federal Open Market Committee meeting last week. Fed Chair Jerome Powell committed to “…using our tools to do what we can, and for as long as it takes, to provide some relief and stability, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy.”
Powell also said, “Elected officials have the power to tax and spend and to make decisions about where we, as a society, should direct our collective resources. The fiscal policy actions that have been taken thus far have made a critical difference to families, businesses, and communities across the country. Even so, the current economic downturn is the most severe in our lifetimes.”
Our elected officials were unable to reach an agreement about how to support unemployed Americans whose jobs disappeared because of COVID-19. Enhanced unemployment benefits and a moratorium on evictions both expired at the end of last week. Congress met over the weekend and officials indicated they had made progress in negotiations, reported The Washington Post.
Earnings offered a glimmer of positive news for investors. Al Root of Barron’s reported, “…companies are crushing overly bearish estimates…More than 300 [Standard & Poor’s 500 Index] companies have reported second-quarter numbers so far. About 85 percent are beating Wall Street earnings estimates by an average of 22 percent.”
Overall, blended earnings for the Standard & Poor’s 500 Index (S&P 500) has declined 35.7 percent. If that is the actual change in earnings for the second quarter, it would be the biggest year-over-year decline since the fourth quarter of 2008 when earnings dropped 69.1 percent.
The S&P 500 and the Nasdaq Composites both gained last week. The Dow Jones Industrial Index finished the week lower.
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* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
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Sources:
https://www.bea.gov/sites/default/files/2020-07/gdp2q20_adv_0.pdf
https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20200729.pdf
https://www.washingtonpost.com/business/economy/white-house-officials-democratic-leaders-convene-rare-weekend-talks-as-unemployment-benefits-expire-for-millions/2020/08/01/9637d21a-d3f8-11ea-8c55-61e7fa5e82ab_story.html (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/08-03-20_TheWashingtonPost-Both_Sides_Say_Progress_Made_in_Talks_on_Pandemic_Relief-Footnote_3.pdf)
https://www.barrons.com/articles/dow-jones-industrial-average-drops-42-points-as-investors-stay-wary-51596245732 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/08-03-20_Barrons-Why_this_Rally_Still_has_Room_to_Run-Footnote_4.pdf)
https://www.barrons.com/market-data?mod=BOL_TOPNAV (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/08-03-20_Barrons-Market_Data-Footnote_6.pdf)
https://www.economist.com/news/2020/07/15/the-big-mac-index (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/08-03-20_TheEconomist-The_Big_Mac_Index-Footnote_7.pdf)
https://finance.yahoo.com/currency-converter/ (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/08-03-20_YahooFinance-Currency_Converter-Footnote_8.pdf)
