Market Review: Week Ending 8/14/2020
Stocks flirted with hitting pre-Covid all-time highs last week as the S&P 500 Index finished just shy at 3372 (+0.6%), recovering all of the 34% drop from February to March 23rd.1 Despite signs of exhaustion, stocks tied to a successful reopening outperformed last week (Energy, Industrials and Travel-related companies) while those that have done well through the crisis (Healthcare and stay-at-home Technology) trailed.1 News of a Russian vaccine (though its safety and efficacy profiles are still unknown) and hotter-than-expected PPI and CPI reports led to a large jump in bond yields, as the 10-year US Treasury bond yield moved from 0.55% to 0.71% to end the week.1 Emboldened by the Federal Reserve’s near $7T balance sheet (up 85% y/y),1 investors continue to embrace only the positive side of each report, the latest being the narrative on the virus itself. Rather than fretting over the fact that a record number deaths (1500) occurred in one day this past week and that for the first time since the outbreak the number of daily tests have declined, investors have embraced the recent decline of new cases reported daily as a sign that the economy can safely reopen. Perhaps that is true, but the cancelation of NCAA football this fall by two power conferences and the ongoing challenges with the back-to-school season is a stark reminder that Americans are unlikely to experience “normal” for some time. Similarly, the impasse in Congress over the extension of additional Covid-relief funds led a recess where negotiations won’t even occur until September, seems to be ignored by investors despite talk of the impact of what this “fiscal cliff” could mean for consumer confidence and spending. Finally, July’s Retail Sales report was another example of investors viewing data through rose-colored lenses. July’s 1.2% m/m gain missed expectations of +2.3% and marked a clear deceleration in momentum from the prior two months.1 But stripping away the impact of auto sales, the comparison was more favorable from the prior month and investors seemed satisfied with the report which reflected the third consecutive monthly gains which brought the level spending back to pre-Covid levels. Additional insights on the consumer will come this week with the Q2 earnings reports from Home Depot, Target, TJX and most retailers. Through the close Friday, year to date results for the major indices are as follows: S&P 500 5.7%, Russell 2000 -4.6%, MSCI EAFE –5.2% and Bloomberg Barclays Aggregate Bond 6.9%.2
Want to know what we're watching in the week ahead? Check out the FULL REPORT in attachment section below.
Chad Roope, CFA®
Paul Danes, CFA®
1-Morningstar Direct 8/17/20