Todd’s Take on the Market
Although U.S. fiscal stimulus negotiations soured last week, equities continued their trajectory upward, with the Dow up 3.88%, the S&P 500 rose 2.49%, the tech-heavy NASDAQ went up 2.51%, but the big winner was the small caps—the Russell 200 rose 6.03%.
Stronger-than-expected Q2 earnings continued technology sector momentum, vaccine hopes, lower jobless claims and a better-than-expected July jobs report helped the major averages.
The Nasdaq is coming off its first drop in seven sessions, the S&P 500 is coming to the forefront with weekly gains in five of the past six weeks and a six-day win streak. It is also now within 1% of its February record closing high.
It’s a new week—earnings are mostly done and so it’s back to the macro data as the end of August approaches along with more talk of vaccines, therapies and new infection rates. Most of Europe is on vacation (although not that they’re going anywhere) and Americans too will begin the annual rite of end of summer vacations…again, where are we even going?
Government bond markets were relatively calm last week, with only slight yield increases across most major developed markets. Yields remained historically low, with no expectations for a rise in rates and longer-term easing policies forecasted to continue. The U.S. 10-year Treasury yield rose to 0.56% after better-than-expected monthly labor market data.
The U.S. economy added 1.8 million jobs in July and the unemployment rate declined to 10.2%. Both measures were better than economists expected, though still represented slower improvements than in June when nonfarm payrolls increased by 4.8 million. Renewed virus concerns may have hampered job growth for most of July, but a downturn in weekly jobless claims to 1.2 million for the week ending August 1 suggests the recovery may be getting back on track. But, the lapse in extended unemployment benefits will significantly impact the economy, as more employers announce they are cutting jobs permanently.
July’s U.S. ISM manufacturing index was stronger than expected, rising to 54.2 from 52.6 in June. The production, new orders and employment components all improved. The non-manufacturing index also rose.
With earnings season drawing to a close, as I said, we will look to the macro data, stimulus relief and virus outbreaks to see what the market wants to do. Macro data hasn’t hampered the markets, stimulus relief hasn’t slowed things down and neither has virus outbreaks. I like to see the markets going up like this, but at some point—with all of the major indices on overbought or extremely overbought situations right now, how much more could they add? Stay tuned and we’ll keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
