Market Review: Week Ending 7/24/2020
Nasdaq stocks fell for the 2nd consecutive week (-1.3%) as less-than-stellar Q2 results from Tech bellwethers Microsoft and Intel led to a small pullback (-0.3%) in the S&P 500 Index to 3215.1 There is now enough awareness and focus on the heavy concentration and high valuations of the 5 stocks that make up 22% of the S&P 500 index that any disappointment is likely to be met with selling pressure.1 That was the case this week with Microsoft where their Cloud Computing segment’s growth fell below 50% for the first time in recent quarters,1 sending the stock lower despite strong earnings. Surging Covid-19 cases are blamed for a rise in weekly unemployment claims, which rose to 1.42m, the first increase in weekly claims in four months and, along with mounting tensions between China and US, led to the first pullback in the S&P 500 Index in 4 weeks.1 Finally, uncertainty over the continuation (and timing) of the soon-to expire Federal unemployment benefits and a potential “income cliff” that would result from nonaction also led to the modest selling, where 8 of 11 Index sectors fell.1 Despite a strong housing sector (Existing Home Sales surged 20.7% in June and Home prices rose another 3.5% to a median price of $295k1), the economic outlook in the US is being questioned given the rising number of virus cases now totaling over 4m (only 2 weeks after hitting 3m), whereas in Europe, the outlook seems to be improving as the composite PMI for the EU rose to 54.8 in July, up from 48.5 the prior month.1 This occurred in conjunction with the EU1.8T extension in fiscal stimulus in Europe.1 Through the close Friday, year to date results for the major indices are as follows: S&P 500 0.6%, Russell 2000 -11.4%, MSCI EAFE –7.3% and Bloomberg Barclays Aggregate Bond 7.4%.2
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Chad Roope, CFA®
Paul Danes, CFA®
1-Morningstar Direct 7/26/20