Todd’s Take on the Market
Markets pushed higher last week despite challenges from a confluence of factors: rising COVID-19 cases, the timing of the European Union’s recovery funding and weaker consumer data out of China. The NASDAQ index was the laagered, dropping 1.08%—still it was up 17.67% YTD after Friday’s close and tacked on another 2.51% on Monday.
These setbacks to global risks were more than offset by optimism surrounding vaccine testing which signaled improved clinical trial outcomes.
We got earnings seasoning starting last week for Q2 and we got a positive note from the banks, though the hurdle for outperformance remained low.
The market, particularly tech stocks (think NASDAQ), is/are rallying on both good news and bad news, that tells us it’s all about momentum and not about the facts.
On the fixed-income side, the surging of the COVID-19 spread in the U.S. continued to threaten both the economic reopening and recovery, leading investors to turn to safe-haven assets over the week. The 10-year Treasury yield, however, held flat in the 0.63%-0.64% range, largely overlooking a strong retail sales print and declining initial jobless claims—both of which are still “not great”.
On the economic front, the Philly FED Survey posted a gain for July, although it was slightly lower than June. Small business confidence rose due to the rebounding of consumer activity, but it is still below pre-COVID levels. CPI rose 0.2% in June, ending three months of contraction. Food costs are contributing most of those gains, which any of you going to the grocery store already knows.
Looking ahead, in addition to coronavirus developments, Wall Street watches a crush of earnings this week. Coca-Cola reports today. Microsoft, Tesla and Chipotle are out Wednesday. Thursday brings AT&T, Travelers and Intel. American Express and Verizon release quarterly results Friday. It appears that analyst’s expectations were set pretty low, so I wouldn’t be surprised to see some of those estimates get ratcheted up.
We’ll also be watching to see if the rally in tech stocks can continue, as those are the least impacted by COVID concerns.
From mid-April through early July, markets were reacting to the tick-by-tick in real-time economic data. We could be entering a 3-4-month window where the economic data is largely ignored and stocks and bonds are priced based on evolving vaccines and of course, politics.
So, stay tuned and we’ll keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
